Cryptocurrencies like Bitcoin are steadily increasing in popularity and getting closer and closer to the mainstream of financial business and investment. More outlets and institutions accept and trade in cryptocurrencies. The ever-increasing value of different forms of cryptocurrency is encouraging more and more people, experts and novices alike, to consider it a sound investment. However, to enter the booming world of cryptocurrency investing, it is not just about choosing the currency you want: you also need to choose a cryptocurrency wallet.
What is a cryptocurrency wallet?
A cryptocurrency wallet keeps your currency safe, and it is also how you interact with the blockchain to make transactions. While cryptocurrency wallets come in several different forms, you will need one either online or connected to the internet to send and receive cryptocurrency.
This best crypto wallet review is very helpful to get an overview of the different types of cryptocurrency wallets and their pros and cons; The best crypto wallet review is very helpful. However, an important point to remember at the beginning is that your currency is not stored in the wallet. What’s in the wallet are the identification codes you use to access your currency: your private and public keys.
Where is my money?
The distinguishing feature of cryptocurrencies is that they do not exist in any physical form, and therefore cannot be “stored” anywhere. All you have is a balance showing how much of this theoretical digital currency you own. This information is recorded on a decentralized public ledger, the blockchain, which runs on multiple computers in different locations with different owners. Since it is public information stored in many places, it cannot be changed, falsified, damaged or lost.
Why do I need a wallet?
In a way, the term “wallet” can be misleading, as a cryptocurrency wallet is very similar to a bank account. Everyone knows that their bank does not keep their personal savings in a separate safe with their name on it. Instead, your account is a way to send and receive money, check your theoretical balance, and a way to ensure that you are the only person who has access to your money. A crypto wallet works the same way.
When your wallet is online, you can monitor your balance in real time, and you can make transactions using your private and public key. If you want to send money to someone, you require their public key: a randomly generated string of code that acts as the address to send the money to. This public key must then match their private key in order for them to receive it. If all goes well, your balance will decrease, and their balance will rise by the corresponding amount.
Why do I need two keys?
You need your private and public keys to access cryptocurrency funds, and you keep your keys in your wallet. Your public key is shared whenever you want to make a transaction, but your private key should never be shared with anyone. Giving someone your private key is basically like opening your virtual currency vault and telling them to help themselves. And unlike regular currency, there is no safety net in case your crypto funds are stolen or misappropriated. You are 100% responsible for taking care of your own money.
How do I know my wallet is secure?
There is absolutely no guarantee of security with anything, but there are steps you can take to make sure that your keys, and therefore your money, are as well protected as possible. An online digital wallet is necessary to complete transactions and check your balance, but anything online can potentially be hacked. Keeping your keys in an offline wallet, for example, a USB device, on a desktop computer or a removable hard drive, protects them from hackers, but there is always the risk of the device getting damaged, damaged or simply lost.
Whether you are online or offline, protect your wallet with random passwords, and change them regularly. Use two-factor authentication and tokens, and consider multi-signature authorization, where two parties are required to access the wallet. Choosing the right cryptocurrency wallet for you depends on how you use it: for example, whether you will make frequent transactions or will preserve your capital over a long period. But whichever option you choose, security is of paramount importance.
Andrew is a writer who does most of his work on cryptocurrency related topics. While he is primarily interested in bitcoin, he also follows major cryptocurrencies and innovative ideas that new crypto and blockchain projects are bringing to the table.