Basically, a software program, a cryptocurrency wallet, is a secure digital wallet that stores public and private keys. It enables users to store, send, and receive digital currencies and monitor their balance.
How Does It Work?
Crypto wallets do not store currency, unlike traditional fiat wallets. It is a known fact that cryptocurrencies are neither stored in a single location nor exist in physical form. In any digital currency transaction, the sender signs off their coin ownership to the receiver’s wallet address. To spend the funds, the private key (in the receiver’s wallet) and the public address (assigned to the cryptocurrency) should match if both the keys match, the balance in the receiver’s wallet increases while the sender’s decreases accordingly. The transaction record stored on the blockchain and a difference in the balance signifies the exchange.
Cryptocurrency Wallets and Its Types
Crypto wallets are categorized into two distinct types: hot wallets and cold wallets.
Hot (software) wallets
1. Is it only accessible from the system in which it is installed?
2. Connects directly to a client’s coin.
3. Examples: Ethereum (Mist) and Bitcoin (Electrum).
1. Smaller, flexible, and carries out the same functions as a desktop wallet.
2. Facilitates payment from anywhere and even in physical stores via QR code scan to any merchant accepting digital currency.
3. Examples: Jaxx wallet and Hive.
1. Runs on cloud and accessible from any computing device from anywhere.
2. Considered least secure since users have no control over the private key.
3. Example: MyEtherWallet