What is a crypto wallet?
Cryptocurrency Wallet is software that basically stores the keys that are used to digitally sign crypto transactions.
These keys are the only way to prove ownership of digital assets and to make transaction. This means that they are a fundamental part of cryptocurrencies.
Without cryptocurrency wallets the crypto industry couldn’t really exist in its current form.
For a bystander, a crypto wallet by sound like digital version of your normal wallet. And in essence it sort of it.
But based on how it works, it should rather be compared to your home key. You keep your money at home, but to get in, you need a key. Without the key it’s difficult to prove you even live there.
It’s the same with crypto wallets – crypto wallets prove your ownership of digital assets.
How do cryptocurrency wallets work?
As you already learned, crypto wallet is a must-have element for cryptos to work.
Crypto wallets are what you use to send and receive cryptocurrencies.
But just to be clear – crypto wallet doesn’t actually store your money as your regular wallet does.
The money is on the blockchain, the crypto wallet holds the keys (both public and private) to access your money.
Those public and mainly private keys stored in your crypto wallet are what actually gives you the ownership of cryptocurrencies.
If you lose your crypto wallet or access to it, your money is lost.
That part is the same as with your regular wallet.
What are the types of crypto wallets?
There are different types of crypto wallets that you can choose from. There are cold wallets and hot wallets. Those two types of crypto wallets are I guess the main types. Under cold wallets there’s hardware wallet. Under hot wallets there are online wallets, desktop wallets and mobile wallets.
Initially there also paper wallets were available, and they can be used even now, but in 2021 we should consider them extinct.
Read more about crypto wallet types here.
Are crypto wallets secure?
Crypto wallets use advanced blockchain encryption to ensure complete security. That makes crypto transactions rather safe.
Obviously, independent of what anyone says, nothing is foolproof.
You have probably read news stories about crypto thefts and so on.
The most secure wallets are offline hardware wallets. But even these can pose a risk should you lose it or break it.
But all in one, crypto wallets are extremely safe. And definitely safer than the wallet in your back pocket.
Importance of crypto wallets
Cryptocurrencies are completely decentralized and nobody really controls them. That’s one of the main reasons why crypto wallets play a very important role.
Crypto wallets make it possible to operate with cryptocurrencies in the first place.
You can use your crypto wallet to see your balance, you can use your crypto wallet to send and receive cryptocurrencies.
To make a transaction you don’t need any approval from a third party. Unlike your bank that keeps an eye on all of your transactions.
When you make a cryptocurrency transaction, this transaction normally needs to be not approved, but confirmed by a certain number of crypto miners.
This is to make sure you are in fact the owner of the digital assets.
Are crypto wallets traceable?
Crypto wallets are pseudonymous. That means that they are sort anonymous, but they can be traced.
All cryptocurrency transactions that are made on the blockchain are transparent to the public.
It’s like being a ghost writer using a pseudonymous. While you are sort of anonymous, the moment someone finds out who’s behind that pseudonymous, all of the books written by you can be identified.
Additionally, when you make fiat deposits to or withdrawals from your cryptocurrency wallet, that also leaves at least some sort of trace to your bank independent of how you do it exactly.
I became interested in cryptocurrencies only a bit more than two years ago. Since then I have been in investing in cryptos using different exchanges. And I also launched Cryptolorium.com when I started trading, just to share my crypto journey and my results.