To enter the digital currency market, it is necessary to have an electronic wallet; Because it provides the possibility to interact with the blockchain and send and receive digital currency transactions. Wallets are software and physical devices that allow users to access digital assets stored in that system. In addition, they allow you to send digital coins without the need for an intermediary. In practice, wallets are similar to bank accounts, but with one big difference: it is the owner of the wallet who is responsible for the ownership and security of your assets, not the bank.
How does the digital currency wallet work?
At first glance, the functionality of a cryptographic e-wallet seems complicated. However, it becomes easier to understand when comparing this technology to more popular services, such as bank transfers. See the following:
After creating the wallet, a “seed” is generated immediately. This seed is a string of 12 to 24 words (in English) that acts as a system recovery password. Save it and do not show it to anyone.
Right after creating the seed, the wallet generates a private key, a public key, and an address. The private key is like your bank account password. should not be transferred to anyone; Because through it you have access to digital currencies. The public key is like your bank account. Your cryptocurrencies are stored in it and can only be opened with the private key. Since it is public, everyone can see it, but no one can move funds.
Finally, the address is like your bank account number or it can be compared to your PIX. This address is derived from the public key and must be communicated in cryptographic transmissions. This address is basically an alphabetical sequence like this: 1G2bAat5x1HUXrCPQbtMDqcw7o5MNn5owX. This whole mechanism of keys and addresses is based on cryptography; A technique that involves the exchange of protected messages between two or more parties.
Types of digital currency wallets
There are different types of wallets with different flavors and shapes in the market. However, in general, the available models can be divided into two general groups: hot wallets (warm wallets) and cold wallets, the difference between which you can see below.
Hot wallets are wallets that are connected to the internet. They are more practical than cold wallets, but often more vulnerable to cyber-attacks, and have versions for mobile, web and desktop.
Mobile wallets are crypto wallets that can be downloaded from mobile app stores, such as Google Play and Apple Store. For those who want to buy from institutions that accept Bitcoin and altcoins, despite their utility, these wallets are more vulnerable to malware since they are online. Therefore, keeping all cryptocurrencies in a mobile wallet is even more risky here.
Some examples of mobile wallets are: Coinomi, Trust Wallet and Exodus.
Web wallets are those that are accessed by the browser itself. The user only needs to enter the wallet page and enter data such as login and password to move their digital currencies. These wallets are functional like mobile wallets; However, since they are always connected to the Internet, they are also more susceptible to hacker attacks. Two well-known web wallets are MetaMask and Blockchain.com.
Desktop electronic wallet
Desktop wallets are programs that can be downloaded and installed on a computer. Unlike what happens in web and mobile wallets, in this type of wallet, the user’s information is stored on the personal computer and not on the Internet. In general, they are more secure than mobile and web cryptocurrency wallets. However, the user should be careful and keep the equipment free from malware, viruses and other things. Two examples of this wallet are Electrum and Exodus.
Cold crypto wallets are those that are not connected to the World Wide Web. Since they are off the web, they are generally more secure. There are two main types:
Hardware wallets are physical devices that you can store cryptocurrencies on. They are small and since they are not connected to the internet, they are more secure than hot wallets. On the other hand, they are not practical at all, especially for those who need to use digital currencies on a daily basis. The main hardware wallets in the market are Ledger and Trezor brands.
This wallet is basically a piece of paper that is printed with private and public keys. There are programs like BitAddress where it is possible to generate paper wallets. Since they are physical, they are more secure than hot wallets. However, they also carry risks, both virtual and physical. For example, one’s computer may be infected with a virus while creating a wallet.
Advantages and disadvantages of digital currency wallet
Each type of crypto wallet has its advantages and disadvantages. Functionality is the main advantage of hot wallets; For example, smartphone wallets make life easier for those who want to use digital currencies for everyday payments. The disadvantage of this group is the connection to the Internet, which makes them more vulnerable to cyber attacks.
Creating a digital currency wallet
Step 1: Log in to Bitcoin.org
The Bitcoin.org website is the starting point for investing in this sector; Because it provides organizational information about digital currencies. After entering this site, you will see that you will have a series of Bitcoin wallet options, including Bitcoinnotes, Bitcoincore, Arcbit, Biter, Electrum, etc. Each of these wallets has similar and different features; Therefore, you should know how each one works and which one is best for you.
Step 2: Know the types of cryptocurrency wallets
Wallets differ mainly based on their platform; For example, Electrum is desktop only. There are also wallets that only work on smartphones and are apps. Another type of wallets are those that work in the cloud, hardware and even print. Each of these has advantages and disadvantages. It is worth noting that Bitcoin Core is the main wallet. Many people prefer Bitcoin Core; Because it is the most updated and oldest electronic wallet. This wallet works both through desktop and PC, Mac and Linux.
Step 3: Choose a cryptocurrency wallet
In the next step, you need to choose a cryptocurrency wallet. Depending on the type, it may take a long time; Because it must be downloaded. Each of the wallets will have a different process; But basically you need to create a profile, match the new ID with your personal information and attach a payment method, which can vary depending on the type of wallet. Then you can start buying and selling bitcoins.