Why Crypto Wallets Are Important?
When you trade in cryptocurrency, then there are two important aspects that you need to consider, the first is to choose the right crypto apps like Bitcoin Era, and the second is the crypto wallet. You must make the right decision to secure your investments and study the mind boggling uses of cryptocurrency.
The wallets are virtual store boxes where the crypto coins are kept for future use. Even though most traders think that these wallets do not have any significant role in trading, the reality is far more different. Starting from performance to security, almost everything related to the crypto trade will depend on the wallet you are using.
Therefore, knowing about them will be beneficial before you start investing in them. At least, this way, you won’t make any mistake in choosing the right wallet or maintaining its confidentiality and privacy.
Table of Contents
What is a crypto wallet?
Crypto wallets are nothing but the digital form of your purse, but the only difference is that a crypto wallet won’t store the currencies. Rather, it will store the public key, the wallet’s address, and the private key, which will be confidential and known only to a trader.
These keys are long passwords containing both alphabets and numbers. Without the keys, you cannot initiate the transactions or make a trade. Moreover, these wallets offer maximum protection against thefts and malicious intentions so that the private keys are safe.
The Types Of Crypto Wallets
The crypto wallets are mainly of two types- hot and cold.
Cold wallets– These are mainly the hardware wallets which you can access without the Internet. Hence, the keys stored in these won’t be subjected to any kind of hacking activity.
Benefits of the cold wallets
- In cold wallets, you can receive the coins once the trade position is closed.
- No cyber-attack can harm these wallets since they are offline.
- It includes both the hardware and paper wallets.
- It is much easier to ensure that a backup is created for the cold wallet.
- Convenience and usability come with cold wallets.
Hot wallets – These are digital and can be accessed only via the internet, and therefore hot wallets are at higher risks of thefts and cybercrimes.
Benefits of Hot Wallets
- In hot wallets, you can store the keys without any fee, which is a great plus point.
- These are easy to use and access.
- Online cloud wallets are also considered hot wallets, and they can be accessed easily from any remote location.
Functioning Of Crypto Wallet
As we have already discussed, wallets do not store any kind of cryptocurrency, and rather, they are the storehouse of public and private keys. Once you open a position, buying or selling can be done only with the engagement of the public key or addresses of the two wallets- one of yours and the other of the seller or buyer.
Both these keys are included in the block hash that will be added to the blockchain ledger once the position is closed and the transaction is carried out successfully. The private keys won’t be present in the ledger, even though they are part of the crypto wallet.
Whenever a transaction takes place, the wallets need to have public keys of the same type of currency. For example, let’s say you are dealing with BTC, but the sender’s wallet has the public key relatable with LTC. In such cases, you won’t be able to initiate the transaction.
How to protect your crypto wallet?
You must take appropriate measures for protecting your crypto wallets because they are susceptible to thefts, damages, and so on. The following will give you useful info on how to safeguard your crypto wallet and the keys.
- When using a hot wallet, make certain that it is password protected.
- Always make a backup copy of the offline wallet to ensure that you still have your keys in case of physical damage.
- Use Two Factor Authentication to safeguard the wallet keys from hackers.
In this article, we have discussed several facts you need to know about crypto wallets. Now you can make an informed decision about the type of wallet, offline or online, you would need. Whatever you decide, just make sure not to compromise with your protection and safety are at the top.