A cryptocurrency wallet is where these digital assets are stored . The wallets or “wallets” are also the origin and destination in cryptocurrency transactions, that is, it is where you will send and where you will receive your assets .
In practice, a crypto wallet is similar to a bank account. But the big difference is that you are your own bank and responsible for the custody of your coins. This is because the focus of cryptoeconomics is precisely on autonomy, privacy and financial freedom.
Each wallet is individual and has its own access code, which only the cryptocurrency owner should know. Understand how it works below:
How do cryptocurrency wallets work?
When a wallet is created, a “seed phrase”, also called a “ recovery key ” , is generated . It can be presented in a string of 12 to 24 words in English and works as a system recovery password.
If you need, for example, to import your wallet to a new device or install it again on a device, you will be asked for the seed phrase when restoring your wallet. So, write down and keep this sentence well , because without it you will lose your coins forever.
The cryptocurrency wallet access code is called “ Private Key ” . As the name implies, we can think of this code as the key to a safe or the password to your bank account.
This code is made up of a sequence of letters and numbers that allows your bitcoins and other crypto assets to be safe, as it is only possible to access a cryptocurrency wallet with its respective Key.
In addition to the Private Key, a cryptocurrency wallet will also have a “Public Key” , which works like your traditional bank account number or your PIX key.
The Public Key is used to generate codes known as “addresses” so that other people can transfer cryptocurrencies to your wallet. Likewise, to send your wallet assets to another user, you will need an address generated by their Public Key.
Cryptocurrency wallet types
Cryptocurrency wallets are divided into two categories:
- Hot wallets: These are online wallets, that is, connected to the internet. They are the most practical types of wallets, but they offer a slightly lower level of security than physical models because they are more susceptible to attacks via the web. However, they can also gain additional layers of protection.
- Cold wallets: These are offline wallets, maintained without an internet connection. By remaining disconnected from the network, cold wallets are able to offer a higher level of security, but are susceptible to other risks, such as physical damage, loss, etc.
Discover the main types of wallets below:
Online wallets are stored in the cloud. In this way, they can be accessed from different devices through an internet connection.
For this reason, these wallets are more practical and very convenient, especially for trading crypto assets.
But as they are accessed over the internet, it is necessary to reinforce security measures, such as activating Two-Factor Authentication (2FA).
Mobile wallet (mobile wallet)
These virtual wallets work on a mobile app that you need to download and install on your device. In this case, you need to consider the risk of problems such as the loss of the device.
Also, as the wallet will be on a device connected to the internet, there may be security holes. That’s why it’s important to add extra layers of security.
It is also necessary to verify the origin of the application, as there are malicious clones that seek to deceive inattentive users. Make sure you download it from the official store.
Computer wallets (software wallet)
Similar to mobile app wallets, the desktop wallet is a program downloaded and installed on the PC that tends to be more secure than the mobile wallet.
However, to protect yourself, it is important to keep your machine always updated, with antivirus and other security barriers.
Hardware wallet (hard wallet)
These wallets are small devices, usually in pendrive format, with a USB port.
Hardware wallets are safer against hacker attacks because they are a device that is mostly offline, without internet access. Whenever you want, you can plug it into your computer, transfer your assets across platforms, and then disconnect it.
However, one of the negative points for some people is the price, as it tends to be more expensive than other options. Another risk is device loss or physical damage.
Paper wallets (paper wallet)
Paper wallets represent a physical copy of your private key. It is a safe and practical way to protect this information.
In practice, you will have written or printed the private and public keys on a sheet of paper, and you can even have the QR Codes printed.
The biggest risk in this case would be for you to lose that paper and not have a copy of the information. That’s why it’s always important to keep a safe backup, like in a safe.
Difference between wallet and cryptocurrency exchange
Many people confuse the concepts of brokerage (or exchange ) and cryptocurrency wallet.
A brokerage is not a wallet. Cryptocurrency brokers are just a platform that intermediates the purchase and sale of currencies between users.
That is, if you have cryptocurrencies in a brokerage, it does not mean that you have a wallet within that exchange. In fact, the origin or destination addresses of your transactions on an exchange are for the broker’s own wallet.