“Bitcoin and other cryptocurrencies are dependent on blockchain – the underlying distributed ledger that guarantees tamper-resistant permanent transactions – to do business. But that’s not all blockchain does, or has the potential to do.”
― Olawale Daniel
The concept of digital money than we are hearing often is also stored in a trendy software wallet known as a crypto wallet. this wallet is different than all other wallets presently in use as this concept of the crypto wallet is based on blockchain technology which has gained popularity in a very short amount of time and now many people around the globe is using it as a good option. In short, if I try to explain then these wallets are the ultimate tool to interact with the blockchain network as you become a part of it.
Crypto wallets are mainly based on software thus their use is more convenient than normal wallets. Most people believe than as normal wallet is better option mainly because they aren’t aware of this handy technology yet. There are broad categories of crypto wallet mainly divided into three: software, hardware and paper wallet. If we consider there working mechanism then it’s known as a hot and cold wallet.
The names are a bit confusing but believe the more properly there working can be understood the more friendly and known it becomes.
A hardware wallet is considered as the most secure option. Paper wallet mainly consists of a wallet printed on a paper but their work is now considered as an unreliable option there is quite a reason to claim such that. As the name claim and to the consideration of people’s belief cryptocurrencies are not meant to store cryptocurrencies but help as a tool to interact with the blockchain network that is spreading rapidly. In simple words, these wallets are capable of generating some required information that sends and receive cryptocurrencies via transaction. This information consists of public and private keys also. The keys information is stored in pairs.
The private key has the capability of giving access to your cryptocurrencies as it doesn’t matter the wallet you use currently. Thus, even your mobile is lost or broken you can still raise your fund through the other device you have without any problem. The private must be safely stored without giving access to anyone as it is a piece of important and confidential information if lost then you can be a great danger. There is information known to us that in blockchain no coin leaves the network but is been transferred from one address to another address.
You must be thinking the two categories of crypto wallet I said among them which one is a better option let us see the comparison as hot vs cold wallet.
The working mechanism of the crypto wallet has termed these wallets with names as cold and hot. The hot wallet is concerned or simply connected to the internet. As here if we maintain an account on the internet and then transfer through internet service the transaction takes place online from one hot wallet of yours to another hot wallet to whom you are sending. The set up here is quite easy to do, also the funds are raised and accessible fast. This property makes it convenient for traders and frequent user.
Now about the cold wallet, there is not any link to the internet for sure they are mostly used as an offline alternative to store coins. This is a more preferable choice due to believing that hackers can be online more active thus its better to run offline authority such as this one. The method of cold storage used in these wallets is an excellent option for long term traders and investor in business field etc.in order to maintain the protocol of security promised by the blockchain wallet these wallets have set up a particular limit to store coins and more than isn’t accepted. Being a decentralized system, the whole authority lies under you thus no outside interference causes any problem.
Types of crypto wallets:
These wallets come in many types as per the characteristics they possess. The main thing that common in connection to the internet. The important types are as follows, these are common among people and thus mostly used
Web wallets are used to access blockchain online itself without downloading or installing anything includes exchange wallets, browser-based wallet etc. most preferred way is to make a new wallet online and after that set your credentials to access it. There is an organization that maintains this credential like a private key by your behalf we are again safe as those sites have set protocols to do this.
Although some term it as dangerous but few find it convenient mainly for an individual who is new to all theses. As private key is a piece of important information thus handling it to someone else is risky that is the reason web wallet has decreasing support by the people as they don’t want to take the risk with the finance matter. The person should go through the details and technical support before selecting the suitable one for use.
As we are aware of software that we download and install in computer in this wallet too the software is downloaded and then locally used in personal pcs etc. this gives full control to you as nothing is managed by the external source online on your behalf. ” wallet.dat” is stored in the local device once you generate desktop wallet on the pc. This file comprises all details related to the private key and its access also how you may encrypt it with your personnel password.
As we use another application same pattern is followed here as each time you use desktop wallet you need to enter a password that was set up earlier. This is done to ensure that o one other than you can simply open it and get the details which could lead to serious fraud in many cases. But one thing that is important to remember is the password do keep it safe as if lost you can lose all your fund directly as a backup do save details in a safe place that would be away from others reach. Also, you can export the private key so that in case your device stops working that with the key you could get access to your funds in any alternative device.
Desktop wallet are preferred more than usual web versions but the computer must be checked before using it for the option of wallet thus do check for virus and if find then clean it before use.
This is same as the desktop wallet but can manage through mobiles as a handy option. The convenience here has increased on people demand. They allow you to send and receive cryptocurrencies through the use of QR code. These are preferred more for daily transaction thus a good-to-go option for bitcoin transactions. The mobile should have set up related to password and away from malware for a good option.
This is a physical electronic device that uses the random number generated that is used to generate public and private keys. The device handles the storing procedure and the noting point is that the device isn’t connected to the internet. This can be said as a secured alternative than all other methods yes it is similar to the cold wallet that is for sure. Online attacks are avoided here, but firmware risk still a problem and this is mainly caused if the firmware implementation isn’t done properly.
There are reviews from people who those term hardware wallets as not user friendly as the fund take time to get accessed which creates a threatening situation for people. The reason why people demand has decreased for this wallet.
There are some online wallets available that permit the hardware wallet to connect through the online system. A proper plan and thinking should be done before considering it for the use.
A paper wallet is a paper-based technology in which the public and private key are printed physically on a sheet of paper in the form of QR code. The code is further used via scanning for the transaction in blockchain .this may sound a bit different and old but a large number of people use this there could be several and double assurances to do so. There are several options out there as a website for paper wallet allow the user to access the code and change the address to generate self-made or I can say own public and private keys the reason is friendly to the user here. These make them away from online hacks and theft. We can term them alternative cold storage.
However, the use of these wallets is now risky and people are starting to not use it. let us know how? The partial payment sending option here is disabled and thus the entire fund has to be sent at once. This makes people bit nervous to send whole money as if the investment is done and some amount isn’t needed still, they can not send half. The loss of fund is the problem here. Most software wallet can accept the change made by people but a paper wallet can not as it doesn’t send the remaining coins back. Thus, after the first payment itself, the wallet becomes empty regardless of the amount.
Bitcoin technology is changing everything and making efforts in all the direction or I can simply say field the fact is that how far it could enhance the finance and banking sector and if we make use of it how much time and efforts we can save thus do use it with proper knowledge and support it.