Wallets

Cryptocurrency Wallet Types For Beginners

By September 6, 2017 No Comments

What is a Cryptocurrency Wallet?

A cryptocurrency Wallet is a software program that stores private and public keys and interacts with databases of transactions called blockchains to enable users to send and receive digital currency and keep track of their balance.
So you’re not really storing bitcoins or other currencies in your wallet but rather your private and public keys.  These are strings of numbers and letters which allow you to prove that you, and only you, are the legitimate owner of the digital currency in your wallet.
 
 
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Your wallet stores your private and public keys, which are really nothing more than strings of numbers and letters

bitcoin-cryptocurrency-wallet

Your wallet doesn’t actually store bitcoins or other digital currencies

 

 

Why do I need a Crypto Wallet?

 
 
Exchanges are where you trade bitcoins or alt-coins for other crypto- or fiat currencies like Dollars and Euros, but it’s not recommended to keep your bitcoin or alt-coins on the exchanges themselves.  You should only keep them there while you’re actively trading them on that exchange.  In order to have full control of your digital currency you want to store it in your personal wallet.
 
So for optimal security and privacy you want to get yourself a cryptocurrency wallet.
 
 

What are the different types of wallets?

 

 

Desktop Wallet

Downloaded and installed on your PC or laptop,  they are only accessible on the computer you downloaded them onto.  This obviously offers a high level of security because for anyone else to gain access to your wallet they would need access to that particular computer.  One of the downsides of desktop wallets is that you can’t access them remotely from a mobile device or remote computer.
 
Desktop wallets are highly secure but only accessible on the computer you downloaded them to

Desktop wallets are highly secure but only accessible on the one computer you downloaded them to

On the upside they offer one of the highest levels of security.

However, if your computer is hacked or gets a virus or you spill coffee on it you may lose all your funds.
 
So it’s secure but If you don’t have it backed up it’s vulnerable to a variety of mishaps.
 

 

 

 

 

Cloud Wallet

A cloud wallet is an app that runs in the cloud and is accessible on any device from any location with internet access.  This is obviously much more convenient from the standpoint of access but of course there is a potential downside when it comes to security.  Your private key is stored online and is controlled by a third party so it is vulnerable to hacking attacks and theft.
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A cloud wallet is accessible from any device, but is vulnerable hacking atacks and theft

 
Think of your private cryptocurrency key as your email password.  If somebody were to get  your email password, they could not only read all your emails but they could also send and reply to emails disguised as you.  This would be a very bad situation, but it would be even worse if someone were to get your private cryptocurrency key.
 
Your Private key allows you to prove that you are the legit owner of the public addresses  for all the cryptocurrency in your wallet, so if someone were to steal it, it would be just like stealing all the cash in your wallet – they would have access to all your funds and there would be no way to get them back.
 
 

Mobile Wallet

A mobile wallet is what it sounds like, you can use it anywhere.  It’s kind of like having your wallet in your pocket.

Running as an app on your smartphone, the wallet can store the private keys for your bitcoin addresses, and enable you to pay for things directly with your phone.

In some cases, a bitcoin wallet will even take advantage of a smartphone’s near-field communication (NFC) feature, enabling you to tap the phone against a reader and pay with bitcoins without having to enter any information at all.

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A mobile wallet is like having your wallet in your pocket, and it only accesses a small slice of the blockchain to conserve cellular data and phone memory

One common feature of mobile wallets is that they are not full bitcoin clients.  A full bitcoin client is one that downloads the entire bitcoin blockchain, which is always growing and is multiple gigabytes in size.  That’s a huge amount of data to download on your cellular data link.  On top of that many phones wouldn’t be able to hold the whole blockchain in their memory.

Instead, these mobile clients are often designed with simplified payment verification (SPV) in mind. They download a very small subset of the blockchain, and rely on other, trusted nodes in the bitcoin network to ensure that they have the right information.

 

Hardware Wallet

Hardware wallets provide a high level of security because they store your private keys on a hardware device like a USB.  Even though they can be used to make transactions online the storage of private keys is completely offline.
 
Offline storage overcomes the cloud-based wallet’s weakness of vulnerability to hacking attacks and theft.  They’re also not affected by computer viruses or crashes because they’re not stored on your hard drive.
 
 
They can be compatible with several different web interfaces and support different currencies depending on which ones you want to use.
Hardware-Cryptocurrency-Wallet

Hardware wallets allow you to store your private keys offline where they are not vulnerable to hacking or computer crashes

Making transactions is easy – you simply plug in your device to any internet-connected computer or device, enter a PIN, send currency and confirm.
 
So Hardware wallets make it easy to transact while also keeping your money offline and away from danger.
 

Paper Wallet

Without a doubt, this is the safest and most secure way to store any cryptocurrency.  It truly makes you the master of your investment, and if precautions are followed, there’s no possibility of your private keys being accessed by anyone else.  Of course, this means that keeping a record of them is even more important. Losing private keys means you’ll forfeit the entire contents of your paper wallet (but then again, that’s true for every wallet out there.)

Paper wallets are an offline cold storage method of saving cryptocurrency. It involves printing out your public and private keys on a piece of paper which you then store and save in a secure place. The keys are printed in the form of QR codes which you can scan in the future for transactions.

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Paper wallets are the most secure form of offline storage because private keys are not stored digitally anywhere, and are therefore not subject to standard cyber-attacks or hardware failures.

The reason this method is so safe is that it gives you complete control. There is no need to worry about the well-being of a piece of hardware, nor do you have to worry about hackers or any piece of malware. You just need to take care of a piece of paper.  Paper wallets are the most secure form of offline storage because private keys are not stored digitally anywhere, and are therefore not subject to standard cyber-attacks or hardware failures.

Paper wallets are formed by using a program to randomly generate a public and private key.  The keys will be unique, and the program that generates them is open source. Those with advanced knowledge of coding can check the backend of the program themselves for randomness in results.  What’s more, keys are generated offline.  This completely eliminates exposure to online threats, and deleting the simple program after use will destroy any trace of them.

Don’t worry if it sounds confusing, it’s not. You need no specific knowledge of coding, or encryption. All you do need is a computer, an internet connection, and something to record your keys on.

There is a process called sweeping – if you want to withdraw or spend currency all you need to do is transfer funds from your paper wallet to your software wallet.  This can be done manually by entering the private key or by scanning the QR code on the paper wallet.
 




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