A crypto wallet is one of the most important tools if you are looking to get serious about cryptocurrency. It is a tool that allows you to secure your cryptocurrency and process your blockchain transactions. Whether you are investing in coins like Bitcoin, Ethereum, XRP, Binance, and more, there are wallets that support them.
Although it is called a wallet, it is more like a personal bank. Because crypto is a decentralized currency, only you can take care of your coins, therefore using a wallet is like having your own personal bank.
How Does a Crypto Wallet Work?
Without getting into much detail about blockchain technology, we can understand how a crypto wallet works by just understanding the concept of private keys and public keys.
Whenever you want to store your crypto, you will need to create a wallet account. Every crypto wallet will have an option for you to create a new account. When you press on your wallet to create a new account, the wallet will generate your very own private key.
The Private key, as the name suggests is a very private piece of information. It is unique only to you. It is a set of random letters and numbers and it becomes the identity of your wallet. It is essentially the wallet itself because it can approve your transactions on the blockchain as well as recover your wallet if it ever gets lost.
From the private key, the public key is derived. The public key is another set of random letters and numbers that allows other wallets to recognize your wallet on the blockchain. The public key can be derived again to become your wallet address. Your friends, colleagues, and family can send you crypto using your wallet address as the destination.
Simply conclude, the private key is what creates and controls your wallet. It authorizes you to do transactions on the blockchain (sending out coins). On the other hand, the public key helps others identify you on the blockchain (receiving coins). Together, they create a healthy, working wallet.
Different Types of Crypto Wallet
There are two main types of wallet, with the exception of one type which we will not consider a "wallet". That exception is an "exchange wallet". These are wallets that help you store crypto on exchanges. However, they do not work like normal wallets because they are mostly centralized and dependent on the exchange, so we will not consider them as a wallet.
Hot wallets are what we describe as wallets that are installed on online devices. There are many free PC wallets, web-based wallets, or APP wallets that you can download and set up your wallet for free. They are easy to use and easily accessible. They are described as "hot" because the device these wallets are installed on is mostly connected to the internet most of the time.
Connected to the internet is both good and bad. It is good because it allows you to make transactions quickly to the blockchain, as you are already online. However, it is bad because it leaves you at risk of online hacking.
Examples of hot wallets are Atomic Wallet, Trust Wallet, and Metamask.
Cold wallets are hardware devices that are designed and manufactured for the sole purpose of storing crypto and managing transactions. They are described as "cold" because they are always offline. Unlike hot wallets, cold wallets do not have the risk of getting hacked online.
Since cold wallets are offline devices, by logic they cannot connect to the blockchain to process transactions. To get over this hurdle, cold wallet works with PC software or a mobile APP and has them work as a proxy. Using a cold wallet adds another step when dealing with transactions compared to a hot wallet, but the security you attain from that is immeasurable.
A good example of a cold wallet is the ELLIPAL Titan Cold Wallet.
What are The Downsides/Upsides of a Crypto wallet
The downsides and the upsides depend on what you are looking to do as a crypto investor. People use crypto wallets because they want to keep their assets safe and under their control. However, it does add extra steps and effort if you want to store coins in a wallet and also make transactions from the wallet.
Long-term investors mostly care about security and will not do many transactions in a year, so wallets are perfect for them. On the other hand, day traders will need to do transactions several times a day and need to catch the optimal time to trade so wallets might be a hassle for them.
Are Crypto Wallets Safe?
Crypto wallets are meant for security, so obviously they are safe. Cold wallets are especially safe thanks to their offline nature. Most of the time, hot wallets are good enough for normal investors. However, if you start to accumulate a large amount of crypto, it is better to switch to cold wallets because you can easily become a target of online hackers.
If security is what you are looking for, the ELLIPAL Titan is a very good example of a cold wallet. It is designed to be 100% air-gapped, meaning that it cannot be connected to any type of connection, whether it will be USB, Bluetooth, or Wifi. It is also protected with an anti-tamper protection system which helps delete all of your data the moment it detects a breach. This means the ELLIPAL Titan can protect your crypto from both online and offline hackers, making it one of the most secure solutions around for keeping crypto.
What is The Point of Putting Crypto in a Wallet?
Crypto is a decentralized currency so you, as the owner, have full responsibility for your crypto. There are no banks that will protect your crypto for you, or give you insurance. Everything in crypto must be done by yourself.
Because of this, it is very important to keep your cryptocurrency as secure as possible and not let anybody steal it. Crypto wallets are the perfect solution for this because it helps you secure your assets while giving you easy access whenever you need to use them.