There were 300,000 cryptocurrency wallets in the world as reported by Statistica in the first quarter of 2015. Now the number has risen to approximately 30 million, a 900% increase in total.
While the number of crypto wallet holders and cryptocurrency users continue to grow, people still confuse crypto wallet as an online wallet which stores money, which is not true.
In this detailed guide, we cover the basics of crypto wallets and tell you about various types of crypto wallets available in the market.
A crypto wallet is a software that stores the public and private key, used to sign off transactions on the Blockchain.
Unlike pocket wallets, crypto wallets don’t store any currency, in fact, there is no currency stored anywhere, they are simply records of transactions.
The public key can be understood as the address to which senders can transfer the ownership of coins.
Private key similarly is utilized by the users to send their funds.
However, as we have mentioned before there is no physical transfer of funds, it is simply a transaction that is recorded in a decentralized ledger, along with the balance difference in sender and recipient’s account.
Crypto wallets act as an interface to the blockchain and function primarily based on the public and private key.
When someone transfers cryptocurrencies to you, they are essentially giving your public wallet address the ownership of the given number of tokens.
If the private key stored in your wallet matches the public key to which the sender has allocated the tokens, the balance in your ledger would increase and correspondingly decrease in senders account.
There would be no actual transfer of funds, only the transactions and the balance after settlement would be recorded.
With the growing technology, there are many types of crypto wallets designed and available for you to store your private and public key. These can be classified into three major categories:
As the name suggests, a desktop wallet is a crypto wallet which is downloaded and stored on your desktop, meaning, the private and public keys are stored on your hard drive. It is one of the safest solutions for storing your cryptocurrencies given a hacker will need physical or remote access of your desktop to steal the keys.
However, a desktop wallet needs to be secured against viruses, keyloggers and external damages, given this may cause you to lose your keys forever, which in turn will cost your cryptocurrencies.
Online wallets store your account’s private and public key in the cloud storage on a third-party server. This allows you to access and transfer funds from any location across the globe, thereby offering your greater flexibility than desktop versions.
However, online wallets are more susceptible to attacks from a hacker as they are present on servers that you can’t control.
Similar to desktop wallets, mobile wallets are the applications designed for your mobile in which you store your public and private keys. These wallets offer easy accessibility, alongside improved security given your mobile device doesn’t fall into the hands of hackers.
One of the safest types of crypto wallets is a hardware wallet, which stores your private key on an external hardware device like USB.
To make payment or transfer funds from hardware wallets, you are required to plug in this device, enter the security PIN and then you can process transactions.
These devices offer easy accessibility along with added security given you crypto funds are stored in an offline environment.
A paper wallet is simply the QR code of your keys printed on a piece of paper.
To receive funds to your paper wallet, you can share the public key with the sender or simply scan the QR code.
Similarly, to transfer funds, you can either manually enter the private key or scan the code and carry out the transaction.
Cryptocurrency wallets differ a great deal from traditional wallets, and the ownership of a crypto wallet is an easy thing to achieve. However one needs to protect and ensure the security of their crypto wallet because once the keys are lost or hacked into, it becomes impossible for the user to reverse the transaction or access their owned balance.