If you own some cryptocurrency or are thinking of getting some in the nearest future, then one of the first things you’ll need is a crypto wallet.
Crypto wallets are offline (hardware wallets) or online (software programs) devices used in storing crypto funds. They are also used to send, receive, and trade cryptocurrency while keeping a record of all transactions on the blockchain.
The average trading volume last month was $120 billion. Speculators expect the global blockchain market to increase by $23.3 billion in 2023. As you can see, there’s still plenty of room for growth, so if you’re interested in securing a spot in the crypto space, now is the time to do so.
But first, a little knowledge to help you on your journey. Here are five key things to know about how crypto wallets work.
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5 Key Things to Know About Crypto Wallets
They are nothing like physical wallets.
Although they share the same name as the wallet in your pocket, the similarities end there. Unlike physical wallets that hold your cash, credit cards, and id cards, crypto wallets do not “hold” your crypto.
What they store are the digital credentials needed to access these tokens. These credentials are cryptographic proof that you own the coin. Crypto wallets can also send and receive cryptocurrencies, something your physical wallet can’t do with fiat.
Crypto assets aren’t held in the wallet. Instead, they exist on the blockchain that tracks transactions, balances for each address, and who controls the balances. The wallet maintains addresses, allows interaction with blockchain, and allows you to move funds to other wallets. Anyone can view the balance and transaction of any given address.
Crypto Wallets consist of a private and a public key.
Cryptocurrency wallets are software programs consisting of a public and a private key unique to each user’s wallet.
- Public Keys
The public and private keys form a cryptographic code used to receive cryptocurrency. To receive crypto from users, you’ll need to send them your wallet address which is usually a short form of your public key. The reverse occurs when you want to send crypto to users, with them sending you their wallet address.
- Private Keys
A private key is used to prove a cryptocurrency wallet’s ownership or spend funds connected with a public address. As a result, you should keep your private key in a secure location and never disclose it to anyone.
Private keys come in many forms depending on the type of wallet. For example, you may find 12 (or more) word mnemonic phrase, QR codes, 64-digit hexadecimal codes, or a 256-character long binary code.
One thing common to the different forms of private keys is that they are large numbers. You can generate a public key from a private key, but it’s nearly impossible to do the opposite because of how large private keys are. Likewise, you can link multiple public keys to a single private key, but you can only have one private key.
You can send and receive funds with a crypto wallet.
One of the functions of a crypto wallet is the transfer of cryptocurrencies, NFTs, and tokens alike.
To send money, you’ll need the wallet address of the recipient. Enter the wallet address you’re sending the coins to and the amount you want to send. After you’ve double-checked everything, click “confirm.” If you’re sending large quantities, it’s always good to carry out a tiny test to verify the address.
If you want to receive money, you’ll need to generate an address from your wallet by selecting the “generate or receive address” button.
You can choose between hardware and software wallets.
Experts consider hardware wallets the safest way to store coins. They let you hold a private key in “cold storage.” Some examples are Ledger, Trezor, Mycelium, and Electrum.
To access the wallet, you’ll need to connect it to a computer (kind of like a thumb drive). You get a seed (also known as recovery) phrase when you set up your wallet, which you can use to recover a wallet that has been lost or broken.
Software wallets store your private keys online on a mobile or a computer application. There are different software wallets; some support multiple currencies (MetaMask) while others support specific currencies (Solflare for Solana).
They can be web-based and act as custodial wallets; unfortunately, custodial wallets aren’t fully secure. They can also come as downloadable apps you can install on a phone or laptop. In such cases, the wallet stores your private keys locally. In addition, the apps may have internet connectivity which can compromise their security.
If you use a software wallet, make sure to back up your data regularly. If you lose your wallet’s private keys due to a malfunction with your hard drive or web browser, it can cause you to lose your assets permanently.
Software wallets are divided into three categories:
Web-based Wallets: Examples include MetaMask, which works as a browser extension. MetaMask is mainly an ETH-based wallet, but it also supports other blockchain networks like BNB, Polygon, etc. MetaMask is ideal for transactions on the Ethereum blockchain, making it simpler for consumers to interact with DeFi protocols and decentralized applications.
Desktop wallets: An example of a desktop wallet is the Exodus wallet. They are designed to be used with a laptop or a desktop.
Mobile wallets: One of the most common mobile wallets is Trust wallet. Trust wallet supports multiple cryptocurrencies, including NFTs, sending and receiving transactions, and interacting with decentralized apps (dApps).
Crypto wallets give you complete control of your money.
The decentralized nature of crypto wallets means that you have total control of your assets, unlike fiat currency in a bank account which is technically still the bank’s property.
As empowering as that sounds, you also carry 100% of the liability. So any risk of losses and hacking falls on you, so you need to keep your private key as safe as possible.
Crypto transactions are unregulated and cannot be reversed, so be alert when making transactions. For example, if you send funds to the wrong wallet address, you won’t be able to get them back.
There you have it, five key takeaways to know about crypto wallets. If you wish to invest in cryptocurrencies, you’ll need to familiarize yourself with crypto wallets and how they function. You’ll also need to decide between software and hardware wallets depending on your needs.
If you’re looking for a wallet that lets you track transactions, send and receive funds, and manage all your DeFi, check out CoinStats.
You may be interested in: Ways to Keep Your Cryptocurrency Safe