Among the most crucial steps of investing in Crypto is setting up your crypto wallet. It is therefore very important to understand what a crypto wallet is and why it is important. In the following article, we are going to cover the ins and outs of crypto wallets. Hopefully, by the end of it, you will have a much better understanding of this concept.
Disclaimer: The remarks that follow do not constitute investment advice for any other financial goods, services, or digital assets. They are meant to offer general knowledge. Also, you can find the latest crypto news using the Algory crypto news aggregator.
What is a crypto wallet?
Simply put, a Crypto wallet is a piece of software that enables secure storage and access to your crypto assets. You are required to prove that you are the owner of a given crypto account or address before you can gain access to the stored assets.
Apart from storing your crypto securely, you can also use a crypto wallet to authorize crypto payments to employees or merchants. Each crypto account is unique and therefore a wallet can also be used to manage and verify your online identities.
How do crypto wallets work?
Crypto wallets store the digital credentials that you need to access your crypto wallets. It is essentially your machine-readable proof that you own your digital wallets. It simply constitutes a public key and a private key.
If you have never come across the terms public and private keys, do not be alarmed. They are simply long alphanumeric strings of characters; they are the cryptographic basis that Bitcoin, Ethereum, and other Blockchains run on.
- Public key – it corresponds to your wallet’s address. Anyone intending to send you funds will need this address.
- Private key – This one is top secret; it is similar to your password and without it, you cannot access your funds. Never share your private key as it will automatically compromise your account.
Whenever you create a Blockchain wallet, you are provided with both these keys.
Characteristics of a crypto wallet
Now that you have defined what a crypto wallet is and how it operates, the next step is to outline its common characteristics. Here are a few things to expect from crypto wallets:
- They are easy to use – Being that they are software-based, you can use them for your day-to-day transactions with a lot of ease and convenience.
- They are highly secure – crypto wallets are impossible to access without their specific private key.
- They allow for borderless transactions – Crypto wallets allow instant transactions across geographies. Additionally, they are barrier-free, without intermediaries
- Low transaction fees – The cost of transferring funds is much lower than with traditional banks
- They allow transactions across multiple cryptocurrencies – this helps you to do easy currency conversions.
- They allow you to store multiple cryptocurrencies – Most crypto wallets will hold more than one cryptocurrency which will allow you to access all of your assets from a common platform.
Merits and Demerits of crypto wallets
- You are in charge of your money – As long as you hold your private keys, then you have full ownership of your money.
- Quick and easy access – Unlike banks, you are at liberty to send and lend your money to anyone and at any time without having to answer to anyone.
- Censorship-resistant transactions – No one controls the network hence it’s impossible for other uninvolved parties to control the transaction.
- Your safety is entirely on you – you assume 100% liability for anything that goes wrong.
- Prone to mistakes – Being that you will be learning a lot of new concepts, there is a fairly high chance that you will make plenty of mistakes along the wa
- There is a learning curve- Users are required to have a basic level of computer knowledge in addition to familiarizing themselves with new kinds of financial ecosystems.
What are the available types of crypto wallets?
Although there are many available crypto wallets in the market today, they are largely divided into two groups namely hot wallets and cold wallets.
- Hot wallets – these are online wallets that are stored on an internet-connected device such as a smartphone, desktop, or laptop. Although they are simple and convenient to use, they are also highly susceptible to malware and theft. As such, they are not convenient for storing large investments. The two types of Hot wallets are as follows:
- Desktop wallets
- Mobile wallets
- Cold wallets – Unlike hot wallets, these are not connected to the internet. It is impossible to conduct a transaction on a cold wallet unless you are connected to a device that has an internet connection. Cold wallets are generally a lot safer than hot wallets. There are also two types of cold wallets are they are
- Hardware wallets
- Paper backup
What makes for a good crypto wallet?
- It should be noncustodial – Unless you are a trader, you should consider a non-custodial wallet. This is because it gives you sole access to your private keys. If a wallet forces you to hand over control of your private key, then the hosting service technically owns the cryptocurrencies stored in it.
- Security – You cannot afford to compromise on the level of security offered by the wallet. Are you assured of the safety of your crypto assets? It is best to use wallets that utilize a 2-factor Authentication for maximum security.
- Portability – You should be able to access your wallet from anywhere, this is particularly crucial for high-volume trading that requires quick access to your cryptocurrencies.
- User-friendly interface – It is best to go for stable software with an intuitive layout. You should be able to easily see the cryptocurrencies in your wallet as well as quickly send and receive them.
- Multi-currency support – a good crypto wallet allows you to manage all of your crypto assets from a single platform. Therefore, ensure that your wallet of choice supports all of your crypto assets. This will help you avoid the hustle of handling multiple wallets.
- The reputation of the wallet provider – is yet another central consideration when selecting a crypto wallet. Pick a provider with an excellent track record and a large user base.
What are some great ways to secure your crypto wallet?
When using a crypto wallet, it is good to always remember that your safety is your responsibility. There are a few best practices for securing your cryptocurrency wallets and they include the following:
- Take Backup – store a major share of your cryptocurrency in a high-security environment such as cold storage. Utilize hot wallets for small amounts of your assets and ensure to backup them up with offline storage options hence making it possible to recover lost wallets.
- Software Updates and Security Layers – You can avoid cyber-attacks with software updates or security enhancements. Adding more security layers through features like two-factor authentication can also go a long way to ensure the security of your assets.
- The wallet should be locked with a strong password
- Store large amounts in cold wallets
- Ensure that the device you are using is protected from viruses
Conclusion There is more to learn about crypto wallets, however, the information above will provide you with a great foundation as you embark on this exciting journey. Also, ensure to familiarize yourself with other crypto resources and educative material such as the Algory Blog.