What Are Cryptocurrency Wallets?
You might have heard about the rising popularity of play-to-earn games that give users the opportunity to make money simply by playing games. If you’re interested in taking part — or you want to buy, sell, and trade cryptocurrency some other way — you’ll need a cryptocurrency wallet.
A cryptocurrency wallet isn’t too different from a real wallet, except it’s digital. So, instead of holding real money, it holds digital money (cryptocurrency tokens). You can put currency into it and take currency out of it. Many also hold other digital assets, like NFTs.
Here’s a guide to cryptocurrency wallets for beginners that will help you understand the different kinds available, how they work, and how they keep your cryptocurrency tokens safe.
What is a cryptocurrency wallet?
A cryptocurrency wallet is essentially a piece of software. Think of it like a traditional online banking app; you can use it to keep track of your balances — how many tokens you hold as well as how much they’re worth — and to transfer cryptocurrency tokens back and forth.
The most popular wallets hold multiple different kinds of cryptocurrency token — as many as you like. So, in most cases, you only need one wallet to keep all of your tokens safe. However, it is possible to hold multiple wallets and move tokens between them if you wish.
When it comes to play-to-earn games, there’s no way of storing, trading, and selling the cryptocurrency tokens you collect without a cryptocurrency wallet.
How do cryptocurrency wallets work?
Unlike traditional bank accounts, which use account numbers and sort codes, cryptocurrency wallets use two digital keys. One of these is public and the other is private. They’re both long strings of letters and numbers (usually 14-64 digits) and they’re tied together, but they serve different purposes.
The public key is what’s used to make cryptocurrency transfers. It’s the key you’ll share with others when they want to send you tokens, and the key others see when you send tokens to them, like your bank’s account number and sort code.
The private key, which is not shared with anyone else, is a digital signature that’s used to authorize your cryptocurrency transactions. Without this, it’s not possible for someone else to withdraw or transfer tokens from your account — even if they know your public key.
It’s handy to know what these keys do, but you don’t have to remember them. Cryptocurrency wallets usually take care of that for you.
How many kinds of cryptocurrency wallet are there?
Depending on what you want to do with your cryptocurrency tokens, and how secure you want them to be, there are multiple kinds of wallet, including:
Mobile wallets
Mobile cryptocurrency wallets, which you can download from the App Store on iPhone or from Google Play on Android, are the most popular kind because they make managing your tokens — and keeping an eye on your balances — incredibly convenient. They’re also easy to set up.
Much like a mobile banking app, a mobile cryptocurrency wallet lets you access your tokens and trade or sell them from anywhere, so long as you have an internet connection.
Desktop wallets
Desktop wallets are much like mobile wallets, except they run on your computer rather than your smartphone. Some desktop wallets can also be accessed on a mobile device; however, others can only be used on the computer on which they were installed. These can be installed as a standalone application or as a browser plugin.
Hardware wallets
Hardware wallets are stored on a physical device, which typically looks like a USB storage stick, that you can take with you wherever you go and use on almost any computer.
What are the main differences?
Each of these wallet types has their advantages and disadvantages. Mobile wallets are by far the most convenient for the majority of cryptocurrency traders, and they are relatively safe, protected by access phrases and any security systems your smartphone provides — like a fingerprint scanner.
However, if you lose your smartphone and someone else gains access to it, they may be able to access your wallet and all your cryptocurrency tokens, too. Much the same can be said about desktop wallets, especially if you use a laptop, and these are arguably more vulnerable because computers tend to be more susceptible to malware, viruses, and other hacks.
Almost all mobile and desktop wallets are “hot” wallets, which means they are always connected to the cryptocurrency network.
Hardware wallets are considered to be more secure because when they’re not plugged into a computer, they are completely inaccessible, or “cold.” Your private key is detached from the internet and can’t be used. This prevents anyone but the wallet holder from using it.
However, hardware wallets can be more easily misplaced and stolen, and unlike mobile and desktop wallets — which you may be able to recover if you’ve kept your seed phrase information safe — hardware wallets are lost for good once the hardware itself is gone.
What kind of wallet is best for beginners?
Mobile wallets are usually considered best for those who are new to cryptocurrency trading. So long as you don’t share your access information with anyone else, and you’re mindful about avoiding cryptocurrency scams, you shouldn’t have to worry about your wallet’s safety.
You can also hold multiple wallets for peace of mind if you’re particularly concerned about security. With more than one, you can divide up your assets to significantly reduce the risk of losing them all in the event that a wallet somehow falls into the wrong hands.
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