A Cryptocurrency wallet is a container of a user’s public addresses and private keys pairs. Addresses are like bank account numbers, and private keys are similar to passwords.
Users can have many addresses and private keys, the wallet simplifies the management and facilitates sending cryptocurrencies. Similar to an online banking app, but without the need to receive any authorization to open it.
Crypto is an open technology, you don’t need permission to open a wallet and start receiving and sending cryptocurrency.
Crypto wallet types
Wallets can be desktop (install on your computer), mobile apps, or browser based.
The most important thing is where your private keys are stored. Wallets that store online your keys are named Custodial, and they are responsible for safeness and security of your keys. At the opposite end, other wallets store keys on your device, so you are responsible for it, and if you lost it you won’t be able to access your crypto money!
Another difference is between software wallets and hardware wallets, where the latter require using a specific device, similar to a USB stick, where private keys are safely disconnected from the internet.
Cryptocurrency is a form of digital money with no physical coins or bills: it’s all online recorded on a public digital ledger. You can transfer cryptocurrency to someone without the need for an intermediary, as is required in the case of the dollar or euro with the presence of a bank or other payment institution.
People can use cryptocurrencies for quick payments and low transaction costs. Or consider cryptocurrencies as an investment, hoping that their value will increase. It is possible to buy cryptocurrency or get it in exchange for your work or accept it as a form of payment in your shop.
Hot and Cold Crypto Wallets: Pros & Cons
Hot and Cold crypto wallets usually refer to the difference between coins immediately usable (Hot wallet) and coins safely disconnected from the internet that require time to be availables (Cold wallet). Service providers do this separation, in particular Custodian and centralized Exchanges. Exchanges do this to securely separe most part of a user’s cryptocurrencies on cold wallets, and keep only a small percentage on hot wallets for trading activities.
Pros: funds in cold wallets are safe from hackers attack, because they are on secure hardware disconnected from the internet. Coins in hot wallets are easy and quick to access and use.
Cons: It takes time to withdraw all funds in a cold wallet, because service providers have safe procedures to avoid risks of loss or theft. Coins in hot wallets are at risk, because private keys are exposed to potential steal attacks.