General awareness of Cryptocurrencies is increase with each passing day and so are various questions. As the concept of digital currency is still on a nascent stage, if not consulted with an expert users you may end up with answers which can be misleading and confusing. It is therefore critical to understand basic concepts first and then move in to the complexities of this subject. One such basic thing about Cryptocurrency is the knowledge of “Cryptocurrency Wallet”.
What are Cryptocurrency Wallets?
To better understand the Cryptocurrency Wallets you should take an example of a bank. Just like you choose Banks as third party service provider to keep your money safely and you keep some with you physically in your purse similarly you do it with Altcoins.
Cryptocurrency exchanges work as third party service providers, you trust, for trading, selling and buying. But, unlike banks you do not keep them there for long. As professional trader you constantly keep it moving to enjoying trading. But to get a better control on your coins and to be secure you manage them under keys. This secure key management is called –Cryptocurrency Wallet.
Cryptocurrency Wallets are safe digital systems to store, send and receive digital currency. They are operated with- Public Key, Private Key and Keystore Files. These three actually define the wallet and the way the work.
How do Wallets Operate?
Wallets either receive or send digital currencies, and for both they need to identify you and at the same allow you the safety and authority to manage it. The three functional units of wallets are:
1. Public Keys
It is an address which denotes you and people see your wallet address in this form to send funds. Therefore by you can compare this with your bank account number.
2. Private Keys
It is a password to the currency you own. To be precise it is a digitally coded signature which gives ownership of your currency. It is equivalent to the Personal Identification Number you have for your bank account.
3. Keystore Files
This is the encrypted code of your private keys. It carries your data and identification which is converted into digital code to authorize your access and prevent unauthorized entry.
General and Important information
All Cryptocurrency have their own wallet and you are suggested to use their official wallets only for better control. You may also use:
a. Universal Wallets
They allow different Cryptocurrency storage, sending and receiving. You can use them anytime anywhere with registration to any one of them. They can hold multiple types of currencies and hence are called- Multi-Currency Wallets. Some can even convert one currency to another through integration with third party termed- ShapeShift.
b. Multi-Signature Wallet
There are wallets which require verification from multiple parties. Only when inputs from all of them are complete, then the transaction is taken as complete.
c. Online or Web Wallets
These wallets can be accessed using any web browser or when you connect them with the help of internet. They are fast in completing transactions. They are also sometimes termed as – Hot Wallets. Though they are suitable for handling small quantity of currency, the chances of hacking these wallets are high hence you must take proper care while using one.
d. Desktop Wallets
These wallets can be downloaded on your PC Desktop and they stay there. You cannot operate them from any other device, once done. That means you must ensure that your PC is highly secured against any virus attack or hacking. Also you must not damage the desktop of the computer physically, because that also will damage the downloaded wallet. Once damaged you cannot retrieve the data or the funds. Therefore you are also required to take a backup of the wallet.
e. Mobile Wallet
These wallets are downloaded on your mobile phones and run on these applications. They are highly convenient and can easily be used anywhere, anytime. Here also, you need to ensure that your keep your mobile phones safely.
f. Hardware or Offline Wallets
Hardware wallets store your private key on a hardware device e.g. an USB. Therefore the possibility of wallet getting hacked online is absent and you get complete safety. Once you plug them on, any device you can, you can perform online transactions but the currency is safely store offline. You actually have to keep the hardware device safely.
g. Paper Wallets
You are allowed to take the printout of the QR Code of the Public and Private Key. These wallets then can help you send and receive digital currencies. This way without digitally storing the data- both online or offline.
The most critical thing which you must keep in mind, always, irrespective of the kind of wallet you use is safety. Take ultra-care of your “Private Key”. Once you lose or misplace this you actually lose the fund and cannot retrieve the Cryptocurrency.