First, tell us what is the first thing that comes to your mind when you hear the word wallet? A small pouch or bag where you get to store your physical currencies right. When you receive some money you store it there and when you need to give some money, you take it out from there. The concept is very simple right. Well, the basics of crypto wallets are the same. The only difference is these crypto wallets are used to store digital currencies called cryptocurrencies. The crypto wallets mainly safely store the digital public addresses and private keys of your wallets, especially the private keys. So, in other words, a crypto wallet is a type of online program or offline device which can be used to safely store your digital cryptocurrencies. It can be used to receive or spend crypto just like any ordinary wallet.
Now you all must be wondering about what are these public addresses or private keys mentioned above. So, this brings us to our next heading.
What are Public addresses and Private keys?
There are normally two types of keys to a wallet- a public address or wallet address and a private key. Both these keys are in alphanumeric form. The public address or wallet address is a unique key or code which represents your wallet only. Hence, this is required by the sender to send any cryptocurrency to someone’s wallet. Whereas, the private key is your own secret key or code to your wallet that store all the valuable information of your wallet such as the types and numbers of coins that are present in your wallet. It also grants you the right of ownership of the wallet and the key is also needed for any transaction to happen. In simple words, if the private key to your wallet is lost, you will lose all ownership and access rights to your wallet and hence, you will lose your stored crypto portfolio as well or if the private key falls into the wrong hands, then your wallet may become compromised to a hacker.
The main purpose of these crypto wallets is to safely store your private key so that it doesn’t fall into the wrong hands. Now, we will learn about the various types of wallets below and how secure they are.
What are the types of Cryptocurrency Wallets?
There are mainly two types of wallets- Hot wallets and Cold wallets.
1. Hot Wallets
These are online crypto wallets that are actively connected to the internet. They are easy to use but as they are always connected to the internet they are vulnerable to hacks. Exchange wallets, desktop wallets and mobile wallets come under this category.
2. Cold Wallets
These wallets are independent hardware devices that don’t need to stay connected to the internet all the time. They need to be connected only at the time of making any transaction and so, when not in use they can be stored away safely offline. Hence, the chances of being hacked are next to none. Further, modern hardware wallets validate an entire transaction within the wallet itself and not on the connected computer like traditional hardware wallets use to do. This again reduces the chances of getting hacked to an even greater extent.
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