In the most basic terms, a cryptocurrency wallet is a secure digital wallet that is used to store, send or receive your digital currency. In a broader context, a digital wallet is really an interface and reporting system whereby you have access to a certain cryptocurrency network such as Bitcoin, or Ethereum. Your wallet essentially allows you to send and receive cryptocurrency. That said, your wallet doesn’t actually physically store your crypto, it is simply a portal that enables you to view and manage your digital currency.
HOW DOES A CRYPTOCURRENCY WALLET WORK?
All digital wallets work in the same way; digital wallets work with the public address that allows you to receive bitcoins and a private key which allows you to spend or transfer Bitcoins that are stored at that address. Something important to always remember is that your private key is also the means by which your wallet is secured. Do not share your private key with anyone.
PUBLIC ADDRESS:
- Similar to your email address
- Used to identify your wallet
- Enables payments to an entity that has unique information
PRIVATE KEYS:
- Needed to exclusively access funds
- It’s a secret number
- Every wallet has one or more private keys
WHERE CAN I GET A CRYPTOCURRENCY WALLET?
There are a plethora of digital currency wallets available online. Each wallet has different characteristics, some might only hold a small selection of crypto offerings while others might hold a wide variety of crypto offerings. That said, from a beginner’s stand point it is highly recommended to start with the wallet offered by your crypto exchange of choice.
WHAT TYPES OF WALLETS ARE THERE?
There are 5 types of wallets that fall into two categories:
HOT WALLETS:
- Online / software wallets
- Desktop wallets
- Mobile wallets
COLD WALLETS / COLD STORAGE:
- Paper wallets
- Hardware wallets
Hot wallets, are HOT because they’re continuously connected to the internet. This increases your risk of being hacked. Cold wallets, are only connected to the internet for a quick moment, and mostly in order to update balances, or transfer crypto. COLD storage and cold wallets are best for proactively, securing your crypto.
We highly recommend and advise that if you are purchasing or holding a large amount of crypto, that you consider security first. It’s true that CoinSmart provides best-in-class security for all of our clients -that said, considering a cold storage option is always in your best interest. This is advice we’d give to ourselves.
WHAT ADVICE WOULD WE GIVE SOMEONE USING A WALLET FOR THE FIRST TIME?
Control of the private key, constitutes control over all the cryptocurrency associated with it. When someone else controls your private keys, you are not in control of your private assets.
Basically, what we’re saying is that we are a crypto exchange, who will in fact be in control of any cryptocurrencies you transact and coordinate through us. We want you to be vigilant about hot storage, and we also advise you to invest in a cold storage/wallet solution if your crypto holdings start reaching (subjectively-determined), high levels.
You should only be keeping what you are actively buying and selling in your hot wallet, at any given time.
In the end, when removing trusted third parties, cryptocurrencies grant us the opportunity, but also the associated responsibility of directly overseeing our own money. This is comparable to the effort required to maintain your own property and assets. With ownership comes responsibility.
