To understand what a crypto wallet address is used for, the First one must first understand what a crypto wallet is.
Crypto wallet: It is an application that stores your cryptocurrency as a sign-in key. It’s similar to how traditional wallet stores your cash or cards. Such applications, which are used to store cryptocurrency, come in different types.
Crypto Address: It is your private key to connect to the blockchain network of cryptocurrency. So that you can access your ledger transaction of cryptocurrency holdings.
Table of Contents
- How does a Crypto wallet work?
- Now that one understands Crypto Wallet, let’s see what types of crypto wallets are available!
- Conclusion: Do you require a wallet for Crypto Currency Wallet ?
How does a Crypto wallet work?
These crypto wallets are computer applications that are used to store your keys for your transactions of cryptocurrency. These wallets or computer applications require an internet connection to access your cryptocurrency.
Blockchains is a public ledger that stores data known as Blocks. These blocks contain details of records of all transactions held at any given address. Once connected to the internet, these wallets can link to the blockchain network on which your cryptocurrency is based. Cryptocurrency is stored in bits of data which is scattered on the database network. Once connected to the blockchain network, these crypto wallets can relate to all the bits of data corresponding to your public key. This data corresponds to the amount of cryptocurrency you hold.
One can quickly transfer the amount of cryptocurrency from one person to another. This is possible by connecting to its corresponding blockchain network. And entering the recipient’s wallet address, and signing the transaction using its own private key. It involves paying the network’s transaction fee and transferring the required amount of crypto.
Now that one understands Crypto Wallet, let’s see what types of crypto wallets are available!
There are Mainly Two Types of Crypto Wallets.
1. Custodial Crypto Wallet
2. Non-Custodial Crypto Wallet
Custodial Crypto Wallet
Third-party software application providers host these types of wallets. Such software company usually has an enterprise-level-data security system to preserve and secure your cryptocurrency on their platform. Most large Crypto exchanges provide this type of custodial wallet for their customers to store their cryptocurrency.
Benefits of a custodial wallet : is that you have instant access to your crypto stored on their network. Once you are logged into a crypto exchange, you can easily buy more crypto or sell it on their platform and quickly transfer your crypto holdings as hosted on their platform. This type of wallet involves low transaction costs with your crypto trading as the network doesn’t have to log to external resources or other networks to access your crypto holding.
Risk of using Custodial Wallet: Leading custodial wallet provider such as Coin Base has stated that in the event of bankruptcy, the holdings in their custodial wallet would be considered property of bankruptcy estate. Those customers who have an account with a Coin Base and balances in their custodial wallet would be considered unsecured creditors. In such a scenario, companies have the least priority to unsecured creditors to pay them, and thus it involves the risk of losing all of your investment.
Non-Custodial Crypto Wallet
These crypto wallets are wallets in which the end user is responsible for their security. As it’s human nature to feel secure when you hold your precious things rather than depending on others for their safety.
There are two main types:
Hot Wallet
Cold Wallet
Hot wallets
These are software applications or programs stored on your computer or in a USB drive and always connected to an internet connection. With an internet connection to your wallet, you can quickly transfer or receive your crypto with the sense of security that you are holding your wallet.
Cold Wallet
USB drives and hardware keys that are not connected to the internet are called cold wallets. Thus, you are always secure, even from the threat of hacking of your computer device or mobile device. These wallets become active when you plug them into the network and enter your passphrase, which is usually a set of random words to ensure high safety from hacking.
These hot and cold wallets can be of three types :
Software Wallets
- These are computer applications or programs that have access to connect or disconnect to the blockchain and space to store your private key to access your crypto transactions.
Hardware Wallet
- These are USB drives, Hard drive that stores your private key and connects or disconnects to the blockchain network of its cryptocurrency when required.
Paper Wallet
These wallets are your private keys of crypto written on paper or any secure writing material like a digital diary that doesn’t have internet access at all. This type of wallet is the most secure form of wallet. But have an inherent risk of loss or damage to your paper or digital diary and, in turn, loss of your crypto holding.
Conclusion: Do you require a wallet for Crypto Currency Wallet ?
It’s an absolute must for everyone who deals with cryptocurrency to have one or the other form of crypto wallet. This is to store the private keys for the crypto holding. Hot wallets are the one which has access to connect to your blockchain network to use your cryptocurrency. Thus, one can decide what type of Crypto wallet to use based on his risk profile and the amount of holding they have in crypto. Crypto assets are the most valuable targets for hackers to steal; thus, it is imperative to store your private keys safely and securely. Let us understand how cryptocurrency mature from proof of work to proof of stake
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