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What is a crypto wallet?
What is a crypto wallet?
If you’re a new trader in a crypto world and want to invest safely, the first thing you need is a place to collect your crypto. The best place to store your funds as a trader is a crypto wallet. This is where you’ll organize your crypto portfolio. When you already have this wallet, you will have a private key that gives you access to your funds. (Important: Only you have this private key, no one else!)
Let's make a comparison with the national banks and the accounts in them. When we are a customer of a bank, we have an account (IBAN) in which we keep our money. Similarly, when we are clients of a crypto exchange, we must have a place to store our coins, this is exactly a crypto wallet. It is not a physical wallet; it is also called a digital wallet.
How does a crypto wallet work?
Generally, crypto wallets are designed to allow you to securely collect your cryptocurrencies and to have access to them. Technically, crypto wallets don’t store users’ crypto. User’s holdings live on the blockchain but can only be accessed using a private key. This key is the proof of ownership of digital money and only with this key, a user can make transactions.
What happens if you lose your key?
You need to be careful and avoid losing your key. In case you lose your key, you are no longer able to access your crypto wallet. But if your key is stolen, someone else will have access to your funds.
Wallets are essential tools for:
- Manage assets
- To have control on keys
- Send and receive cryptocurrencies
- Shop at stores that accept cryptocurrencies
There are different types of wallets. Which one of them is best for you depends on your personal situation, here are some common types:
- Software Wallet
A Software wallet is software used on your desktop or mobile phone.
- Web Wallet
Web wallets are “hot wallets” basically, it is connected to the internet while a cold wallet is not. But you need a hot wallet to download bitcoins into a portable cold wallet.
- Cold Wallet
A “cold wallet” is any type of wallet that is not connected to the internet, such as a paper wallet or a USB drive.
- Hardware Wallet
This wallet is probably the safest and the best way to store funds.
As with any other institution, where you invest and hold your funds, using a crypto wallet is important for your security and safety.
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