If you are trading any cryptocurrencies such as Bitcoin or any alternative coins, you are going to need a digital wallet. Essentially, a cryptocurrency wallet is a software program which helps to store your private and public keys that you will receive when you store your cryptocurrencies.
This wallet enables you to interact with different blockchains so that you can easily do transactions using the software and check your balance.
How does a cryptocurrency wallet work?
Despite the large amount of users using cryptocurrency wallets, there is still misunderstanding about how these wallet function. Different from a regular wallet, a digital currency wallet does not store currency.
None of the currencies are stored anywhere in any physical for. The transactions done for cryptocurrencies are all stored using the blockchain technology.
To understand how you can profit off the blockchain technology, check out this comprehensive guide.
Cryptocurrency wallets are essentially software programs that keeps your public and private keys. By interacting with different blockchains, you can monitor your balance, send and receive money through the platform.
Anyone can send bitcoins to your wallet. When you want to spend these coins and gain access to the funds, the public address of the assigned currency must match the private key in the wallet.
What are the different types of cryptocurrency wallets?
Essentially, wallets can be broken down into three different categories. The three options you have are software, hardware and paper. For software wallets, it can be desktop, mobile or online.
These wallets are downloaded and installed on a computer. Access is only given to the computer that they have been downloaded on.
Desktop wallets is one of the most secure wallet, but in the case of hacking, you can easily lose all of your funds.
These wallet run on clouds and are accessible using any computing devices regardless of where you are around the world. The ease of access makes it highly vulnerable to hackers.
This wallet is an app on your phone. It’s convenient because you can use it, even at retail stores. These are are usually much simpler than desktop wallets because it takes up less space than a desktop wallet.
This wallet is different from the software wallet because you can store your private keys on a hardware device. An example of this is using the USB.
It is a method to store your cryptocurrencies offline. This wallet makes it easy for you to engage in transactions and keep your money away from danger because you keep it offline.
These wallets are generally used to refer to a physical copy of your public and private keys. However, it can also exist in the form of software which will generate a pair of keys, which will then be printed.
Anyone can transfer bitcoin or cryptocurrency to your paper wallet using the public address used on your paper wallet. When you want to withdraw the currency, manually enter your private keys or scan the QR code on your paper wallet.
How can you set up your cryptocurrency wallet?
To illustrate this example, you can use coinbase.com to create your wallet. Upon signup, you will be presented with a screen where you are prompted to enter your name, email address and password.
Several layers of protection are needed to ensure that your wallet remains secure. For this reason, you will be asked to complete the following:
This is necessary and it is a standard procedure for many financial websites. It is an essential authentication source to protect your wallet and login credentials. In order to do this, you need to key in your phone number.
Shortly after, you will receive a text message with a verification code that you need to enter on the website. Once you enter the code, your phone verification will be complete.
Add payment accounts
After you have validated your phone number, you now need to link a bank account, credit/debit card or a PayPal account. These are the accounts that you can transfer to from your Coinbase wallet.
During this process, it is highly recommended that you link your bank account as no ID verification is required for this step.
Link your PayPal account
For this step, you need to validate your ID. If you have a camera on your computer, you can upload the image for your ID this way. Another method to do this is by downloading the Coinbase app on your smart phone.
Uploading your ID image will be much easier using this way. Once you have verified your ID, you will then be able to complete your account linking and start transferring funds.
The last step that you need to complete is to validate your identity by filling in the account profile form. Once you have been directed to the identity verification form, simply enter your information and your wallet is now ready for usage.
Receiving or requesting Bitcoins on Coinbase
Your wallet is now active and this means that you can receive or send out cryptocurrencies. For you to receive Bitcoins from other people, provide them with your coin wallet address that they can send the funds to.
To do this, click:
BTC Wallet > Wallet Address
Once you have done this, a pop up will show a long alphanumeric address which is the address to your wallet. Provide this to the people trying to send you the big points.
If you are involved in mining cryptocurrencies, this address can also be used for you to send the profits to your wallet. You can also request bitcoins from other users via their email or by using their bit coin wallet address.
Your wallet is now set up!
Congratulations! Now, you have a fully functioning cryptocurrency wallet which you can use to buy, sell, and receive cryptocurrencies.
Start learning about how you can profit off the cryptocurrency market, through this guide which provides an in-depth analysis about which cryptocurrency can make you the most money.