What Is A Cryptocurrency Wallet And How Do You Use It?

A cryptocurrency wallet is, essentially, a storage option where you can keep the digital assets you’ve bought. Your funds can also be sent to another person’s crypto storage by entering their wallet address and choosing the amount you want to send. 

However, using a crypto wallet isn’t just about sending and receiving coins. It’s also about managing and controlling what you have. Unlike traditional storage, these wallets don’t actually “store” your digital assets. Instead, they keep track of your holdings on the blockchain. You have to put your private key (the secret code) in your wallet before you can access it. 

While this sounds all sunshine and daisies, private key management and following proper cryptocurrency security protocols are important when using a blockchain wallet. 

Let’s learn more about it. 

How Does A Cryptocurrency Wallet Work?

Hard Wallet vs. Soft Wallet (Source: Emerald) 

A cryptocurrency wallet doesn’t hold your coins physically. Instead, it secures your private and public keys, which you’ll need to access and manage your funds online.

The public keys are your wallet’s address, so if someone wants to send some coins to you. You’ll have to provide them with them. However, the private ones are your secret passwords and should only be used when you are accessing your account for trading or management purposes. 

So, when you make a transaction from a crypto storage. It signs the process by using your private keys and broadcasting to the blockchain network.

After that, the blockchain, and the miners (who are working on validating the transaction) will begin verifying it and make sure that everything checks out before transferring the funds.

Once it’s done, you and everyone else can track general information, including who sent the money, when it was sent, and whom it was sent to. 

Transaction-related cryptocurrency security usually focuses on three aspects – encryption, key protection, and secure storage methods to prevent hacks and thefts.

So, using a combination of strong passwords and 2FA will be a great start. It’d be even better if you could store your private keys in an offline wallet.

These storage options are not connected to the internet and usually require you to physically use the device to send your funds. So, as long as it’s not getting stolen, no one can steal your funds or hack into your system as well. 

Types Of Cryptocurrency Wallets 

Advantages & Disadvantages of Hot & Cold Wallets (Source: Security) 

Primarily, there are two types of cryptocurrency wallets that you can use to store and protect your funds or private keys – hot and cold storage. The main difference between hot and cold wallets is that the first is always online. Which makes it easier for you to trade or receive funds.

However, the latter doesn’t have internet connectivity – so while it’ll take some time to send your funds, your private data will be secure.

Hot wallets are usually software-based, so you can use them in the form of a mobile app or a browser extension. They make using a crypto wallet for transactions much simpler by letting you log in with your password, note down the amount you want to send, and click on ‘submit.’

However, these wallets are always online and more exposed to phishing attacks. It’s important to protect them by using 2FA, and passwords, and being careful about opening random mails. 

Cold wallets come in the form of hardware or a physical device, like Trezor. Your funds and private keys are locked inside it from the get-go, and if you want to make a transaction. You’ll have to press a touch-sensitive button physically to do it.

The signing process generally happens inside the device automatically, so no one else can see your private keys. If it gets stolen or someone steals money from you. There’s a unique recovery phrase available for each device that can help you get your funds back. 

How To Choose The Best Cryptocurrency Wallet? 

Choosing the best cryptocurrency wallet isn’t just about downloading an app or buying a device – it’s about finding a balance between convenience, compatibility, and security. For example, some online wallets will be great for daily usage while the offline ones are built for long-term holding. So, let’s learn more about them. 

1. There are three types of security options you need to look for in a cryptocurrency wallet – backup options, two-factor authentication, and an encryption system. If you’re considering trading daily, using an online wallet would be perfect for you. However, in case you have a lot of funds in your account and want to protect them, it’s best to go for offline storage. 

2. Not every cryptocurrency wallet will support each and every digital asset available out there. So, to find proper compatibility, you need to choose the types of coins you want to deal with and then look for a wallet that can handle them. 

3. Features of the wallet will also matter in this case. For example, some of these storage options can only help you with storing your private keys and funds while others offer proper DeFi integrations and NFT support. So, your choice will depend on whether you want to be just another trader or a project developer in the making. 

Using A Cryptocurrency Wallet For Transactions 

If you are trying to send crypto to someone else, you’ll need the wallet address of the recipient. So, copy it carefully, double-check the information again, and make the transaction. Some wallets also allow you to scan a QR code to avoid errors. Receiving crypto works in almost the same manner too, however, the transaction time can vary depending on the blockchain network it’s using. So, in some cases, you may have to wait for a week or so. 

The Final Say 

Choosing the right cryptocurrency wallet is all about finding convenience and security in one app or device. If you’re not sure about which one is the most suitable for you, try watching reviews or talking to someone who’s involved in crypto trading. They should be able to offer some good suggestions regarding finding a digital wallet and making transactions.