Cryptocurrencies like Bitcoin and Ethereum are becoming more and more popular because they have a lot of advantages over traditional currencies. If you want to use any of these blockchain-based cryptocurrencies, you’ll need to know how blockchain wallets work so you can use them. In this article, we discover what a “blockchain wallet” is and why you might need one. We also discuss the different types of blockchain wallets.
1. Why Should You Use a Blockchain Wallet?
Traditional banking systems provide a number of challenges while conducting any transaction. For starters, transactions are frequently sluggish. For instance, each transaction must go via an intermediary, such as a bank, implying that there is a single point of failure. There are also challenges with maintaining track of all accounts and balances; data can be endangered, altered, or even corrupted across numerous systems where the accounts and balances are kept. Blockchain wallets mitigate or eliminate these issues.
2. What is a Blockchain Wallet Exactly?
A blockchain wallet is a type of cryptocurrency wallet that allows users to handle several types of cryptocurrencies, such as Bitcoin or Ethereum. A blockchain wallet facilitates the exchange of funds. Because transactions are cryptographically signed, they are safe. The wallet is accessible via online devices, including mobile devices, and the user’s privacy and identification are protected. As a result, a blockchain wallet has all of the characteristics required for safe and secure financial transfers and exchanges between multiple parties.
It’s pretty similar to sending or receiving money via PayPal or any other payment channel available today, except that you’re using bitcoin instead. Electrum, Blockchain.info, Samurai, Mycelium, Jaxx, and the Bitcoin paper wallet are all examples of blockchain wallets. There are several others, depending on your demands and desired level of protection.
3. How Does Cryptocurrency Blockchain Wallet Work?
To begin, let’s define private and public keys and how they relate to a blockchain wallet. When you establish a blockchain wallet, you are issued with a private key and a public key. As an illustration, consider email. You offer someone your email address if you wish to get an email from them.
However, disclosing your email address does not guarantee that someone would be able to send emails from your account. That would require knowledge of your email account’s password. Blockchain wallets operate in a similar manner, utilizing both a public and a private key. A public key is comparable to an email address in that it may be shared with anybody. When you create a wallet, a public key is produced, which you may share with anybody to accept funds.
The private key is highly confidential. It’s similar to your password in that it should not be compromised and should not be disclosed to anybody. You spend your cash using this private key. If someone has access to your private key, there is a good chance that your account will be hacked, and you will lose all of your bitcoin deposits.
4. Benefits of a Blockchain Wallet
Now that you understand how Blockchain wallets function, it is critical to understand their features. The following are some critical characteristics of Blockchain wallets:
- Simple to use. It works exactly like any other piece of software or wallet that you use on a daily basis.
- Extremely secure. It’s simply a case of safeguarding your private key.
- Allows for quick transactions across geopolitical boundaries. And they are barrier-free, intermediary-free transactions.
- Transaction costs are minimal. Transferring money is significantly cheaper than with regular institutions.
- Allows for cross-currency transactions. This enables you to perform simple currency conversions.
5. Types of Blockchain Wallet
There are two types of private key-based blockchain wallets: hot wallets and cold wallets. Hot wallets are similar to the wallets we use on a daily basis, and they are extremely user-friendly. Cold wallets are similar to vaults in that they securely store cryptocurrency.
5.1. Cold Wallets vs. Hot Wallets
Hot wallets are online wallets that enable the rapid transmission of cryptocurrency. They are available for purchase online. Coinbase and Blockchain.info are two examples. Cold wallets are a type of digital offline wallet in which transactions are signed off-line and subsequently made public online. They are not stored in the cloud or on the internet; they are stored locally for maximum protection. Trezor and Ledger are two examples of cold wallets.
|Hot wallets||Cold wallets|
|Private keys are stored in the cloud so that money can move more quickly.||Private keys are kept in hardware that isn’t connected to the internet or the cloud, or they are written down on a piece of paper and kept in a safe.|
|They are easy to get to online all the time and can be used on a computer or a mobile device. If they get hacked, they could lose all of their money and not be able to get it back.||The way transactions are made helps keep the wallet safe from people who don’t want to get it (hacking and other online vulnerabilities).|
Wallets can be further classified into three types:
- Software wallets
- Hardware wallets that are plugged into a USB flash drive; and
- Typical paper-based wallets, which require you to print your public and private keys on a sheet of paper and store them securely.
5.2. Software Wallets
A software wallet is a program that is downloaded to a device; this device might be a desktop or a mobile device, or it could be a web-based wallet that is accessible online. Popular software wallets include Breadwallet, Copay and Jaxx. Software wallets can be further classified as desktop wallets, internet wallets (web wallets), and mobile wallets.
5.3. Hardware Wallets
A hardware wallet is a form of cold storage device, generally resembling a USB, that securely keeps the user’s private key. Similar to portable gadgets that may be linked to a computer, these wallets (plugged in). As previously stated, they are less susceptible to harmful assaults and are completely hack-proof. The top hardware wallets on the market include the Ledger, Trezor, and KeepKey.
To conduct a transaction using your hardware wallet, you must first confirm that it is connected to your computer system.
5.4. Paper Wallets
A paper wallet is a method of storing cryptocurrency that is performed offline. This wallet is a printed piece of paper that contains both your private and public keys and can be accessed using a QR code. Due to the fact that these wallets are secure, they are frequently utilized to store huge quantities of cryptocurrency. Two extensively used paper wallets are Bitcoin Paper Wallet and MyEtherWallet.
A paper wallet is used in conjunction with a software wallet to enable funds to be transferred from the software wallet to the public address displayed on the paper wallet. To begin, you store your assets in a software wallet and then transfer them to the public address written on the paper wallet.
6. Blockchain Wallets Comparison
|Blockchain.info||Bitcoin and Ethereum||It is straightforward to use and offers a cheap transaction charge. It has an API that is available, so you can simply develop your own bespoke wallets.|
|Bitcoin paper wallet||Bitcoin||Bitcoin paper wallet enables you to create a tamper-resistant Bitcoin wallet on your printer. It significantly reduces the risk of hacking.|
|Jaxx||Bitcoin, Ethereum, Litecoin, and many other cryptocurrencies||A user can check his or her updated balance immediately once processing is complete using Jaxx.|
|Ledger Nano S||Bitcoin, Ethereum, and Litecoin||It is a hardware wallet that ensures your account’s security. Additionally, several accounts may be maintained and accessed at any time.|