1. Currency registers.
2. Work of crypto wallet.
3. Single and multi-currency wallets.
4. Hot and cold wallets.
5. Types of wallets:
6. How to choose a cryptocurrency wallet?
Cryptocurrency wallet is a specialized program that stores keys and interacts with various blockchains. As a result, users send and receive digital currency and control their balance. The wallet is an important element of the cryptocurrency infrastructure. It not only stores information about the incoming currency, but also data about all transactions within the network. You can deposit money, withdraw it, see what operations of users carried out. Find out, what is the total amount of issued currency and what is the average cost of one operation for transferring money within the network.
Any currency is a regular register of records of format: Owner -> amount. Registries can also store additional information, for example, you can add an address, passport, credit amount, etc. This registry is stored inside the block together with the functional for reading and changing. This information, which users see through the interface of their wallets. It’s worth noting, that link between the record with their wallet address in registry and the account is organized with help of verification of the private key.
Wallets for storing crypto-currencies are software products that store public, private keys and offer an interface that interacts with different blockchains. When a person sends a cryptocurrency, then he in wallet rewrites ownership on another address. To be able to spend money received and unlock funds, the private key stored in a wallet must correspond to the public address for which the currency is “rewritten”. If the public and private keys have coincided, then balance on wallet will increase. There is no actual exchange of coins. The exchange means only a transaction record on the block and a change of balance on digital wallet. At the same time, information about transactions is stored in open access in cells of blocks. If you sort out a huge amount of data, you can find all transactions, which have passed through your wallet. This is a difficult process, because data inside the network is measured by terabytes. In general, the principle of cryptocurrency wallet is similar to usual virtual purses. The difference in higher protection against hacking and decentralized control system without intermediaries.
There are several types of wallets. They depend by the number of supported currencies. Those that work only with one cryptocurrency are called single-currency wallet (for example, Myetherwallet – a purse for Ethereum only). Accordingly, storage, where you can store several crypto currencies and various tokens at once, are called multi-currency wallet. Purses for one coin are often official, and in most cases are designed for newly appeared tokens that haven’t received support from community. At the same time for single-currency wallets, there are advantages: fast updates and bonuses for storage. But this is sometimes true for partner purses. With the advent of Bitcoin, virtually all wallets were single-currency. This is due to many reasons: from competition between purses and currencies to different standards on which coins were based. But with development of blockchain technology began to appear more digital currencies, which caused the need to create multi-currency wallets. For investors and traders it’s very important that a digital wallet can store different crypto-assets. Examples of multi-currency wallets: MuCoWa, HolyTransaction, C-SEX, etc.
Wallets are divided into “hot” and “cold” depending by methods of cryptocurrency storage. Let’s consider each of them in more detail.
Hot wallets. Such purses have 24-hour access to Internet and with help of them, you can conduct transactions at any time. Hot wallets have a lot of advantages, but they can’t be considered safe enough. Basic the advantages of hot wallets:
- Ease of use. Enough to download the software and install it on computer. In most cases, the program itself generates all addresses and a private key. The user only needs to have basic computer skills.
- Efficiency. With the help of hot wallet, you can quickly perfome transactions. As noted above, they are connected to Internet around the clock.
- Large choice of applications.
The main disadvantage is that such wallets aren’t safe for long-term storage of cryptocurrency. This method uses most people to store small or medium amounts of money.
Cold wallets. This form of storing digital currencies is the most reliable. In such wallets, cryptocurrency is stored offline on a physical medium, which doesn’t have a direct connection to the Internet. Therefore, criminals have no chance to steal cryptocurrency. Cold wallets provide a much higher degree protection of digital money and are well suited for storing large amounts in cryptocurrency. However, it’s worth remembering, that preservation of funds is the main function of cold wallets, so for transactions they aren’t so convenient.
The way out in this situation can be the joint use of cold and hot wallets: principal amount will be safely stored at the first, a small part for performing quick operations – on the second.
Desktop. These wallets are downloaded to personal computer, where they are then used. At the basic of cryptocurrency is block that needs to synchronize. Including when you first start. And synchronization of the first start implies its full actualization. Application download a very large database volume through Internet to computer. Earlier this was acceptable, but today the amount of data has grown so much that it will take several weeks to load the information. Therefore, local wallets are divided into thick and thin.
Thick. The wallet downloads the all blockchain’s data to personal computer and uses a local copy of block-account in the work, making a permanent update of data. For personal use, such wallets are put less and less.
Thin. Large volumes of blockchain led to appearance of such purses. Thin wallets are placed locally and use a block from the resource server. You control the private key, but there is a third side between your wallet and blockchain. This reduces security of using this type of wallet.
Examples of local wallets: Exodus, Bitcoin Core, Armory, etc.
Online. The most simple and convenient purses for cryptocurrency are various online wallets. This can be both specialized sites that provide the same service, as well various exchanges. Many clients use them as ordinary wallets. With the help of this service, you can simply acquire a new wallet and easily use it to store small amounts. But with a large amount here need be very careful, due to the weak security system. If regulator closes of crypto exchange, or it decides to freeze account, then client will not be able to receive their digital currency without the exchange’s permission.
- quick registration;
- anonymity. Verification is not needed, the owner of wallet remains unknown;
- ability to work with several crypto currencies;
- high transaction speed;
- risks inherent in crypto exchange. Some of wallets are created with deliberately fraudulent goals. Also there are risks of hacking wallets;
- additional expenses;
Examples of popular online wallets: HolyTransaction, Coinbase, Crypto, etc.
Mobile. Such wallets are easy to pay. In the rest it’s all same thin local wallets, which work on smartphones. They are interesting to clients, who use cryptocurrency as a means of payment for goods and services. This is rather a transit option for storing cryptocurrency. Examples of wallets: Coinomi, Xapo.
Paper. There are services creating QR codes for key pairs. The meaning of “paper” wallet is simple – you start a wallet in any service and write, scan, print a pair of keys on paper. To use a paper wallet, you just need to scan the QR code and import it into any ordinary digital wallet that can perform this.
Hardware. Hardware wallets are devices that perform the function of storing cryptocurrency. In appearance, they can resemble a USB flash drive with buttons and a small screen. Hardware wallets are quite compact, but they require a connection to a computer or smartphone. You can carried their in pocket and used from anywhere in the world. They need to be ordered from the official websites of the manufacturers. On hardware wallets are stored specialized keys that can’t be extracted. The client gets access only at the expense of key, which is known only to him. To sign the transaction a closed address is used, hidden in a special crypto chip. Keys are never transferred to a stationary device and don’t appear in the cloud. At the moment, there are three leaders in hardware wallet market: Trezor, Ledger and KeepKey.
|Type of wallet||Online and Mobile||Hardware||Desktop and Mobile||Online||Desktop|
(information about 5 popular cryptocurrency wallets)
All cryptocurrency wallets depend on several aspects: from goals of cryptocurrency’s using to tokens, which will be stored there. In any case, wallet should has a high level of security. When choosing storage, you should pay attention to following parameters:
- Developers support their product;
- The wallet should has two keys – public and private, as well as several types of access, and better levels of security;
- It’s worth choosing a “cold” wallet;
- Every time you connect to the global network, any “cold” wallet becomes “hot”. Therefore, it’s important that purse can to change keys.
Other functions are already dependent on client’s needs. For example, investors and holders who rely on long-term growth of cryptocurrency, need to store coins on a hardware wallet or desktop without internet connection. Don’t keep all your capital on crypto exchanges. This is the most unreliable storage option, because hackers often steal currencies from them.
Whichever wallet you use, first of all, for the safe storage of cryptocurrency, you need to carefully monitor the private key. You must be its sole owner. In the rest, using of wallets of any cryptocurrency is reduced to a simple view of balance and transfer of funds to another account. Additional functionality are possible, but it’s not particularly useful and don’t give much importance at choosing a wallet. It’s worth noting that in the past few years, Blockchain actively developing. About introduction of this technology into the business, developers began to speak only in 2014 with the advent of Ethereum. But every year blockchain becomes more and more necessary in various fields.