The Beginner's Guide to Crypto Wallets
The crypto industry tirelessly continues to evolve with each passing day. New technologies for mining and storing cryptocurrency are emerging. Now many people have the opportunity to exchange USDT or bitcoin in minutes, and before it was even hard to imagine. Cryptocurrency wallets have been particularly successful recently. Yes, if you have ever thought about investing or storing coins, this is a must-have for you.
If you are wondering, what is a cryptocurrency wallet? How is it different from an exchange and is it safe? In this article, we will consider these and other questions in detail which can be useful for anyone.
What Is a Crypto Wallet and How Does It Work?
A wallet is a software with which you can prove that you are the owner of a particular cryptocurrency account or address. It is important to understand that it does not store any currency, it is just a place to keep a secret key to access it.
It's like a bank card, there is no money on it either, and it only gives access to a bank account. A wallet consists of a private key and a public key. These in turn are a huge set of symbols that allow you to do whatever you want with your account.
- A public key is the identifier of your wallet, simply put - its address in the blockchain.
- A private key is used to confirm transactions, simply put, it's the password you enter to make a transaction.
In addition to this, there is also the so-called SEED phrase. This is a sequence of random words, usually from 12 to 24, which makes it possible to restore a private key if it is lost.
As for the safety of cryptocurrency wallets, it all depends on the owner. If you secure your devices and private data by following basic rules of digital hygiene, then your cryptocurrency transactions will be secured as well.
Types of Wallets
It is stored on an Internet-connected device, such as a desktop computer, laptop, or smartphone. Hot wallets are simple and easy to use. But if your device is infected with malware, your cryptocurrencies could be stolen from the hot wallet. So you may want to consider storing only your spending money in a hot wallet, leaving the bulk of your investments in cold wallets.
An example of a hot cryptocurrency wallet can serve as an ordinary application on your computer, phone or tablet. It is easy to use, you have quick access to your coins and can perform any operations with them in a matter of minutes or just check the balance. It's great for keeping small amounts that you will spend. However, it has a few downsides that have to do with security. For example, if your smartphone is stolen - it is stolen with all the coins in your wallet. Or if you forget the SEED-phrase and your phone breaks - the money is gone forever.
This type of wallet is autonomous and not connected to the Internet. They are roughly physical, you can touch them or put them in your pocket. Clear examples are a hardware wallet or a paper wallet.
- Hardware wallet
This cryptocurrency wallet is very similar to a flash drive, which is inserted into a USB port. Very often they have additional security that requires entering a passphrase, or they have a fingerprint scanner. Some can also connect via Bluetooth. The main advantage of such wallets is that they are insanely difficult to hack and only you have access to the funds. In turn, it is easy to lose.
- Paper wallet
It is a simple piece of paper on which is written the SEED-phrase and QR code in which the private key is encoded. Creating such a wallet is a matter of minutes, you need a special program and a printer.
It's a pretty safe way to store it because you can even tear this paper into several pieces and hide each one in a separate place. There have been cases where some people have even tattooed the QR code of their paper wallets.
Exchanges or Wallets ?
For some reason, many beginners compare wallets to exchanges, although this is a mistake. After all, each way in its way is good and has its purpose. On the exchange, you have the opportunity to store cryptocurrency, send, or exchange. But as for storage, in this case, your funds are stored in a wallet directly under the control of the exchange. Storing currency on an exchange is like a bank account while storing cryptocurrency in a wallet is more like storing cash in a physical wallet.
So although exchanges can indirectly perform some of the same functions as wallets, they are not wallets themselves. Therefore, they are two completely different things that are fundamentally different and have their advantages.
Now that we have figured out what's the point, you fully understand the concept and principle of cryptocurrencies. It is an indispensable thing, which to some extent has turned the crypto-industry upside down and secured many people. After all, with their help, we now have the opportunity to directly manage our assets, which is similar to storing cash, but with the added benefit of being able to interact with the Internet. They certainly have their pros and cons but are nevertheless a sought-after thing in this field. Therefore, if you are faced with the question of whether to resort to the use of a cryptocurrency wallet or an exchange, the answer is one - YES!
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