2.1.0. Cryptocurrency Wallets
Where do you hold your physical money? In your wallet, right? You carry the wallet in your pockets, bags, etcetera.
The same is true with digital money. Digital money is kept in a digital wallet. You need to know about a digital wallet. This is because that is where the financial world is heading to, and whether we like the idea or not, we’ll end up using digital wallets in our daily financial transactions.
What then is a digital wallet and what does it look like?
A digital wallet is a virtual application that allows the user to send, store and retrieve his digital money. Cryptocurrency wallets are digital wallets.
2.1.1. Four Types of Crypto Wallets
Depending on where cryptocurrencies are kept, cryptocurrency wallets can be divided into four types:
1. Desktop Wallet – kept on computer desktops
2. Mobile Wallet – kept in mobile phones
3. Web Wallet – kept in websites
4. Hardware Wallet – kept in hardware
Desktop, mobile and web wallets are also called Hot Wallets because you can easily access and use them for transactions. Hardware Wallets are called Cold Wallets because they are not easily accessible or used for transactions.
Hardware that hold Cryptocurrency Wallets include USB flash drives, Paper, etc. A paper hardware wallet refers to storing your cryptocurrencies by simply writing the wallet details on a piece of paper such as your diary. Because it is written down in your notebook, it cannot be hacked, right?
Indeed, one advantage of a cold wallet such as a paper wallet is that it is secured from hackers and scammers unlike a hot wallet. However, it is your personal responsibility to safeguard the hardware so that it is not lost or damaged.
2.1.2. Wallet Keys
When you hold a physical wallet, you will see a zip or buttons at the mouth of the wallet to safeguard the contents of the wallet. A cryptocurrency wallet also has digital zips or buttons to prevent unauthorised persons accessing the digital money in the wallet. These digital zips or buttons are called wallet keys.
There are two types of wallet keys:
1. Private Key
A private key, also called a seed phrase, is the key that allows the user of the wallet to validate and authorize a transaction in the wallet. This means anyone who has access to the private key has access to the digital money stored in the wallet.
A private key prevents an authorized person from tampering or using your cryptocurrency. Meaning, private keys must be kept secured if you do not want your digital assets in your wallets to be tampered with or be stolen.
2. Public Key
This is the key that allows digital money to be sent out or received into the wallet. This means you can give your public key to anyone who wants to send you a cryptocurrency.
Important Tip:
Your public key is like the address to your house; as such, it is sometimes called a wallet address. You can give anyone your address to locate your house. Locating your house with the address does not mean the person has access into your house.
To have access into the house, the individual will need your gate key. Of course, one thing you wouldn’t like to do is to hand your gate key to anyone! If you do, your house can be broken into! Your private key is like your gate key.