Ever since the birth of bitcoins in 2011 by an anonymous Japanese man who created them and vanished into thin air, the popularity has seen an upward curve with more and more people embracing the crypto culture. Once you purchase bitcoin with abra, your next move plays an essential role in keeping it safe. For instance, if you are planning to spend it right away, then you can do so directly without the need for any wallet, but if you are planning to keep it, then you’ll need a crypto wallet to secure your bitcoin investment. For a newbie, such terms might sound like a lot of crypto jargon which is why we want to ensure you get a smooth transition into this profitable world by explaining the A to Z of crypto wallets below.
What are crypto wallets?
To understand what crypto wallets are, you must first get the concept of cryptocurrencies. What are they? Simply put, cryptocurrencies such as bitcoins are equivalent to cash. That explains why it is possible for one to buy, sell or conduct any other transactions with them. The only difference between them and fiat currencies is that they are in a digital or virtual form and that they make transactions more convenient as one can do all the above without the involvement of any third parties.
In respect to that, a crypto wallet is analogous to the physical wallet and is where you as the bitcoin owner will store your bitcoin. It is through this software that you can store public and private keys and interact with other bitcoin users through the blockchain. To sum it up, bitcoins are virtual. In other words, they lack a physical form, and neither do they exist. Therefore, don’t expect coins or notes in your crypto wallet because all that will meet you is a lot of information related to them such as your coin balance, transaction history (on the blockchain) and a private key which is stored here to keep it safe from hackers. Some wallets come with extra features. For instance, some allow you to check exchange rates between crypto and fiat currencies.
How do they work?
As mentioned above, crypto wallets store your public and private key. When a person sends bitcoins to you, they will use the public key as it is the wallet’s address. For you to access or unlock the amount of crypto, they send you, the public and the private key stored in your wallet should match. If they do, your bitcoin balance increases while theirs decreases and vice versa. The information or the history of the transaction then adds or records itself on a blockchain as proof that he/she sent you a certain amount of bitcoins where both of you can see it, but no one can alter it. Hence making transactions more secure and eliminating chances of fraud.
Types of wallets
Hot and cold wallets
Crypto wallets are categorized as hot and cold depending on their connectivity to the internet.
Hot wallets refer to those that are continuously connected to the internet with the private keys always ready to use. They are more like web wallets and are available on a desktop, phone, laptop or even tablet. They make transactions easy because one can quickly send and receive bitcoins. However, as you know as long as something is on the internet, it is never safe and as such, hot wallets are more vulnerable to hacking. Thus they are convenient for storage of small amounts of cryptocurrencies.
On the other hand, cold wallets are the complete opposite of the hot ones. They are not connected to the web, and the private key is also offline. They are also known as offline wallets and are much safer for large amounts of crypto because it is incredibly difficult for hackers to access the private key. Examples include hardware such as USB and hard disks or paper wallets. Under hot and cold wallets come the following
– Multisig wallets
Multisig commonly as multisignature refers to a wallet which requires more than one private key to complete or authorize a bitcoin transaction. In other words, for a trade to be complete, multiple parties must have input and is much safer. A mutisig wallet is more like a joint bank account where for one party to withdraw or deposit, they need to consult with the other party first only that it is virtual.
Just as the name suggests, this kind of wallet allows you to store more than one type of crypto. It is possible for you to store bitcoins, Ethereum, ripple or any other type of crypto that you’d like.
Crypto wallets can be referred to as the lifeline of all cryptocurrencies. Without them, crypto like bitcoins would be another excellent idea gone down the drain. They facilitate everything from the transfer of bitcoin from one user to another and enable users to check their balances while at the same time they store the private key which is the mother of all transactions. They also store blockchain records and as such can be compared to a real bank account. Thus, it is incredibly essential that you choose the best and safest crypto wallet and with the above knowledge it will be less hectic for you to distinguish and select the safest one.