What is a Cryptocurrency Wallet?
In a year where the global pandemic crisis forced a shift in investors’ focus towards cryptocurrency, major financial players like PayPal announced they would start to accept virtual currency trading and Bitcoin hit an all-time high, 2020 could well be remembered in financial circles as the year cryptocurrency finally made its move towards the mainstream.
As conservative traders and general shareholders become more and more interested in the admittedly still volatile world of virtual currencies by using sites like https://bitcoin-evolutionpro.com it’s worth anyone with an interest in stocks and shares and trading gets to grips with this still fairly new financial landscape.
With that in mind, we take a look at one of the virtual currency essentials: the cryptocurrency wallet – what is it and is it secure?
What is it?
When you purchase, send or receive a virtual currency you need somewhere to keep it. Cryptocurrencies are, of course, virtual – so don’t think of a cryptocurrency wallet as a physical item. In fact, the name wallet is something of a misnomer and can be confusing to newcomers.
Cryptocurrency wallets are software programmes that store the public and private keys a trader needs to send and receive virtual currency. These programmes interact with the blockchains that monitor and record any cryptocurrency exchange. So basically, when someone sends you cryptocurrency they pass on ownership of the funds to you from their wallet to yours. The fund receiver can unlock these funds by matching their private key with the public key used to send the currency.
Is it secure?
Well, here is the million dollar question. After all, is Fort Knox one-hundred percent safe? The hard answer and the reality of cryptocurrencies is if you use an online wallet there is always a risk from hackers – and as yet, if your currency is stolen, there is no way to automatically get it back. That said, there are ways to mitigate your risks and manage them in such a way that your risk is minimised.
Cryptocurrencies can be stored in what is known as ‘hot’ or ‘cold’ wallets. Cold wallets are the safest – but lack practicality. Hot wallets are more prone to cyber threats, but are practical if you constantly move your currencies for trading purposes.
A cold wallet, also known as a ‘hardware’ or ‘offline’ wallet stores the owner’s private key offline, such as in a USB – and only becomes ‘Hot’ when connected to the computer and the various programmes you use in conjunction to your cryptocurrency. Cold wallets are safe – but, of course, can be lost and physically stolen.
A hot wallet is a storage place for your private key that is always connected to the internet and is the easiest method for crypto transactions. Of course, it can be encrypted and made as safe as possible, but by definition it is more vulnerable to hacks than a cold wallet. Typically, traders will use a number of hot wallets to store their cryptocurrency to mitigate potential loss.
Your journey into cryptocurrency is a potentially exciting one – so hopefully this guide to crypto wallets and the ones that will suit you best helps you on your way.