Cryptocurrency Wallet: Types And Functions

A lot of people out there might be wondering what a cryptocurrency wallet means. Others might know the meaning, but they don’t know that there are various types of wallets, and each has its unique function. This post will do its best to define and give you an overview of not just what cryptocurrency wallet are but also their types and functions. Without wasting much of your time, let’s get started.

What is a Cryptocurrency wallet

A wallet in the literal definition is a place where money and other valuables can be stored.
Once you add Cryptocurrency, it becomes a cryptocurrency wallet.
Therefore, I may define cryptocurrency wallet as a place (an account) with a unique address (just like an account number) where cryptocurrency users can store their Cryptocurrency.
Note the following points below:

  • It must have a unique address; this means that no two cryptocurrency wallet should have the same wallet address.
  • It must be able to receive, store, and send Cryptocurrency.

Unlike your regular bank where your account security and funds protection remains the top priority of your bank, your cryptocurrency wallet security is entirely your responsibility. This is due to the decentralization nature of Cryptocurrency. You are your bank.

Read more: Common mistakes in cryptocurrency

How does a cryptocurrency Wallet work?

The working mechanism of crypto wallet is similar to the working mechanism of your regular bank. Your crypto wallet has a unique address that sets it apart from the thousands of other wallets in existence.
Through this crypto wallet unique address, the wallet can receive Cryptocurrency sent to that specific address. After receiving the said coin/token, the wallet now stores the coin until the wallet user decides to send it to another crypto wallet address.

The main difference between the regular banking and crypto wallet is the fact that crypto wallet have a specific type of coins/tokens that it was designed for. Therefore, the users might need to have multiple wallets for multiple coins depending on their needs.
The only downside of this is that it leaves you with a huge burden of keeping numerous passwords and private keys safe.

 

Types and functions of crypto wallet

There are different types of crypto wallet available. We have a personal wallet which is divided into three different types (software, hardware, and paper) and the exchange wallet.

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What is an Exchange crypto wallet?

An exchange is where users can trade Cryptocurrency in a safe and convenient environment. Most top exchanges demand that you deposit the Cryptocurrency that you intend to trade. After deposit, it will appear in your account dashboard, and you can withdraw to your account whenever you want. I usually don’t advise people to save their Cryptocurrency in exchanges since you are no longer in control of your money, and anything can happen to the exchange.

Read more:China to introduce Central Bank Digital Currency (CBDC)

What is a Software wallet?

In this era of technological advancement, software wallets are one of the most common types of wallets available. You can install these wallets on your device (smartphone or computer). Most new projects always come with these types of wallet since it’s easy and cheap to download it. The only downside of this wallet is the security aspect of it. You need to be careful because anyone with access to your device an easily gets your private key and password. You also have to keep your recovery phrase save in cases of a lost password.

Read more: Common mistakes in cryptocurrency

What is a Hardware wallet?

Hardware wallet remains the most secure way to store Cryptocurrency. This is strictly done offline on a wallet. Because it is offline, hackers can’t penetrate your network. Even phishing links can’t get you on this one. The security is far higher than the other forms of wallets.
Despite the high security, the hardware wallet has its downside when it comes to comfort and accessibility. Because it is offline, it is not easy to access at all times. While you can easily access the software wallet with your mobile phone, you will need to drive down to interact with your hardware wallet physically.

In summary, a hardware wallet is an external device that signs the transactions for the Cryptocurrency network in an offline environment with the private key and then passes this file on to your online computer. As a result, the private key can never be stolen by hackers because the private key remains offline.
When configuring the hardware wallet, you have to enter a pin code or password and save the wallet seeds on the supplied card and store them very well (with these seeds you can retrieve your wallet if you have lost the hardware wallet or if it is broken).
The hardware Cryptocurrency wallet is highly recommended for more significant amounts.

Read more: Binance cryptocurrency exchange data leaks

 

What is a paper wallet?

A paper Crypto wallet is a Cryptocurrency wallet that is on paper. Apart from the hardware wallet, the paper wallet is the second safest way to store your Cryptocurrency.

In my opinion, keeping Cryptocurrency offline remains the safest way to store your Cryptocurrency. This is because no hacker can reach your offline wallet via the web.

The only downside of a paper wallet is that it has a lot of procedures when you want to use your crypto. It will require first to create an online wallet before you can then import your private key from your paper wallet here. It might look like a stressful work for some people. I recommend it if you are going to invest big and hodl for a long time.
It is also advisable to store your paper wallet carefully in a safe place to avoid stories that touch.

Read more: Bitcoin Circulation Hits a staggering 85 percent

What is Crypto wallet address?

Like I said earlier at the beginning, every wallet should have an address. A wallet address is that unique address that identifies the wallet from the rest. It is through the address that the wallet get to receive transfers. The address is often made of a mixture of several alphabets and numbers.
You can also check our airdrop category to get updated with the latest airdrop.

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