Cryptocurrency Wallet 101: Everything You Need To Know
The term cryptocurrency wallet is a little bit misleading. Unlike a physical wallet that holds your credit cards, cash, and identification cards, a crypto wallet is more akin to a bank account where you can check your balances, make and receive payments, and transfer funds to someone else.
A Crypto Wallet Isn’t A Wallet Per Se
A crypto wallet doesn’t physically store one or many digital currencies you own since cryptocurrencies are decentralized in nature.
Unlike the Visa or Mastercard credit card that stays in your traditional wallet, a digital coin is never stored in a single location. Rather, it is stored and interacts within the all-important blockchain. Everyone who wants to invest in or trade cryptocurrencies will need access to a crypto wallet.
Each and every crypto wallet comes with a pair of cryptographic “keys.” The first component, a private key, consists of randomly generating letters and numbers that you need to send one or multiple cryptocurrencies to someone else. In traditional banking terms, consider this a password or Personal Identification Number (PIN) required to authorize and validate a transaction.
The second key, a public key, can be viewed by anyone and is required for someone to send you a payment. Consider this to be like the mailbox in front of your house. Anyone can theoretically have access to mail cash or a check to your home address.
The Five Types Wallets
Anyone who requires a crypto wallet has multiple options at their disposal. Here are the five most common forms of a crypto wallet:
Desktop Wallet: As the name suggests, a desktop wallet is downloaded and installed on your home computer. It is stored on your hard drive so it can only be accessed from the computer. But if your hard drive crashes or your home internet is compromised via a hack, the likelihood of losing your funds increases.
Mobile Wallet: A mobile wallet is a crypto wallet that runs on your smartphone. It offers the convenience of portability as opposed to relying on a home computer. Some mobile wallets are stored locally on the smartphone itself while others offer access through an online storage server. Similar to a desktop wallet, losing your smartphone could result in losing access to your funds.
Online Wallet: An online wallet refers to a crypto wallet that can be accessed from any connected device, be it a desktop computer, smartphone, tablet, etc. The online wallet can be accessed 24/7 and mostly offered by online exchanges.
Hardware Wallet: Considered the most secure option, a hardware wallet is impossible to hack because the data is stored through a piece of hardware that looks like a USB flash drive. But the added degree of safety comes with a higher cost compared to other options.
Paper Wallet: Anyone can print out the details of a crypto wallet on a piece of paper. So long as it includes the private and public keys, often in the form of a QR code, it is considered a paper wallet. While this is a very secure option, it is impossible to send cryptocurrency from a paper wallet as it must first be imported to a Desktop, Mobile, or Online wallet.
What Questions To Ask Yourself
Crypto wallets come in many different shapes and forms so there is no one size fits all solution. Here are some questions you might want to ask yourself before making a decision:
- Do you require immediate access, daily, weekly, or monthly access?
- Will you hold one or more cryptocurrencies?
- How important is it to pay nothing?
- What level of security do you require?
Bottom Line: Do Your Homework
Selecting a crypto wallet shouldn’t be an overly complicated task and shouldn’t be more daunting than researching what credit card best suits your individual needs.
For the vast majority of people, a safe and reputable mobile crypto wallet is an ideal choice. Many options in the form of an iOS or Android app are available for even more convenience.