What is a Cryptocurrency Wallet?

Despite the fact that the digital asset market is still a mystery for many with its myriad of specific details, it includes some quite understandable terms for each of us. One of these is the cryptocurrency wallet.

Definition of a Cryptocurrency Wallet

A cryptocurrency wallet is an online program that allows the owner of virtual money to store, receive, and send it through blockchain networks. In more familiar terms for the layman, a cryptocurrency wallet is something akin to a bank account, used for interacting with digital assets and does not require intermediaries.

It is important to understand that a cryptocurrency wallet is not an exact virtual copy of the usual wallet for storing fiat money. In a digital currency wallet, encrypted password-keys are stored, which grant access to the owner’s assets. Cryptographic keys can be public (open) or private (closed).

The difference between them is that public keys recognize an account in the network. They can be safely shared with other users for receiving virtual assets into your account. Meanwhile, private keys provide the wallet owner with access and control over the cryptocurrencies in the blockchain. This means that, for security reasons, you should never reveal your private key to anyone.

Private keys provide the wallet owner with access and control over the cryptocurrencies in the blockchain. This means that, for security reasons, you should never disclose your private key to anyone.

Types of Cryptocurrency Wallets

There are two types of crypto wallets: hot and cold.

Hot wallets are online cryptocurrency storages with constant internet and blockchain connection. They are quite easy to use. All that is required from a user for an instant transaction is to log into their account and perform the operation. This is why many use such online wallets for quick bill payments and shopping. They are easy to set up and provide quick access to the balance.

However, this ease of use has a downside: these online storages are extremely easy for hackers to breach. Therefore, it is advisable to store only a small volume of digital assets in hot wallets, necessary for daily needs.

Cold wallets are cryptocurrency wallets that store private keys offline, outside the internet. They use a physical medium in autonomous mode, making them more resistant to hacking. However, it is important to understand that a cold wallet also cannot guarantee complete security to its owner: it can be stolen, damaged, or deteriorate.

Moreover, users of such storage should not expect instant transactions. They are more suitable for those who plan to store virtual coins for a long period.

Despite all the nuances mentioned above, cold wallets are currently used by the largest cryptocurrency exchanges and investors with large volumes of assets.