Technology has been developed to such a great extent that we have now broken the chains with the traditional centralized methods of going through our day to day life. Financial freedom is within our grasp due to the blockchain powered cryptocurrencies. In this article, we will learn about the storage of these incredible tokens.
What is Cryptocurrency?
Cryptocurrency is a completely digital form of currency that employs various cryptographic encryption technologies for the regulated production of more tokens and is governed by the blockchain technology. The first ever cryptocurrency to be introduced was Bitcoin. Even though Bitcoin did not have any centralized organization governing and was completely digital, it still managed to gain enormous community support due to the financial freedom that it offered.
Soon, more cryptocurrencies came into existence. As of today, there are over 1,600 cryptocurrencies out there. As per coinmarketcap, there are about 1604 cryptocurrencies. Without any centralized body governing the space, it is your own responsibility to keep these assets safe.
What is a cryptocurrency wallet?
A cryptocurrency wallet is the only place where you can store your crypto assets. A wallet consists of a unique address where all your funds are accumulated. Each cryptocurrency comes with its own wallet services. Additionally, there are many other wallet providers who support a number of different cryptocurrencies.
When it comes to cryptocurrencies, you are your own bank and no one else has to control over your money. Hence, a crypto wallet is essential to keep your funds safe.
How does a cryptocurrency wallet work?
The most basic aspect of cryptocurrencies is that it uses a two key cryptographic encryption method. Both the private key and the public keys are used together in order to utilize the crypto assets. A public key/address is used to receive crypto assets. The public address can be shared with anyone. The private key, on the other hand, is used to make transfers.
A private key can be thought of as a password without which you cannot access your funds. Whenever you transfer any of your funds from your crypto wallet, you encrypt the transaction using your private key. The transaction has to be decrypted and only then can the funds can be retrieved by the receiver. It is because of this property that no one else can hack and use the funds sent to someone else.
Both, the public and private keys of cryptocurrencies are made up of extremely long alpha-numeric characters. It is not convenient to enter every time you make a transaction. Hence, to make it easy for the user, the wallet stores both the private and public keys. Whenever the user makes any transaction, the respective key is used.
How are transactions made using a wallet?
Here are the basic steps you must follow in order to make transactions on your cryptocurrency wallets. The steps may vary slightly depending on the wallet you are using and the type of wallet. However, the core of the steps remain same irrespective.
- A crypto wallet is used for both, receiving funds and sending funds to other wallet addresses.
- Log in to your respective cryptocurrency wallet
- Decide on the operation, you can either send or receive coins.
- To send:In order to receive funds in your wallet, you will need to share your public address which can be found in your wallet. Anyone can send the respective crypto asset to your wallet address.
- To receive:In order to send any funds out of your wallet, the first thing you will need is the receiver’s public key.
- You can send the funds and, in the background, the wallet itself uses the private key to access your funds and make the transfer.
Some things to keep in mind while doing the Transactions
- The level of importance of private key in cryptocurrency is enormous. If someone else gets hold of your wallet’s private key, your funds are as good as gone.
- There will be absolutely no way to retrieve your funds once a transfer is made. It is due to this importance that most people prefer using a hardware wallet to store their funds as it has proven to be the safest method.
The number of wallet downloads and active users:
Due to the enormous growth in the popularity of cryptocurrencies in recent times, the number of users has grown exponentially. This is also the reason why the price of cryptocurrencies has skyrocketed. The increase in the number of users is also the reason for the increase in the number of active users of cryptocurrency wallets.
- Coinbase is by far the most beginner-friendly wallet. It has seen over 5 million downloadson the google play store.
- This just goes to show the enormous popularity of cryptocurrencies. The blockchain wallet is one of the most popular web and desktop wallets out there.
- As of 2018, the blockchain wallethas over 23 million active users. This is a huge growth as compared to the 4 million users it had in 2015.
5 million download: Google play-https://play.google.com/store/apps/details?id=com.coinbase.android&hl=en
Blockchain wallet users: Statista – https://www.statista.com/statistics/647374/worldwide-blockchain-wallet-users/
Different categories of crypto wallets:
The following are the different types of Cryptocurrency wallets
1. Hot Wallet
It is a wallet that is always connected to the internet in order to give you immediate access to your funds.
A hot wallet can be any software wallet or even a web wallet. A software wallet is one whose client can be downloaded into the user’s computer and used thereon. Almost all of the software wallets give the user full access to his private key.
A web wallet is one which can be run directly from the website. There is no need to download any software to use your wallet. Both, software wallets and web wallets are free to use. However, some software wallets and most of the web wallets do not give the user access to his private key and are also susceptible to hacks. Hence, cold wallets are preferred to store a large number of funds.
2. Cold wallet
A wallet that is not always connected to the internet is called a cold wallet. The wallet is connected to the internet only when crypto transfers need to be done.
Paper wallets and hardware wallets are the two types of cold wallets. A paper wallet is free to use and the user can create any number of wallets as he wishes. On the contrary, a hardware wallet is the most secure method to store cryptocurrencies because no one gets access to the private keys in this case. Additionally, the owner of the hardware wallet has complete control over the funds in a hardware wallet.
3. Multicurrency wallets
These wallets let the user store more than one cryptocurrency. The main advantage of such wallets is that you can have access to multiple cryptocurrencies all in just one place. Users need not have to maintain multiple wallets to have access to them. These wallets can be either hot wallets or cold wallets. All hardware wallets are multicurrency, cold wallets whereas most of the software wallets are multicurrency hot wallets.
4. Exchange wallets
These wallets can be considered as multicurrency web wallets. These wallets are used by crypto exchanges. Whenever you buy any cryptocurrency on an exchange, that crypto asset goes into the exchange wallet. The user does not have access to the private keys. However, since the exchanges have the best in the business security, your funds are safe on an exchange.
5. Storage wallets
These wallets are a kind of cold storage wallets. They are used to store cryptocurrencies. They are not always connected to the internet. Hence, the funds on such wallets are extremely safe.
6. Cryptocurrency transaction wallet
These wallets are purely used to perform numerous transactions. The funds on this wallet are solely used for activities such as trading and sending and receiving cryptocurrencies. The funds never stay permanently on the wallet.
7. Altcoins based wallets
These wallets are mostly web based in nature. Hence they come under the category of hot wallets. They are also multicurrency in nature. The defining feature of these wallets is that they support many altcoins which aren’t usually supported by other type of wallets. Some of the popular wallets under this category are Coinomi, Jaxx, Exodus and Cryptonator.
Cryptocurrency wallets are one of the most important aspects of cryptocurrencies. They are the only way to store the crypto assets. Due to the rapid rise in popularity of cryptocurrencies, the popularity of the crypto wallets has also increased. Since with cryptocurrencies you are solely responsible for all your funds, it is extremely important to choose the right wallet.