Ever wondered which apps people use to buy, sell, store, and interact with cryptocurrencies? Read on to find out!
During the crypto bull run in 2021, people made a lot of money. I was not new to crypto then, so when the hype came close to home, many friends began asking me about one coin or another and how to buy them. While explaining the basics and guiding them on how to buy cryptocurrencies, we usually got stuck at the point where we needed a wallet.
“What’s your wallet address?” I would ask. “What wallet? What’s a wallet?” they would say. With a smug look, I would go back to where it should have begun—the first thing you should do when getting into crypto is to create a wallet!
What is a crypto wallet, and why do you need it? Come along with me; let’s find out.
To truly appreciate the role of wallets in crypto, look at how important they are in the real world. As much as it is easy to slip a few cash notes into your pockets or bags, it’s easier to use a wallet or purse. With a wallet, you can be sure all your money is safely tucked away.
Also, it’s easy to find cash whenever you need it, compared to scanning through all your trouser pockets. Finally, you can store other valuables, like your IDs, receipts, vouchers/coupons, etc., in your wallet.
In crypto, wallets are much more essential. You can’t buy, sell, or own cryptocurrencies without a wallet, just as you cannot send or receive digital money without a bank account.
A crypto wallet is an application that stores the private keys of a blockchain account. Most blockchain networks have a dual key-based system, where an account has private and public keys, which work hand in hand. Private keys are secret values that give a user control over the account, while public keys serve as the account’s address and verifiable value on the blockchain.
With a public key, you can receive coins from anyone, and others can check your transaction record on the blockchain, while your private keys must remain secret as they give you power over the coins in your account. If you lose your private keys, you will be unable to access or use your crypto.
Crypto wallets do not store your coins. Instead, they hold your private keys and allow you to interact with the blockchain through them. In simple terms, a crypto wallet is a bridge between the blockchain and you.
Based on the mode of storing private keys, crypto wallets are of two major types:
•Custodial Wallets: In divorce cases, the judge awards custody of a child to a particular parent. This means that the child stays with that parent. Custodial wallets give custody of the private keys, which wallets are designed to hold, to a third party. Examples of custodial wallets include Blockchain.com, Binance, and Coinbase.
•Non-custodial or Self-custodial Wallets: As the names imply, this type of wallet does not commit private keys to a third party. Most wallet providers that support self-custody usually make it clear that they do not store private keys. Self-custodial wallets instead require the user to save their private keys themselves. Metamask, Trust Wallet, and SafePal are popular examples of self-custodial crypto wallets.
You can also categorize crypto wallets into two, based on how they operate:
•Hot Wallets: A hot wallet is one that is constantly connected to the internet. Such an application is internet-based, usually in the form of software. Any wallet application on your phone or PC, like Metamask and its ilk, falls into this category.
•Cold Wallets: A cold wallet is a hardware device that performs the function of a cryptocurrency wallet. Unlike hot wallets, cold wallets store private keys offline, safe from online attacks. An example of a cold wallet is the Ledger Nano S.
Crypto wallets are essential pieces of the crypto puzzle, providing a user-oriented interface with the blockchain and helping you secure your coins. Beyond storing, sending, and receiving coins, there are many other things you can do with your crypto wallet.
Wanna find out all you can do with wallets and learn how to open a crypto wallet? Don't miss my next story!