Cryptocurrency Wallets: Guide To Crypto Wallet Differences & How They Work | Blockchain Central

Cryptocurrency Wallets: Guide To Crypto Wallet Differences & How They Work | Blockchain Central


What is up everyone? I hope your day is great! My name is Blu and you are watching Blockchain
Central. In today’s episode we’ll look at what
a crypto wallet is. Before we start, as always, please note that
this content does neither represent financial, legal, or tax advice, nor is it supposed to
be understood or interpreted as solicitation to buy or sell any securities, coins or tokens. When dealing with cryptocurrencies you’ve
certainly heard of so-called wallets. Maybe you already hold some crypto-currencies
– and therefore, also a wallet. But what is a wallet and what do you need
it for? Did you also know that you can choose between
different types of wallets? Are you aware of the pros and cons of each
alternative? What type of wallet is best for you? Let’s have closer look! To give you a first short and simple explanation,
a wallet basically gives you the ability to store and manage your cryptocurrencies. It’s just like the real purse in your pocket
– only that it contains a cryptographic currency, like Bitcoin or Ether instead of a fiat currency
like Euros or Dollars. With a wallet, you have the possibility to
receive, store and send cryptocurrencies. However, there are decisive and very important
differences to the wallets you usually carry with you. First, cryptocurrencies are not actually stored
in a wallet. A wallet, is basically just a software program,
that only holds the information where to look for your coins on the blockchain. Second, unlike your purse, which can hold
any type of currency, one single cryptowallet cannot be used to store all your cryptocurrencies
and tokens. Rather, for each individual cryptocurrency
you need a separate and compatible wallet. For instance, you can only receive or send
Bitcoins if you also own a Bitcoin wallet. However, if you do come up with the idea of
transferring a currency other than Bitcoin into this specific Bitcoin wallet, it is very
likely that your coins will be irretrievably lost – which would of course be very frustrating. So please always make sure you have the right
wallet before receiving a certain type of cryptocurrency. But before I start explaining the different
types of wallets, we first need to understand the very important concept of public and private
keys: Wallets always have a public and a private
key. You will be given these two numbers when you
open up a new wallet. The public key of a wallet is comparable to
the account number of your bank account. In order to receive money from someone you
normally share your account number with the respective person. With this number the other party is able to
transfer the money to the correct account – namely yours. In this particular instance, it is totally
acceptable to share this number with other people, as your bank details are not sufficient
to access your account or to withdraw any money. The same holds true for the public key of
your wallet, which consists of a long series of letters and numbers. This key is used to receive funds from other
people. By sharing it, nobody will ever have any access
to your wallet and therefore to your coins, so you can go ahead and share it when necessary. And now, a very important point, it’s a
completely different story with your private key. The private key of a wallet is comparable
to the pin number of your credit card. The pin number is secret for a reason and
should only be known by you. If it falls into the wrong hands, it is very
easy to gain access to your account and therefore to your funds. Again, and very importantly, the same holds
true for the private key of your wallet. A private key is a secret and unique sequence
of numbers, normally a 256-bit number, that allows its holder to spend the coins held
in the wallet. So, anyone who knows your private key can
access your coins in your wallet and possibly steal them. Therefore, you should never share or disclose
your private key to anyone, even if someone asks you to. Always keep this private key safe and inaccessible
to other people. Okay, now that we understand what a wallet
is and what you need to bear in mind when receiving and sending cryptocurrencies, it
is time to give you an overview of the most common types of wallets. Each of these types of wallet has its advantages
and disadvantages, be it availability, convenience or most importantly security. Let’s start with the so-called desktop-wallet. This wallet is downloaded to your PC and installed
like a normal software. However, for most wallets of this type you
will need some storage space, as they download the complete blockchain of the respective
cryptocurrency. That can quite often be a few gigabytes. The wallet can then only be accessed on the
computer to which it was downloaded. This type of wallet offers a high level of
security, since your private key is not stored on an external server, but on your own hard
drive. Also, you don’t have to buy any additional
hardware to keep your coins safe, as you can simply use your own PC. However, the security of the desktop-wallet
is only as good as the security of your PC. When using this type of wallet, it is necessary
to install a good antivirus program and a firewall to make it difficult for hackers
to access your private key. Also, when using this wallet, it is urgently
necessary to make regular backups of your hard disk, since a malfunction on your PC
can lead to the loss of your coins. This type of wallet is therefore particularly
suitable for people who attach great importance to security and do not carry out transactions
frequently. A very safe alternative way to store your
coins is the so-called paper wallet. A paper wallet, as the name suggests, is a
physical piece of paper on which the private key is written. You can then keep this piece of paper in a
safe place of your choice. This option is protected against all dangers
of the Internet. However, care must be taken to protect the
piece of paper from physical damage such as moisture, sunlight or fire. This type of wallet is particularly suitable
for holding coins in the long term. However, this option is not useful if you
want to execute a large number of transactions. That’s because a new paper wallet would
have to be created after each and single transaction because your private key was processed on
a computer, which consequently reduces the security level of your private key. Another way to manage your coins is the mobile
wallet. This wallet is probably most commonly used. Similar to the desktop wallet, a software
is being downloaded, but this time to your mobile phone and not your PC. You can easily download this type of wallet
from your mobile phone manufacturer’s app store. Often, this type of wallet is also offered
by popular crypto exchanges. Here, in the majority of cases your private
key is kept on external servers. The main advantage of mobile wallets is that
users can quickly access their coins, making them suitable for carrying out many transactions. A big disadvantage of this alternative, however,
is that the private key is managed by a third party and you have to trust their security
measures. Therefore, this option is especially suitable
for those who want to use their wallet to store and spend smaller amounts of coins. Those who want to securely manage larger sums,
should use a different option. To securely manage large sums of money, the
hardware wallet is probably the ideal choice. Similar to the desktop wallet, the private
key is not stored on external servers but remains in your possession. However, the private key is not backed up
on your computer but on a separate device. Hardware wallets have a secure chip, so when
you plug them into a computer to send out your cryptos, you never have to enter your
private key on the computer itself. This makes it very tough for hackers to steal
your private key, even if your computer is infected. To carry out a transaction, a predefined password
is entered on the device’s built-in display. A disadvantage of these hardware wallets is
that they are usually not the cheapest. Therefore, you probably want to spend this
amount of money only if you happen to hold a large position in cryptocurrencies. If this is the case, this option is a meaningful
and sustainable investment in the security of your funds. Okay, let’s sum it up. Each of the options presented has its advantages
and disadvantages. No wallet can provide 100% protection for
your cryptocurrencies but choosing the right wallet can significantly increase security. Before you decide on an option, always ask
yourself what you wish to do with your funds. Do you want to be as flexible as possible
and buy or sell frequently? Then the mobile wallet is probably the right
choice for you. Would you like to keep your coins for a long
time and therefore store them as safely as possible? In this case, it may be a good idea to use
a desktop or hardware wallet. Whichever wallet you use, make sure you have
backup arrangements. Though hacking is a clear risk when it comes
to cryptocurrencies, there are many more currency losses due to personal negligence than hacking. The security of your coins starts with you! Thanks for watching, I hope you liked it and
found this overview useful. If you liked this video, make sure to hit
that like button, share it with others and don’t forget to subscribe to Blockchain
Central to never miss a beat! Happy investing!

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About the Author: Maximilian Kuhn

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