There are many different types of cryptocurrency wallets. Still, unlike the physical wallet in your back pocket, a cryptocurrency wallet doesn’t actually store currency but the keys to a wallet address. It’s essentially a software that allows you to send and receive cryptocurrencies that are controlled by private and public keys interacting on a blockchain. Cryptocurrencies aren’t stored in one location; there are just records of transactions that are stored on the blockchain.
What are Public and Private Keys?
Digital keys are just codes that allow us access to our cryptocurrency. When someone sends you bitcoin or any other type of cryptocurrency, they are authorising the ownership of the coins from their wallet to yours. The private key acts as your private password and is used to
sign off on transactions and prove ownership of the related public key. To receive coins, you need to provide your public key. This public key does not reveal the identity of the owner, and that’s why we consider the blockchain to be ‘pseudonymous’. In order for a transaction of coins to happen, your wallets private key must match the public key of the
Types of Cryptocurrency Wallets
- Desktop wallets are stored on a single computer or laptop. This is considered to be safe enough for the average user, although there is the potential for you to lose your funds if your computer gets hacked or has a virus.
- Mobile wallets are stored on an app on your mobile. They’re popular because they can be used anywhere, so are an excellent option for people using cryptocurrency on a day-to-day basis
to buy goods.
- The information is stored offline; the private keys are kept on a device like a USB.
The benefit of a hardware wallet is increased security and compatibility with many interfaces; people can use different currencies.
- A “Paper Wallet” can refer to a printed out copy of your keys that can be generated by services like
BitAddress. You can transfer your currency from a paper wallet by ‘sweeping’ – manually
entering your private keys or scanning the QR code.
How Do I Keep My Wallet Secure?
Security varies with each type of wallet; storing your keys online is always a more high-risk option than offline because of the potential for hacking or catching a virus. Ways to increase the security of your wallet include backing up your wallet, keeping the software updated and adding extra security keys. Regardless of which type of wallet you use, if you lose your private keys; you lose access to your money.