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What is a crypto wallet and how is it created?
Written by Davies on / Reading time: 5 minutes.
Wallets have become a fundamental part of the blockchain technology. They have a practical utility and they are reliable. If you still don't know what the term "wallet" means, what it's for, and how many types of wallets exist, we will resolve your doubts: it's one of the best tools you can use to store your cryptocurrencies.
What is a crypto wallet and how is it created?
A wallet is based on the blockchain technology, in which virtual currencies are stored. In other words, it consists of a digital software that stores your cryptocurrencies securely. It not only allows you to store them, but also send them, as well as receive them.
The main difference between wallets and bank accounts is that in a wallet you have full control of your cryptocurrencies, whereas that is not the case with banks. They are not difficult to use; you only need specific keys that your wallet will provide you randomly. These keys are called "public key" and "private key" and consist of alphanumeric characters. Its features are:
- Private key: It consists of digits or a confidential password, which you should not share with anyone. Why? Because if you do so, you'd be sharing with that person the unique and confidential access you have to use your cryptocurrencies and that person will get full access to them and will be able to use them as they wish. This key, when it comes to the world of cryptocurrencies, is like your card PIN, to make a comparison between cryptos and fiat currencies.
- Public key: Depends on the private key. We can share it with another person, and it allows us to receive cryptocurrencies. It is not confidential and other people can know them. The public key is like your account number.
Having both keys is vital to the proper functioning of your wallet. If there's ever a misfortune with your smartphone, tablet or computer, don't worry because you're not going to lose your keys. Just reinstall the Wallet app you use and reset your account using your private key.
Types of wallets
There are several types of crypto wallets. First, they are classified into two groups: cold wallets and hot wallets. Then, depending on which group they belong to, there are different types.
On the one hand, the cold wallets are those that do not need to be connected to the Internet and therefore do not need the blockchain technology. In addition, this group is used to guard goods that will not be used for a long time or that you want to safeguard by specific circumstances. On the other hand, the hot wallets are those that always require an Internet connection; therefore, they are always available online and connected to the blockchain.
Types of cold wallets:
- Hardware Wallet
It is constituted as an additional design to paper wallets. Hardware wallets consist of a kind of security chip that makes it impossible for your keys to be entered into a computer without your permission. Thanks to this type of wallet your cryptocurrencies are stored more securely. However, its price is not economic. Some people who invest in cryptocurrencies see this aspect as one of its drawbacks.
- Paper Wallet
They're the ones we mentioned in the previous point. This wallet is exempt from any type of computer attack. Why? Because it is a wallet that does not require an Internet connection, it is not in danger of getting hacked. It is a wallet through which you can easily perform trades or transactions. It is easy to use. It consists of a printed document and you only need to have a public address, so you do not need to be aware of a code to scan it and be able to perform the operations you want.
Types of hot wallets:
- Online Wallet
This type of wallet is part of the group that needs an Internet connection. In fact, their name indicates that they need to be online. It's a wallet that saves your private key using a server that is provided and controlled by a company. Because it's online, it's always controlled by someone. These wallets are linked to other types of models: smartphone wallets and computer wallets.
- Mobile Wallet
They are the essential wallets if you are going to perform operations or transactions from your smartphone. They also require an Internet connection and allow you to send or receive cryptocurrencies in the same way as with another type of wallet. It consists of a faster wallet model in which utility is one of its strengths, since most citizens have a smartphone. In addition, it uses Simplified Payment Verification (SPV) technology, a very useful feature because it allows you to work with small sets of blockchain technology.
- Desktop Wallet
These are the wallets that are installed and used from your computer's desktop. A wallet that uses the hard drive to store your keys. Thanks to this function they are positioned as more secure wallets than online or smartphone wallets. In addition, they are recommended for people who trade or exchange smaller amounts of cryptocurrencies.
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Did you know these wallets? Do you use any of them? Did you know how they are created and their functions? They are a very useful tool for the use and storage of cryptocurrencies. If you haven't yet immersed yourself in the universe of virtual currencies, take the step. You'll discover all the benefits you get.