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Cryptocurrency wallets

A cryptocurrency wallet is similar to a normal wallet, but where a normal wallet might hold physical cash, a cryptocurrency wallet holds digitalized currency (cryptocurrency).

It is likened to a traditional online banking app, as you can use it to keep track record of all transactions and balances as well as transfer and receive cryptocurrency tokens. It also stores the passkeys you use to sign these said transactions and provide an interactive interface that lets you access your various cryptocurrency.

Simply put, cryptocurrency wallets are software applications built on mobile devices and computers that help users store and use cryptocurrency.

As we know the blockchain is a database that comprises numerous computers that houses bits of data, making the system decentralized and immutable. Cryptocurrencies are practically not stored anywhere in the blockchain but stored everywhere, in the sense that they are bits of data that are scatteredly stored in the above-described database (blockchain). The wallet finds all of the bits associated with your public address and sums up the amount for you in the app’s interface.

Receiving and sending cryptocurrency has been made easy using these applications. Practically, you simply enter the recipient’s wallet address, chose an amount to send, sign the transaction using your private key, add an amount to pay the transaction fee, and send it.

HOW CRYPTOCURRENCY WALLETS WORK

Though likened to traditional bank accounts, which uses account numbers and sort codes, cryptocurrency wallets use two digital keys, the PublicPublic and Private key.

They are both long strings of alpha-numeric characters tied together usually about 14-64 characters. These keys serve different purposes.

The Public key is the one used to make cryptocurrency transfers, it’s the key you share with others when you want to receive tokens and is seen by everybody on the blockchain it’s indeed public.

On the other hand, the Private key, which is not shared with others, is simply a digital signature used for authorizing transactions. Without having this it’s impossible for someone else to execute the withdrawal function on your wallet undermining the fact that they know your public key.

TYPES OF WALLETS

There are generally two main types of wallets

• Custodial
• Non-custodial

Custodial wallets as the name implies are types of wallets where your private keys are kept on your behalf by a third party. This third party could be a trusted company that provides a data-secured system for businesses. Many cryptocurrency exchanges offer custodial wallets for their customers.

Noncustodial wallets are wallets in which you take responsibility for securing your keys. This is the type that most cryptocurrency wallets on devices are. Examples of this wallet include Metamask, Trustwallet, and Coin98

Whereas Custodial wallets are mostly Hot wallets, Non-Custodial wallets can either be Hot wallets or Cold wallets.

You might wonder what we mean by a Hot or Cold wallet. Well, a Hot is one which has a connection to the internet or to a device that has a connection, and a cold wallet has no internet connection.

There 2 other subcategories of wallets these are Hardware wallets and Software wallets

Hardware Wallet

Hardware wallets are physical devices that are designed to store cryptocurrencies securely. They store the private keys that give access to your cryptocurrency holdings offline, making it much harder for hackers to gain access to them. When you want to make a transaction, you simply connect the device to your computer or mobile phone, enter your pin, and then confirm the transaction on the device itself. Making it unhackable over the internet unless they possess your physical device and your pin. By default, Hardware wallets are cold wallets.

Pros

• Security – The most obvious advantage of using a hardware wallet is security. As earlier mentioned, private keys are stored offline, meaning they are not vulnerable to hacking attacks and malware which are common with wallets whose private keys are stored online. Transactions can be confirmed quickly and easily on the device itself.
• Compatibility – Hardware wallets support a good number of different cryptocurrencies, making it easier for you to store multiple cryptocurrencies using one wallet. This is good as most cryptocurrency enthusiast keeps a diversified portfolio.
• Backup and Recovery – Many hardware wallets are enabled with backup and recovery features, meaning users who damage or lose a device can easily recover their cryptocurrency holdings using a recovery phrase or any recovery mechanism associated with the lost device.

Cons

• Cost – Hardware can be quite expensive when compared to other storage options such as Software wallets and Paper wallets.
• Damage – Owing to the fact that hardware wallets are physical devices they can get lost or damaged and if users don’t have the recovery phrase for it, this might lead to loss of assets on the wallets
• Accessibility – though hardware wallets support a large number of cryptocurrencies they might not be compatible with exchanges and some other wallets which would make transferring assets difficult.

Hardware wallet in conclusion provides a secure and convenient base for storing cryptocurrency holdings. However, the cost, physical damage probability, and limited access can pose a challenge for users so it’s advisable to weigh the pros and cons before buying a hardware wallet.

SOFTWARE WALLETS

Software wallets are applications for desktops and mobile devices. These wallets are installed on this device and can access your assets, make transactions, display your balance, and much more. Unlike hardware wallets, software wallets don’t require a physical device to store the cryptocurrency.

Pros

• Accessibility – The fact that they are just software that can easily be downloaded and installed on a computer or mobile device makes them more accessible when compared to hardware wallets as you can access your wallet from any location with your phone connected to the internet
• User-friendly – Software wallets are generally more user-friendly than hardware wallets, as they have a more intuitive interface and are easier to set up and use.
• Cost – Software wallets often cost less than nothing as a lot of them are completely free to download and this makes them more convenient options for the user who doesn’t want to invest in expensive hardware wallets.

Cons

• Security – Software wallets are a lot more vulnerable to hacking and malware attacks as its private keys are stored on the user’s mobile device or computer. The private key can be compromised when users connect the wallet to malicious sites or even when there is malware present in the user’s device.
• Internet dependency – Software wallets might prove inaccessible in case of network downtime or maintenance as they are only accessible using internet connection.
• Compatibility – Not all software are compatible with all types of cryptocurrency, which can limit a user’s ability to store or transfer certain types of cryptocurrency.

Software wallets are a cost-effective way to store and manage cryptocurrency, they also offer seamless integration and accessibility with other useful services and exchanges, making them a favorable option for many users. However, the security risks associated with software wallets should not be overlooked, and users should take appropriate precautions to protect their private keys and ensure the safety of their cryptocurrency.

Installing/Setting up a Software Non-Custodial wallet (Metamask)

For androids…

• Open the Play Store and search for MetaMask. The official MetaMask app looks like the screenshot below. Be VERY CAREFUL that you don’t install a fake MetaMask app! Look for the one with 10M+ downloads.
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• Tap Install and wait for the process to finish.
• Once installed, open the app and follow the prompts to create your wallet.
• Back up your Secret Recovery Phrase somewhere safe and offline!

For IOS…

• Open the App Store and hit the search button in the bottom right. Input MetaMask into the search bar
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• Either click Get or tap on the name of the app to see more details. Complete the usual App Store download confirmation process.
• Once installed, open the app and follow the prompts to create your wallet.
• Back up your Secret Recovery Phrase somewhere safe and offline.

For PC (Chrome)…

• Visit Metamask official website
• Hit Download in the menu bar.
• Click “Install MetaMask for Chrome”. You will be directed to the Chrome Web Store.
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• Click “Add to Chrome”.
• On the pop up, click “Add extension”.
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