The Basics Of Cryptocurrency Wallets
A digital cryptocurrency wallet refers to the software that is used to store the user's cryptographic keys and can interact with different blockchain technologies to help users store and send digital money and check their balance etc. All cryptocurrencies including Bitcoin, Ethereum, Litecoin etc need to be stored in a digital wallet of one form or another.
Cryptocurrencies work using user addresses. A Bitcoin address might look like this: 1F1tAaz5x1HUXrCNLbtMDqcw6o5GNn4xqX. Money and transactions associated with this address are stored on the blockchain. You can only access the account to transfer money if you know the private key associated with the address. It is the digital wallet's job to keep your private key safe and to use it on your behalf when you want to transfer currency to another address.
Hot and Cold Storage
Before choosing a digital crypto wallet, it is important you know the difference between a cold wallet and a hot wallet aka hot/cold storage. A cold wallet is mostly used to store cryptocurrencies offline for long term storage and improved security. This can be hardware based or printings of digital keys on physical paper (paper wallet). On the other hand, a hot wallet requires internet access for storage of cryptocurrencies online that can be used for day to day cryptocurrency transactions.
Types of Wallet
There are different types of digital wallets that come with variety of features that allow you to access and store your cryptocurrency. It is important you know which wallet will best suit you before choosing one. If you are interested in having more than one cryptocurrency in your wallet, there are multi-currency wallets that allow you to store different cryptocurrency types in one secure place.
Some wallets (e.g. Exodus) have built-in features which allow users to convert from one cryptocurrency to another using ShapeShift or Changelly. For example, you can use these wallets to convert from Bitcoin to Ethereum.
Just like the name suggests, online wallet refers to digital crypto wallet that is accessible via a web browser. Some online wallets are hot wallets while others are hybrid wallets that allow private data to be encrypted before being sent to an online server. Online wallets are accessible from any device that has an internet browser and is connected to the internet.
If you are looking to hold small funds, and want instant access from different devices then this could be the type of wallet to use.
Common Online Wallets
- GreenAddress. GreenAddress is an online wallet that comes with impressive features such as quick login for easy access to your wallet from any device using your PIN and nLocktime that allows you to set expiry date to collect your money. Other GreenAddress features include multi signature support, two factor authentication, and ability to set spending limits.
- MyEthWallet. MyEthWallet is an online wallet which is mainly used to store Ethereum and other ERC20 tokens e.g. EOS or TRON.
- Blockchain.info. Part of blockchain.com offers a free Bitcoin wallet also has IOS and Android apps.
A desktop wallet is downloaded and installed on a laptop or PC. Therefore, desktop wallets are accessible only from the PC or laptop they are installed on. When it comes to desktop wallets, private keys are not kept in third party servers unlike online wallets. Compared to online wallets, desktop wallets are more secure but the safety of your cryptocurrencies can be compromised when your desktop is hacked. Desktop wallets are considered to be cold wallets when they are used offline. Exodus is a desktop wallet that has a simple user interface. This desktop wallet can support up to 20 different cryptocurrencies, including major ones such as Bitcoin, Ethereum, and Litecoin. Exodus desktop wallet has an impressive exchange feature that allows people to exchange Bitcoin Cash to Ethereum within a few seconds.
Mobile App Wallet (IOS and Android)
Mobile wallets use apps on your mobile phone and are easy to use compared to other wallets. You can access your mobile app wallet from anywhere using your mobile device. However, unlike desktop wallet, mobile app wallets have a smaller storage space. Mycelium is an example of mobile app wallet that is commonly used with Bitcoins and supports iOS and Android devices. Jaxx is another mobile app wallet that supports different cryptocurrencies such as Bitcoin, Ethereum, Zcash, Dash and Litecoin. It comes
with features like wallet backup, private key display, funds imports from paper wallet.
The main difference between hardware wallets and software wallets is that hardware wallets use hardware such as USB to keep private keys. Hardware wallets can be used online but the funds are stored offline which offers more security compared to other wallets. Hardware wallets can support different types of cryptocurrencies and are easy to complete a transaction. An example of hardware wallet you can use is ledger. Ledger hardware wallet can be used with multiple cryptocurrencies, has touch screen interface and comes with Bluetooth connectivity. Digital hardware wallet is a hardware wallet that uses Micro SD card for backup and recovery.