The technology of blockchain is seen to be taking over in various industry verticals, this growth is also attracting more businesses and investments towards this emerging technology. In one of our previous articles, we discussed on the topic ‘How to become a blockchain developer‘ while sharing an informative tutorial on the same.
If you are a blockchain enthusiast or someone who is looking forward to learning more about the concept of cryptocurrencies then this article is for you. Keep on reading this short and simple guide on cryptocurrency wallets.
What is a Cryptocurrency Wallet?
Let’s start with the basics of the digital wallet. The digital wallets are also known as the e-wallets that can be defined as a virtual storage for the user’s payment as well as identification data regarding different types of payment systems. These digital wallets allow users to streamline all their purchases, which can further be linked to their mobile payment system.
And when it comes to cryptocurrency wallets, they can be described as a software program that stores information of private as well as public keys for users and further interacts with the blockchain. This enables users to receive and send their digital currency i.e. cryptocurrencies and monitor their account transactions.
In simple words, if you want to use cryptocurrency like Bitcoin, then you need to have a cryptocurrency wallet app to utilize the digital currency.
Working of a Cryptocurrency Wallet
Today, more and more people are involving themselves in the scene of cryptocurrencies and learning about their functioning. With the constantly growing options, it is important to know the working behind the concept to avoid any misunderstanding that may lead to a loss.
These digital/cryptocurrency wallets do not store the currency like the traditional pocket wallets instead it can be said that the digital currencies are not stored in any particular location (i.e. any physical form). Their existence can be seen in the form of transaction records that are stored on the blockchain itself.
For consideration purpose, let’s take an example of bitcoins. When a user sends another user some bitcoins, the sender is basically signing off the ownership of those bitcoins to the receiver’s wallet address. In order to unlock the transferred funds and spend the received bitcoins, the private key stored in the receiver’s wallet should match with the public address of the currency that is assigned.
When the public and private keys match the only the total balance of the receiver’s cryptocurrency wallet app will be added and the sender’s crypto wallet app balance will be subtracted simultaneously. At this point, there is no actual exchange of real currency taking place.
Such transactions are mainly signified by the record of the transaction on the blockchain and the change that takes place in the balance of the cryptocurrency wallet. There’s no denying the fact that Bitcoin is a complex system that needs high-level of understanding to decode its complexity.
Main Types of Cryptocurrency Wallet
The cryptocoin wallets do not fall into the same category as regular digital wallets, and the process of choosing the right wallet can be a little tricky. So we are here to resolve this query by discussing about some of the different types of cryptocurrency wallets that you need to know about.
Below are the main types of cryptocurrencies that will be best suitable to handle various types of cryptocurrencies like Ethereum, Bitcoin and Ripple:
The mobile wallet is a software type of cryptocurrency wallet that can be accessed as mobile applications via your smartphones. These types of crypto e-wallets can come in very handy as they are now included as a means of payment in various physical stores. To use the crypto wallet app, users need to first download it onto their mobile device and create an account.
In comparison to the cloud current wallets, mobile crypto wallets are more secure as the risks associated with these wallets are very low, for example, if there is a security breach or your smartphone breaks down.
This type of multi cryptocurrency wallets are software-based and run on a cloud. Therefore, an online cryptocurrency wallet can be accessed from multiple devices that support a decent Internet connection. Just like any other cloud service, these online wallets are practical and convenient at the same time.
But on the other hand, they are also more vulnerable when it comes to theft and this is the reason why they often require extra layers of security to provide an extra layer of protection to the user data.
Another famous type of multi cryptocurrency wallet is a desktop wallet type that also falls under the category of software e-wallets. Unlike the online cryptocurrency wallet, desktop wallets are a much safer choice. The users can go ahead and install desktop type cryptocurrency wallets on their desktop or PC systems.
Apart from this, end-users can also access desktop wallets from their laptops with can be downloaded from the installation device. And in case your desktop system is affected by a virus, then the chance of losing all your crypto funds is very low.
The above image shows a basic flowchart on how different types of cryptocurrency wallets are distributed. Out of the above-mentioned kinds, we will only be discussing about the five primary types of cryptocoin wallets.
As the name suggests, the hardware wallets are hardware-based that usually store the private keys of the users in a physical/hardware device, for example, a USB drive. The online transactions can be performed with ease, and for the majority of the time, transactions are offline, which acts as one of its major plus points.
Nowadays, there are several manufacturers that make hardware wallets which are compatible with a large number of different web interfaces. This is the reason why the entire set of characteristics depend on wallets integration. In short, the hardware wallet is an expensive but secure option for the cryptocurrency type of wallet.
The paper wallets can neither be categorized as software or hardware based, but keeping that aside this type of wallet for cryptocurrency is a safe option to store users’ digital assets in the form of cryptocurrencies.
In a paper wallet, a physical copy of the user’s public and private keys is generated which can also be referred to as a printed sheet or paper or hard copy document. Here, users can transfer cryptocurrency funds into a person’s wallet through its public address that includes both sending as well as receiving of cryptocurrencies by directly scanning the QR code available in a paper wallet.
What About Cryptocurrency Security?
When it comes to the security aspect of digital wallets, the range can be varied with respect to the type of the crypto e-wallet and also on the service provider that you picked to go with your cryptocurrency wallet. When compared, we can say that a web server is more prone to security-related risks than an offline mode of transfer.
The above image showcases the report recently released by Crypto Exchange Ranks, here the statistics of different segments related to cryptocurrencies and their usage are provided.
While these online wallets can contribute to exposing end-users to many vulnerabilities in online wallet platforms, for instance, there is also a risk of falling a prey to a cyber attack conducted by hackers. Whereas, the offline wallets cannot be hacked if they are not connected with an active online network thus saving your funds from theft
This also eliminates any additional need of involving the third-party system for providing an extra layer of security.
How to Make Your Wallet Secure?
But in case you are someone who is using a free cryptocurrency wallet that is based online, then there are some precautions that can be taken in order to secure your Bitcoin or Ripple funds. Below is the list of some measures that users of online wallets can take:
- Keep your software up-to-date: If you want your cryptocurrency wallet to work at its best, make sure that you are keeping its software updated as per the latest version that is available in the market. This is because with constant updation you will have the latest security enhancements at your disposal.
- Backing up your funds: Having a backup is one of the most basic things you can do to prevent yourself from losing all your personal valuable information. Just start by storing small portions of your cryptocurrency that you tend to use online on a daily basis, this can be done on your desktop or mobile device. You can even go with offline storage options like Ledger Nano or USB Drive, etc..
- Including additional security layers: An effective and efficient way to make your cryptocurrencies secure is by adding extra layers of security on it, thinking of it as more security layers makes it harder to exploit your online funds. This can be done by finalizing difficult and long passcodes, another way to do so is adding the option to two-factor authentication, which is also explained in the image below.
A point to remember here is that if a user loses their private key then this could eventually lead to the loss of your cryptocurrency as well. In addition to this, if your cryptocurrency wallet gets hacked by a scam online attack and funds have been transferred, then there is no way to reverse the transactions that have already taken place.
Which is the Best Cryptocurrency Wallet?
When it comes to finding the very best option available in the market, there is not a single cryptocurrency wallet that can fulfill all the criteria. This also means that a particular online wallet cannot be suitable for every individual with different requirements from their cryptocurrency wallets.
Our expert advice would be to not look for a digital wallet with the ‘One size fits all’ approach because it doesn’t. To make this point more appealing, here are some of the questions that need to be answered before finalizing the cryptocurrency wallet:
- Which cryptocurrencies do you want to trade?
- How diversified is your portfolio with cryptocurrencies?
- Are you looking for a short-term or a long-term trade?
- What are all the costs associated with wallets?
- What is the level of accessibility in crypto wallets?
- What level of latency is required for your business?
- Is the wallet UI highly intuitive and user-friendly?
Popular Cryptocurrency Wallet Options
These are some of the well-known and popular multi cryptocurrency wallets that are great options if you are looking for some e-wallets that are secure as well as reliable:
Single Currency Wallets
The single currency wallets are an efficient option when the user is dealing with just one cryptocurrency, for example, Bitcoin, Dash, Ethereum etc.
- Dash: Dash Core
- NEO: Neon Wallet
- Bitcoin: Bitcoin Core Wallet
- Litecoin: Litecoin-QT
- Ethereum: Ethereum Wallet
Multi Cryptocurrency Wallets
These are the cryptocurrency wallets that hold the capability to hold and efficiently manage multiple cryptocurrencies in a particular instance of time.
- Coinomi: This wallet supports more than 60 different cryptocurrencies and this has also made this digital wallet one of the best options in the market for cryptocurrencies. However, it is currently available for just the Android platform.
- Exodus: It is basically a desktop wallet that allows users to store various cryptocurrencies, which include Litecoin, OmiseGo, Ethereum, Bitcoin, Aragorn, Qtum etc..
- Jaxx Wallet: This is one of those online crypto wallets that offers support for both desktops as well as mobile platforms. Usually, users utilize it to store cryptocurrencies like Bitcoin Cash, Ethereum Classic, Zcash, Dash, Bitcoin and many more.
In comparison to the software online wallets, the hardware wallets are much more expensive, but on the other hand, they offer the comfort of security to their users.
- Digital Bitbox: It supports Bitcoin, Ethereum, Ethereum Classic and many other ERC-20 tokens.
- KeepKey: This wallet supports Bitcoin, Ethereum and a majority of other altcoins.
- Ledger Blue: It mainly supports altercoins like Bitcoin, Ethereum etc..
- Trezor: This hardware wallet supports Litecoin, DASH, Zcash, Bitcoin Cash, Ethereum, Ethereum Classic and many other ERC-20 Tokens.
As mentioned above, cloud wallets can be referred to as a risky choice in comparing them with the other types of cryptocurrency wallets. The digital currency that is used for transactions is not completed secured by service providers and if hacked the data compromised cannot be recovered.
So this was our take on the topic of cryptocurrency wallets, and with this quick guide, we have explained the concept behind the digital wallets, the working of a cryptocurrency wallet and the cryptocurrency wallet security standards along with the secure and reliable online cryptocurrency wallet options.
As per our expertise, we think that investing in cryptocurrencies can be very beneficial in the long run. And in case you are interested in knowing more about cryptocurrencies and other blockchain applications, then stay tuned with Appdexa. You can also read some of our other well-researched articles on the app development industry.