Crypto wallets are a device, physical medium, program, or service that stores the public and/or private keys for cryptocurrency transactions. For a user to trade cryptocurrencies, it is essential to have a wallet address to facilitate the transactions.
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In addition to this basic function of storing the keys, a cryptocurrency wallet more often also offers the functionality of encrypting and/or signing information.
Types of crypto wallets
Crypto wallets fall under two general categories: software wallets and hardware wallets.
A hardware wallet is a small device that can store crypto offline.
The typical hardware wallet costs around $100, give or take. These tend to be slightly more complicated to use than software wallets.
Most hardware wallets interact with a computer in one of three ways:
- A web-based interface
- A company-created app
- A separate software wallet
A software wallet is a computer program or mobile app that holds private keys online. Software wallets can either be used on the web, in which case they are custody wallets, which aren’t completely secure. Or they can come in the form of apps that can be installed on a phone/laptop, in which case the private keys are stored on the local device.
The three main types of software wallets are:
– Web-based wallets, like MetaMask, which work as a browser extension and can send ETH transactions, making it easy for users to interact with things like decentralized applications and decentralized finance (DeFi) protocols.
– Desktop wallets, such as the Electrum wallet, can be used on a desktop or laptop computer.
– Mobile wallets, such as the Blockchain.com wallet, that allow users to store crypto, send/receive transactions, and “sweep” the private keys of an existing wallet into the app by scanning a QR code on their smartphones.
The nine best cryptocurrency wallets:
- Ledger Nano X
- Coinbase Wallet
- Trezor Model T
- Ledger Nano S
How do Crypto Wallets work?
The wallets allow you to interact with blockchains, enabling you to not only make purchases and transactions but also monitor balance. Crypto wallets contain public and private keys that are unique to the owner of the particular wallet. While the public key can be compared to a username, a private key can be compared to a password. It is, therefore, essential that users never reveal their private keys. When one user sends another cryptocurrency, the receiver must be able to match the private key with the public key to unlock the funds and spend the coins.