Crypto Wallets Overview
Many people often say that cryptocurrencies are “stored” in wallets, but this is technically incorrect. Funds are stored on the blockchain: a distributed, decentralized ledger that is the backbone of the cryptocurrency ecosystem. Wallets, in turn, contain important data that allow the user to access these funds directly inside the blockchain and, if properly managed, ensure their safe storage. Today we will talk about the device of wallets, their classification, and give a list of the most convenient for the end user, in terms of comparing their functions. How do cryptocurrency wallets work? To work with cryptocurrencies, special software is usually required – this is a wallet program that is integrated either into a software, exchange or hardware environment. It allows the user to work with the blockchain and create transactions or receive transfers to their address Each wallet, regardless of the operating environment, contains private and public keys.
The public key is a digital string that anyone can see. It consists of a set of letters and symbols and is used when sending funds to a wallet.
A private key is a kind of security key made up of a series of cryptographically generated random numbers that cannot be cracked. In fact, it is a 256-bit or 32-byte hexadecimal number that is created to sign translations.
The signed transaction is sent to the network and, once approved, reaches the recipient. Is it safe to use cryptocurrency wallets? In cryptocurrency systems, the security and integrity of your account is guaranteed by a network of agents (segmented file transfer or file transfer from multiple sources) that are verified by miners. They protect the network by maintaining a high speed of processing algorithms.
Hacking existing cryptocurrency security is mathematically possible, but the cost of achieving it is unacceptably high. For example, an attacker trying to trick the BTC blockchain into double spending would need computing power that exceeds the power of all miners in the system. But even then he will not have all the control capabilities. A hacker needs to cross the 51% power threshold to even get close to this goal. What choice is there A non-custodial wallet is a type of decentralized wallet in which the client owns his private keys. The user receives a file with private keys and must write a mnemonic phrase with which he can restore access to his funds. Having private keys means that the user has full control over the funds. However, it should be borne in mind that full control over the money also means that only the consumer is fully responsible for their funds.
In contrast, a custodian wallet is a type of digital wallet in which private keys and all data, that is, protection, funds, are backed up by the developer.
From the user’s point of view, of course, a non-custodial wallet is the most acceptable option, because in this case, attackers will not be able to steal assets, however, if you rely on the human factor and allow the likelihood of making mistakes, then keeping funds in custody wallets (not in in all cases), gives hope for the recovery of lost funds.
The wallets that hold the currency can be classified into:
Custodian wallet Exchanges. For the most part, keys on exchanges are generated and remain on the developer’s servers without reaching users’ devices.
Software wallets. there are also certain software wallets, such as FreeWallet, that store data on their servers. However, there are not many such services.
Non-custodial wallet Software wallets. Software wallets can be mobile or computerized and downloaded directly to your device.
Web wallets. These wallets are most popular with novice users and people who trade a lot. Web wallets are usually offered on the websites of major cryptocurrency exchanges. They can store any purchased currency, help to sell it quickly or transfer it to other users. The popularity of this type of wallets is due to the ability to quickly and easily sell various coins and make transfers directly on the site, which is very convenient for novice users. Web wallets are also great because they can be accessed through a browser from anywhere in the world. This allows you to always manage funds if you need to pay for something or make a transfer. The main problem with such wallets is the presence of potential risks of hacker attacks, so storing large funds in them is very dangerous. Despite the fact that the respective sites do their best to ensure the security of the offered wallets, they cannot control other people’s computers and find viruses and spyware on them, with which hackers steal money from their accounts.
Mobile wallets. Mobile wallets are usually used for storing small amounts of money as well as very impressive ones. More and more stores around the world are starting to accept payments in Bitcoin or Ethereum, so it is convenient to store some of these tokens in a mobile wallet in case the user needs to pay for something.
Paper wallets. The paper wallet is considered to be the safest cryptocurrency storage mechanism. To use them, the user prints keys on paper and integrates them into an online wallet.