I – Definition
A cryptocurrency wallet is what allows you to receive, store and spend cryptocurrency. It stores the public and private keys by which these operations are possible. It is like your bank account (wallet) which regroup and manage your sub accounts in the same bank (address).
To function, all wallet needs at least one address (called Public Key). Thus, your address is the “subaccount” that you give to your debtors to receive cryptocurrency, as you will give your account number to partners to receive money.
Each address is a long string of alphanumeric characters, but can be represented on the form of a QR code to be easy to scan.
Example of Bitcoin address: 34eFfugtubn7qfRrQuZKbPnLwwsbYjSmM1
A wallet generate and store in reality couple of public/private keys. These keys will permit you to make your transactions and insure integrity of these operations. Public key is commonly called address and private key your signature (password). To receive cryptocurrency, you just need your public key, however to spend, your private key is necessary.
Wallets generate and manage addresses (public keys) on demand. Some can also manage imported addresses from other platforms.
II – Choose your wallet!
The cryptocurrency wallet market is saturated with different wallets dof all kinds — some great, some less so. The two primary types of wallets in the cryptocurrency ecosystem are Hot and Cold. But what are the differences between these options?
A – HHot Wallets – Online Wallets
Hot wallets refer to custodial wallets that are easily accessible via mobile devices, laptops, and desktops where cryptocurrencies can be transferred easily and through user-friendly interfaces. However, these wallets are custodial, meaning that a third-party controls the private keys to the assets in the wallet. This represents a security vulnerability, as trusted third parties are security holes.
Additionally, hot wallets are exposed to the Internet, making them appealing targets for hackers to subvert the security measures of the administering third-party and steal users’ funds.
Hot wallets are highly popular for mobile users and conveniently transferring small amounts of cryptocurrencies. However, users should never store vast sums in hot wallets nor trust their security measures. Treat hot wallets as you would treat a physical wallet, where you only keep small sums of cash at a time.
There are 2 different subtypes of Hot Wallets
1 – Online Wallets
Online wallets are online services that enable you to access your crypto assets from any browser that’s connected to the internet. When you leave your crypto assets on a cryptocurrency exchange platform, you’re actually using the platform’s online wallet.
The biggest advantage of online wallets is that they are easily accessible from any computer or other device with an internet connection.
Being online is also their biggest disadvantage asthey can become targets for hackers. Moreover, in most of the cases, you do not keep control of your private keys: they are controlled by the wallet provider.
2 – Software Wallets
Software wallets are applications for managing cryptocurrencies that can be installed on your computer or smartphone.
You remain in control of your private keys which are not shared to nor controlled by a third-party.
Unfortunately, since a software wallet is installed on your PC or smartphone, it is still connected to the internet which exposes your private keys to hackers.
Vulnerabilities of modern PCs and smartphones are well known, and if you keep your private keys there it’s just a matter of time before you’ll get hacked and lose everything.
B – Cold Wallets – Offline Wallets
Contrary to hot wallets, there are cold wallets. The industry standard for the secure storage of cryptocurrency assets, cold wallets are represented by digital asset wallets that are offline (i.e., not exposed to the Internet) and often take the form of hardware devices or paper wallets.
As they are completely offline, cold wallets provide a greater level of security.
Hardware wallets, like Ledger, are the flagship standard for security. Users, exchanges, and projects all favor hardware wallets as their long-term storage solutions for cryptocurrency assets.
There are 2 different subtypes of Cold Wallets
3 – Paper Wallets
A paper wallet is an offline mechanism for storing crypto assets. As suggested by its name, the process simply involves printing the private keys and its corresponding addresses on a paper sheet.
This is a simple way to store your cryptocurrencies keys offline. It requires paying great attention and care to this paper.
If your paper wallet gets lost or destroyed, you will permanently lose the access to your crypto assets. Also, processing a transaction with a paper wallet can be tedious and unsafe: you will need to manually enter your keys in a transaction tool, typically by using your computer’s internet browser which could expose the keys to a cyber attack.
4 – Hardware Wallets
A Hardware wallet is an offline storage option for private keys. This is a physical device that allows you to store the private keys in an offline and secure storage, and generally also enables you to verify the transaction details on the device screen.
With a hardware wallet, even if a hacker succeeds in getting control of your computer, he will not be able to steal your private keys and access your crypto assets. Your private key is kept offline and limits the risk of hacking.
The main principle behind hardware wallets is to provide full isolation between the private keys and your easy-to-hack computer or smartphone.
C – Conclusion
Hardware wallets are widely considered to offer the most secure wallet option.
However, hot wallets are free although cold wallets are not.
Each type of wallet have its advantages and incovenients, and they exist to bring solutions to different problems.
Your needs determine the type of wallet that you will use, because there is no “perfect wallet“, it all depends of the situation.
Just keep small amount of money in your online wallet.
III – Usage of your wallet to receive and spend your assets:
How to receive coins?
To receive coins, you need to give your address (public key) to your partner. It is like given him your bank account number for provisioning.
How to spend coins?
From your wallet, find the menu which permit you to send coins, then follow the steps which will bring you till the end of the operation. Note that for this you will need the public key of your partner.