If you’re considering purchasing cryptocurrency, you’re going to need somewhere to keep it. That’s where wallets come in.
A wallet is a program that stores the ‘keys’ required for you to send or receive digital currencies. Every wallet has two keys, a private and public key.
The public key is your wallet’s address you provide others in order for them to send you digital currencies.
The private key is essentially your password, it proves you own the wallet and allows you to transfer coins to other wallets.
Think of it like an email account: the public key is your email address, the private your password. Anyone can send you an email if they have your address, but only you can send emails from your account as you own the password.
Unlike a wallet for your cash and credit cards, a crypto wallet doesn’t actually store currencies. The coins don’t physically exist, instead a record of transactions is stored on a blockchain, meaning that when someone sends you Bitcoin, Ethereum, etc, essentially all they are doing is passing ownership of the coin from their wallet to yours and recording that change.
Types of Wallets
A hardware wallet is a device built specifically to store and handle your public/private keys. Generally they are a USB device that you connect to a PC or mobile. These are one of the most secure ways to store your cryptocurrencies.
Paper wallets can refer to simply a printout of your private and public keys, or a piece of software that generates keys that are then printed. You can then transfer funds to the public address shown on the piece of paper. This is arguably one of the most secure ways to protect your coins as the keys exist offline (known as a ‘cold wallet’). Just don’t lose the piece of paper!
Desktop wallets are installed on a PC or laptop and can only be accessed from the computer they were installed on. This option offers one of the most secure wallet solutions, however, if you lose access to the computer, such as through loss, theft or destruction, you’ll lose access to your funds.
Similar to desktop wallets, mobile wallets are stored on your phone and offer greater ease and mobility to use. That said, they come with greater risk as they are always connected to the internet (known as a ‘hot wallet’) and at greater risk of security breaches than other wallets.
Otherwise known as online wallets, web wallets store your keys online, in the cloud or with a third party that manages your wallet info. These offer the greatest ease of access and mobility, but come at greater risk as your wallet keys aren’t held by you, making them much more vulnerable.