At this point, wherein computers and the internet have become part of our lives, we are already surrounded by so many things that are digital. One of the most popular digital innovations is the so-called cryptocurrency wallet. But for some of you, especially those who have just encountered it for the first or second time, you might still have difficulties in figuring out what is a cryptocurrency wallet.
In order for you to have a better understanding of what a cryptocurrency wallet is, let us first understand the meaning of cryptocurrency in the simplest way possible.
In most of your readings about cryptocurrency, you might already have encountered the standard definition that it is a form of digital currency. For a better understanding, let us give you a broader and more detailed explanation of cryptocurrency.
Cryptocurrency is a type of money that is linked to the internet, which is made by translating precise figures into codes that are almost difficult to crack by hackers.
Taking that into consideration, cryptocurrency is a form of online currency that can be used for a more secure online payment transaction. In addition, as contrasted to the traditional money that we have or hold, cryptocurrencies are not created and managed by central government authorities.
What is a Cryptocurrency Wallet?
When you look into the phrase “cryptocurrency wallet”, you will immediately think about your wallet inside your pocket or bag. However, unlike your traditional wallets, cryptocurrency wallet is a kind of digital wallet that does not really store digital currencies. That is because you or anyone has no power to save cryptocurrencies in one location since they do not have a physical form.
So, you may ask, “What is a cryptocurrency wallet if it is not a money-storage item?” According to experts, a proper definition of it is that: it is used to hold your digital currency up to the time that you are going to use it. In addition, it is also a system wherein a record of your payment transaction information and password is stored.
The History of Digital Wallets
Cryptocurrency or digital wallets have actually been around for some time but were not as popular as they are now. In fact, the very first generations of these wallets came about in the middle of the “dot-com or .com” popularity.
However, the public did not recognize them since they were developed by individuals and companies that are not well-known and had no significant influence and contribution in the financial industry during that time.
The development of the modern cryptocurrency wallet came about right after the development of cryptocurrencies. These digital currencies were developed following the introduction of bitcoins by Satoshi Nakamoto in 2009.
How Secure are Cryptocurrency Wallets?
Since cryptocurrency wallets work using online platforms, you cannot deny the fact that they are prone to hacking. Nevertheless, the level of security of your cryptocurrency wallet will be dependent on the type of the wallet that you are using, your service provider, and your safety practices.
About that, the best way for you to increase the security of your digital wallet is to make sure that you encrypt and backup your passwords and wallets.
If your digital wallet has been appropriately encrypted, all transactions that will be made using it will require an authentication process. What is better is that all payments made using a cryptocurrency wallet is secured since your financial information is hidden.
Nevertheless, it cannot be considered entirely as anonymous since there are still transaction data that are stored publicly and permanently on the blockchain ledger. Nevertheless, your name, address, and other contact information will be safe and hidden to the public.
Types of Cryptocurrency Wallets
Knowing what is a cryptocurrency wallet and how to use it securely is not enough for you to be able to become a bonafide cryptocurrency wallet expert. It will also be great for you to know the different types of cryptocurrency or digital wallets that are available. Through that, you will be able to use one that suits your needs.
Generally speaking, most cryptocurrency wallets have location-awareness, loyalty program, comparison shopping, digital coupon, and virtual receipt features.
Nonetheless, they are different when it comes to the way they hold your cryptocurrency, as well as on how you can access and use it. With that in regard, the four general types are software, hardware, online, and paper cryptocurrency wallets.
Software Cryptocurrency Wallet
If you are familiar with basic computer terms, you are already aware that software is a useful application or program that are installed and downloaded. Thus, a software cryptocurrency wallet is a downloadable and installable digital wallet. This type comes in two subtypes.
- Desktop or Laptop
This desktop- or laptop-downloadable software cryptocurrency wallet is the most common one that is available for you to access your digital money. The good thing about this type is that you can only access your money by using the computer wherein you have downloaded the app. Nevertheless, the security level may be lowered once your computer obtains a virus or gets hacked by someone.
Mobile cryptocurrency wallets are the best if you are an individual who wants and needs to use your digital money in retail stores or shops. That is because the application is installed on your Smartphone. Thus, you can carry and use it anywhere.
Hardware Cryptocurrency Wallet
As contrasted with software cryptocurrency wallets, a hardware cryptocurrency wallet is a removable computer device that contains your cryptocurrencies. They can be a good substitute for mobile cryptocurrency wallets since you can also carry it anywhere. However, you will need to find an internet-enabled computer wherein you can plug it in.
Online Cryptocurrency Wallet
This type of digital wallet, as the name implies, is a web-based type of a digital wallet wherein the data are virtually hosted. As similar to mobile and hardware cryptocurrency wallets, this type can also be accessed anywhere as long as there is an internet connection.
Paper Cryptocurrency Wallet
This is a type of digital wallet that is said to have the highest level of security when it comes to hacking. That is because, with this, you will be printing the QR codes of your public and private keys.
What is a Cryptocurrency Wallet: Final Words
If you are just new to the cryptocurrency world, you must be fully aware of what is a cryptocurrency wallet by not just simply understanding its definition. You must also have an excellent understanding of its different types and how they are used. Through that, you will be able to securely and correctly use your digital wallet and money.
As mentioned earlier, a cryptocurrency wallet is not meant to store your digital money physically but to simply hold it so that you can access and utilize it. Nevertheless, it can still be in some ways defined as the electronic version of your pocket wallet since you can use it to pay for your online purchases directly.