In order to buy, sell, exchange or give away any cryptocurrency, you must have a digital/crypto wallet. Someone who uses e-banking is familiar with the e-wallet or digital wallet, so it is relatively simple to get one (or many) digital cryptocurrencies. In this article, we will present the different types of digital crypto-wallets and how they work.
Cryptocurrencies are kept in a “wallet” which is a program installed on a computer or mobile phone, and it is designed to send and receive cryptocurrencies, make payments and transactions. Digital wallets open with “keys”. The private key is a secret number that is used for every transaction made in cryptocurrency.
Each private key is connected to a cryptocurrency address and allows trading with them. Without knowing the private key, one cannot access the digital wallet, so one cannot make any transactions.
Anyone can know the public key (such as knowing your email address), but the private key (seed) is known only to the owner of the cryptocurrencies (just like your email password). However, the private key is the one that proves the identity of a user’s address and you should NEVER share it with anyone.
The seed code is not just a regular password or PIN. It is a collection of randomly selected words generated by your device during initial installation. If you lose access to your device, then you can install the wallet on another device, in a process called backup, and unlock it using this word group. If these seeds are lost in any way, there is no one in the world who could help you find them again.
Digital crypto-wallets are divided into two main categories:
“Hot” wallets, which are connected to the internet (such as Mobile and Online Wallet) and “Cold” wallets, that are not connected to the internet (such as Hardware, Paper and the offline wallet).
What are the different types of crypto wallets?
Mobile Wallet: They are applications for smart mobile phones and tablets, which enable the storage of private keys and payments through the device. They operate using SPV and the BTC network with payment verification. Some have additional payment feature NFC technology, or support smartwatches with Android operating system.
Web Wallet (Online): These are wallets that store private keys on business servers connected to the internet. There are some web wallets that allow private keys to be encrypted before being stored on the server, while others allow additional storage in cold-storage media.
Desktop wallet: It is the wallet that is installed on computers with various features and runs on Windows, Linux and Mac OSX. Some of these wallets have special features, such as being directly connected to BTC services, having increased security and providing high levels of anonymity with mixing features. This type of wallet is popular among users for the security it offers and the relatively simple process of installation and use.
Paper wallet: It is a cheap and easy way to store private keys and addresses by printing on paper. There are wallet services offered by websites, which produce addresses and keys in an image and with a QR code, for the convenience of the user.
Hardware wallet: This is an external device, in the form of a USB, where the private keys are stored for more security and participate in the transaction process. The private keys are always located on this device and the transaction is signed, usually by entering a PIN from the device buttons in it. These devices allow the private key to be copied to another medium.
Another distinction between these wallets is about the currencies they serve:
- Coin-specific: A wallet that works only for a specific currency and is usually offered as an official wallet of the currency itself.
- Network-specific: A wallet that can serve multiple currencies on a single network.
- Multi – asset/multi – coin: A wallet that can provide addresses for multiple currencies. Just note that just because a wallet is multi-coin, it does not mean that it can literally accept all cryptocurrencies.
In general, the quality and security of digital wallets is constantly improving, as cryptocurrencies continue their path to wider acceptance.