What is a crypto wallet?
Blockchain technology, also known as decentralised ledger technology, is rapidly transforming the world as many institutions, sectors, and industries embrace it.
Blockchain wallets allow individuals and institutions to leverage blockchain technology for a varied range of purposes.
Definition: What is a crypto wallet?
A crypto wallet is a software application or hardware device that interacts with the underlying blockchain network as well as stores users’ private and public keys.
Crypto wallets offer a convenient interface to monitor and manage digital asset balance. Additionally, crypto wallets allow you to perform a varied range of actions, such as purchasing and selling digital assets, conducting regular transactions, and interacting with smart contract-backed decentralised applications.
On top of that, crypto-wallets offer a wide array of features such as transaction tracking, portfolio analytics, and crypto-asset storage such as NFTs and tokenised estate.
Signing up for a crypto wallet is like opening blockchain accounts, equivalent to opening a bank account.
The rule of thumb: Your keys, your crypto-asset.
- As the age-old saying goes, “Not your private keys, not your crypto-asset”.
- The keys are used to encrypt and decrypt data.
The self-custody blockchain cryptocurrency wallets are used to store the private key in a non-custodial manner – eventually mitigating the risk posed by centralised custodial platforms.
The role of the self-custody wallet in the blockchain ecosystem is to allow users to control their randomly generated private keys – by holding them with a secret private key recovery phrase.
The Upsides of Blockchain Wallet:
Eliminates geographic limitations
- Some of the widely used crypto-wallets are devised to support cross-border transactions and enable borderless exchange.
- The crypto-wallet user can initiate transactions literally from anywhere, irrespective of their geographic location or nationality.
Lower transaction cost
- The cost associated with each transaction executed over the blockchain network is getting relatively cheaper.
- There is less cost attached because no cross-border institutions and intermediaries are involved in the process, especially when transferring funds using a crypto-wallet.
- Blockchain wallet facilitates cheaper transactions, especially when transacting massive amounts across borders or within national boundaries.
- Generally, there are no intermediaries involved in the transfer of assets or crypto tokens from one crypto-wallet to another.
- The network operators or the operators of the nodes involved in the transaction procedures – record your transaction on an ever-expanding digital ledger.
- Since there are multiple node operators and no intermediaries involved in the transaction process – there is no single point of failure – in the form of a central governing authority or centralised institutions.
- Privacy and security are integral parts of crypto-wallet and blockchain infrastructure.
- Crypto-wallets with cold storage and hardware support is shipped with top-notch security features.
- Blockchain networks and crypto-wallets employ advanced cryptography algorithms to attain state-of-the-art security.
- Traditional financial institutions have a really complicated setup and sign-up process.
- Traditional financial institutions such as banks require you to set up a bank account prior to participating in the global financial system.
- Banks ask for your identity information and other associated data to ensure compliance prior to opening an account.
- Usually, traditional accounts demand verification before initiating operations.
- On the other hand, crypto-wallets offer easier and simple setup, sign-up, and verification processes including KYC.
The two main types of blockchain wallets:
What Is a Cold Wallet?
A crypto wallet that allows users to store cryptocurrencies completely offline is referred to as a hardware wallet or cold storage.
Usually, a cold wallet is a physical device that connects with a varied range of web3 blockchain infrastructure, protocols, and decentralised applications via. blockchain APIs.
Though cold crypto-wallet safeguards your assets and crypto-portfolio for malicious actors, hackers, and cyber-attacks, still, securely storing your private keys is of paramount importance. It is critical to store your private keys in distributed fashion using multisig wallets in order to eliminate the risk of losing access to your digital assets in the long term.
With a cold blockchain cryptocurrency wallet, there are no cloud-based backups and no form of cloud-based private key storage support. But you can have your own physical backups.
Misplacing keys means you don’t own your assets anymore and cannot access your assets either.
The sole aim of cold wallet in blockchain infrastructure is to provide investors full control over digital assets and funds.
When compared to other types of wallets, it is much harder to compromise a cold wallet, considering wallet holders has taken all the precautions.
Cold hardware wallet Security
- Suppose you’re looking forward to exploring the ever-expanding web3 blockchain ecosystem. In that case do what most expert suggest – visit stores, purchase a brand-new hardware wallet from an authorized dealer or a verified manufacturer instead of opting for a used-hardware blockchain wallet.
- If you opt for a second-hand cold wallet/ hardware crypto-wallet, then you incur the risk of employing a compromised device – one that has been tampered with.
Cold hardware wallets are usually suggested for individuals and institutions who are looking forward to investing in cryptocurrencies and associated assets such as NFT for the long term.
If security and control are of utmost importance to you, then opt for a cold hardware wallet.
For individuals and institutions planning to trade crypto assets, there are a number of hot wallets in blockchain industry designed for precise trading purposes – enabling you to store and transact crypto assets directly from the wallet assigned by the exchange.
What Is a Hot Wallet?
A web-based crypto wallet that allows users to store cryptocurrencies online is referred to as a hot storage or hot wallet.
A hold wallet is a software application that is always connected to the internet.
It allows users to connect with the web3 blockchain infrastructure, quickly transact using public and private , and leverage a diverse range of decentralized applications via. blockchain API, including a decentralized marketplace.
The purpose of the hot wallet in the blockchain ecosystem is to provide users prompt access to their funds on their computing devices or their smartphone.
Web wallets, mobile wallets, and desktop wallets are generally grouped under hot wallets.
But there is a myriad of risks associated with the funds stored online in a hot blockchain account/ wallet.
The online blockchain cryptocurrency wallet ships with a user-friendly interface – improving the browsing and investing experience as a whole.
Hot wallet Security
- Hackers are always in search of bugs to exploit. The online crypto-wallets often get compromised due to undiscovered bugs – leading to serious loss of funds – sometimes, in millions. There are numerous exchanges that offer hot wallets in conjunction with their core services – to help users keep their assets with the exchange.
According to blockchain experts, if you’re just starting out and want to learn about web3 blockchain infrastructure
Blockchain experts often suggest starter to opt for hot wallet because it is easy to setup and free.