What is a crypto wallet?
A crypto wallet is a software or an app that acts as a wallet for cryptocurrency. Like a physical wallet stores cash and cards, crypto wallets hold the keys to all cryptocurrency transactions. These wallets provide an interface where users can send and receive digital currencies.
To understand how crypto wallets function, we need to address two important questions: Why would someone need a crypto wallet, and what would they use it for?
Why do I need a crypto wallet?
Most of us would ponder if we actually need an interface for digital assets as banks already provide us with accounts.
However, cryptocurrencies differ from traditional fiat currencies like the US dollar or the euro. A bank account stores money in the currency of one’s country of residence. For example, a bank account of a US resident would hold funds in US dollars. Similarly, someone who lives in England would have a bank account carrying British pounds.
Users require a wallet to interact directly with the blockchain. If somebody wants to instead let other parties custody their tokens and interact with the blockchain on their behalf, they don’t require a wallet. However, if a person wants to interact with the blockchain, they require one.
What is a crypto wallet used for?
Most people use wallets to keep their cash and credit cards, while crypto wallets don’t store any funds. Instead, cryptocurrency exists on a blockchain. Users use wallets to authorize transactions that occur on the blockchain. If anyone’s interested in finding out their balance, they must look at all transactions ever associated with the wallet, instead of looking in the wallet itself. Therefore, to access this blockchain, users require a crypto wallet, but the transaction itself is occurring on the blockchain, public to everybody. Having keys to a wallet proves ownership of their cryptocurrency and allows them to make virtual transactions.
How to get a crypto wallet
Beginners can follow these five easy steps to purchase their first crypto wallet:
- Choose the type of wallet
- Buy or download the wallet
- Install the required app or software for the wallet
- Set up an account and enable its security features
- Deposit cryptocurrency for use
But before you buy a crypto wallet, it’s essential to understand different crypto wallets and how they work.
What are the different types of crypto wallets?
Every crypto wallet falls into one of the two categories:
Simply put, hot wallets are connected to the internet and are digital, while cold wallets aren’t always connected to the internet and are physical. Hot wallets function through software and other digital media, while cold wallets keep cryptocurrency in cold storage without any virtual connection. Cold wallets are hardware, physical devices that one can touch, whereas its hot counterpart is intangible.
Users may prefer a hot or cold crypto wallet, depending on their needs. We’ve compiled a list of different crypto wallets to help you choose the best crypto wallet to store cryptocurrency:
Software crypto wallets exist in the form of web, mobile, and desktop wallets. Let’s look at each:
- Web wallets – These require you to log in to an online account with a username and password with the keys granted by a third party