Crypto Wallets Explained: Types, Security, and How They Work

A crypto wallet is an app or device that helps you store and use cryptocurrency easily and securely. They also support cryptocurrency transfers via blockchain. Using some wallets, users can even perform certain actions such as purchasing and selling or interacting with decentralized applications (dapps). 

Mind you, cryptocurrency transactions don’t mean sending crypto tokens from one person’s mobile phone to another person’s mobile phone. When you send a token, your private key signs the transaction and broadcasts it to the blockchain network. The network encompasses the transaction to reflect the updated balance in both the sender’s and recipient’s address.

Importance Of Crypto Wallets

Technically, crypto wallets don’t store anyone’s crypto. The user’s holdings will be stored in blockchain which is accessible only with a private key. The key is the testimony that the digital money belongs to you and allows you to make transactions. You can access your money as long as you know the private key. So make sure your hardware wallet is safe.

How do crypto wallets work?

Collectively, crypto wallets can be found in software or hardware forms. The functions of both are slightly different, however, the primary purpose of the wallet is to store your cryptocurrency. 

The crypto wallet will not be holding any actual cryptocurrency, instead, it holds the public and private key information which is essential to proceed with crypto transactions. Cryptocurrency is stored on a blockchain, a digital ledger that powers many decentralized currencies.

What is the difference between public and private keys?

There are types of keys in a crypto wallet: public keys and private keys.

Public keys:

Public key functions in a similar way to the bank account number. This key is a combination of random numbers and this can be shared with a third party like a cryptocurrency exchange, the security of the wallet is not affected in this procedure. Cryptocurrency transactions can be made with this key; sometimes it can performed using a wallet address. Wallet addresses are the compressed version of the wallet’s public key. 

Private keys:

Private keys should always have to be kept private. This key allows users to access the actual cryptocurrency on the blockchain. So, if someone has your private key means they have access to the crypto in your wallet. 

How to send crypto from my crypto wallet?

Sending cryptocurrency from one wallet to another is fairly simple. To initiate the transaction, you need to know the recipient’s wallet address. Just open your crypto wallet, choose how much crypto you want to send, and send it to the address.

Various types of cryptocurrency wallet

Mainly there are two types of wallets: custodial and noncustodial. Custodial wallets are often termed as online wallets which are offered by a third party to store your keys for you. This service might be provided by enterprise-level data security sy

stems businesses to preserve and secure data. 

In noncustodial wallets, you will be responsible for securing your keys. This is the most common type of crypto wallet.  

You can also find two subcategories in the wallets: hot and cold wallets. The difference between a hot wallet and a cold wallet is that a hot wallet has a connection to the internet or to a device that has a connection, while a cold wallet doesn’t have any connection. 

In more depth, wallets can be subcategories into three: software, hardware, and paper. These categories can be considered hot or cold wallets. 

Therefore, you might be holding a noncustodial software hot wallet, a noncustodial hardware hot wallet or cold wallet, or a custodial hardware cold wallet. The above-mentioned are the most common types, but you might get other combinations also.

Which crypto wallet is best?

You have several options to choose from. It is best to read reviews from trusted websites and choose one that aligns with your preferences while ensuring your keys are secure. 

Which type of software is best?

You will find various types of software crypto wallets that can be accessed from your personal computer or mobile device. Which one is the best depends on your personal preferences, but for your information, some common types are listed below:

Desktop wallets:

Desktop wallets are apps that operate on personal computers and store cryptocurrencies. No third party is involved, so the user is the sole responsible for the security. To ensure safety, install antivirus software on the system. 

Mobile wallets: 

This crypto wallet app can be accessed from a smartphone to store and control cryptos. This app is compatible with Android and iOS devices. This wallet is convenient for face-to-face payments. Majority of the mobile wallets also employ QR codes, which facilitates quick transactions.

Web wallets:

Web wallets are online-based wallets that can be accessed via both desktop and mobile devices. This is also used to store and send crypto from anywhere. These type of wallets has a high rate of risk since the passwords are kept on online servers.

What is the best security wallet for crypto?

The safest crypto wallet option is one that isn’t connected to the internet or any device. Make sure that, the wallet shouldn’t deny you access to your crypto because a custodian has financial issues. Many alleged ‘safe’ wallets possess wireless connection technology that determined cybercriminals can access.

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