What are crypto wallets?
Bitcoin (BTC) is a digital currency that is stored in electronic wallets, which can be accessed using a private key. The device on which your Bitcoin wallet is located automatically stores the private key, not the coins themselves. Your coins are stored on the Bitcoin blockchain and your private key is needed to carry out the transfer of coins.
There are many different forms of wallets depending on the requirements of the user and they vary in their security, convenience and accessibility. For example, there are mobile wallets that offer built-in cryptocurrency exchanges and QR code scanners.
Simply put, crypto wallets are like your bank accounts, but without an intermediary. Similar to how bank accounts allow you to manage your funds in fiat currencies, crypto wallets help you manage your funds in cryptocurrencies.
Crypto transactions take place on a blockchain using public and private keys. These keys can be called, like the equivalent “equivalent” of a number (bank account) and internet banking login details respectively. The first is something you can share with others to receive money in your account. But your private key it’s more like the key to your secret safe. Anything that is inside is only safe as long as someone who shouldn’t gain access is not accessed. The private key gives you access to your cryptocurrencies that are always stored on a blockchain.
When you create a personal cryptocurrency wallet, your public and private keys are created and interact with the blockchain to display the right amount of cryptocurrencies you own. You can say that the crypto wallet is the bridge between you and the crypto funds found on the blockchain. Cryptocurrency wallets also allow you to buy, sell, store, and spend cryptocurrencies.
Primarily, there are two types of cryptocurrency wallets: ” hot” wallets and “cold” wallets, which we will see below.
Hot και Cold wallets
In the world of cryptocurrencies there are 2 categories of wallets: Hot wallets and Cold wallets. Hot wallets are internet-connected storage devices, such as a computer or Mac and even a mobile device.
Cold wallets on the other hand store a user’s private keys offline. When private keys are offline, the chances of theft by a hacker, malware or virus are dramatically reduced.
Hot wallets are often more user-friendly and provide the ability to access their money at any time and from anywhere. On the other hand, Cold wallets are a bit more cumbersome to use and are relatively more difficult to transfer.
Due to security concerns, users would be advised to keep the bulk of their cryptocurrencies offline in cold wallets, while only transferring what they need in the medium term to hot wallets.
The process of storing most cryptocurrencies offline in cold wallets is similar to what is already common in fiat currencies (fiat i.e., dollar, euro, pound). Bank accounts and safes are more secure, and people rely on them to store their savings.