Blockchain wallets, or cryptocurrency wallets, are designed for cryptocurrency users to hold and manage their tokens. The rise of this niche was especially significant with the surging popularity of cryptocurrencies. By using such applications, you can conduct any type of operation with digital currencies, as well as manage them properly.
Blockchain wallet basics
What is a blockchain wallet, and how do you use it? A blockchain wallet is an application allowing you to hold various types of coins/tokens as well as to conduct p2p transactions to pay for various goods or services.
Are blockchain wallets legal?
Yes, they are. You can use a blockchain wallet without any restrictions and limitations. Although, Distributed ledgers and cryptocurrency tokens are banned in some countries around the world.
Blockchain wallets are free to install and don’t change any fees for storage. All processes that are related to the account are done via the internet. To create an account, you’ll need to come up with a strong password. Some wallets offer 2FA, providing you with an even higher level of protection.
Blockchain wallets have many things in common with classic electronic wallets like Skrill, Neteller, PayPal, and others. Unlike their fiat rivals, classic electronic wallets are linked to various distributed ledger networks. Instead of account numbers, customers use special addresses that look like a series of numbers and letters (the standards may vary depending on a particular blockchain).
How to use a blockchain wallet
Modern cryptocurrency storage applications have a very simple user interface allowing customers to quickly send and receive tokens. Users can send cryptocurrencies to a third party by providing the counterpart with a special network address. Most wallets will allow you to generate a QR code that you can use instead of the address.
Where can I find my wallet address in a distributed ledger?
All distributed ledgers have their own explorers where you can see all the operations that were conducted since their inception. You can find your storage address in the ledger using such explorers.
Unlike fiat payment systems like Skrill or Neteller, where account numbers are always the same, some blockchain wallets may generate a new address every time you receive funds. Other processes are similar to classic online wallets.
Cryptocurrency wallets can provide their users with a wider range of features than simply sending, receiving, or storing tokens. Most focus on the security of your crypto, like with a multisig wallet where you get the option of securing your private keys in multiple devices or softwares; that way you can rest easy with the safety of your crypto. Some applications allow conducting inter-blockchain transactions (swaps). By doing this, you will be able to switch between various cryptocurrencies that belong to various blockchains without going to exchanges.
What is a blockchain wallet used for?
Blockchain wallets (or hardware storage) may be used for various purposes, including cryptocurrency storage, various financial operations, and purchase of goods and services.
Some storage applications of this type use various fiat gates to allow customers to buy cryptocurrencies using traditional currencies (fiat). You can add your credit or debit card, for instance, and use it to conduct various transactions. However, you will be obliged to complete a KYC verification procedure. Now you know what a blockchain wallet is, it is time to learn more about the main types of storage.
How Do Blockchain Wallets Work?
Even though we have covered the major things you need to know about blockchain wallets, this tutorial will be inadequate if we don’t explain how they operate.
What if we used an analogy like this one? Let’s say you gave out your Twitter handle/username to receive a direct message from a friend—George. When you give out your handle/username, it doesn’t necessarily mean that George will be able to send messages via your Twitter account. Regardless, that could only be possible if George knows your Twitter account’s password.
When creating a blockchain wallet, a public key and a private key are required. Relative to a Twitter handle/username, when a new account is set up, a public key is created if you wish to acquire money.
The private key is pretty much like a password, that is kept private—safeguarded, and never shared with anyone else. This means that if a third party gets their hands on your private key, whatever bitcoin deposits available in your account could be wiped out.
Conclusively, let’s discuss how Blockchain wallets works
- For example, if you share your wallet address with George, this implies that George will be able to send you cryptocurrency using your public wallet address. Instead of your actual wallet address, a hashed version of it will be used instead. When you use a hash function, your wallet address is connected to the input, resulting in an output that is hidden from authorized individuals
- If you lost your private key, you won’t be able to decrypt the information that the coin transmitter has encrypted. The procedures listed above are the means by which you can gain access to your electronic assets.
- An authorized transaction can only be made by the wallet owner using their private key.
It is essential to note that for every transaction signed with a private key has its unique e-signature, making it nearly impossible to duplicate. Users are advised to use each address just once in order to protect their privacy & transactions.
- A transaction’s receiver’s personality can be validated in the blockchain using a public key linked with the wallet address of the receiver. The receiver’s private key is used to unlock the amount and reflect the wallet’s value. Control and permissions over a linked cryptocurrency can only be exercised by an individual who has the private key associated with the public address.
- Many platforms & cryptocurrency exchanges use this principle to make trading easier. To transmit information, a person must use their private key to sign it.
Blockchain wallet safety
Providing the highest levels of security is one of the main goals of blockchains and all the applications that are designed on such networks. When it comes to crypto storage, various features are included to make it safer to use coins. The main tools that you can find in most apps of this kind are the following:
- Password. This is a basic feature that you can find in every online and offline blockchain wallet. You need to create your password on your own. Make sure it is strong enough and contains both numbers and letters as well as some special symbols that will make it very difficult for your account to be comprimised. Also, keep in mind that the password should be carefully written somewhere to be able to recover it later. If you lose it, you will be able to restore your digital vault access with a seed phrase only.
- Seed Phrase. This is the last “line of defence” of your wallet. It looks like a password. It was designed to give you access to your wallet in case you can’t remember your password or the hardware wallet is lost. The mnemonic phrase should be written down (and kept in a safe place) as the companies providing wallet services do not store it on their side. Losing your seed phrase means losing access to your tokens forever.
- Optional security measure. In addition to the above-mentioned security tools, you can also use some optional ones. Some wallet providers have 2FA and other protective methods to provide a higher level of security.
Blockchain wallet: hardware and software storage
There are two main types of blockchain wallets:
- Hardware wallets (cold wallets): These are hardware devices (that can look like USB memory cards) that you can connect to various readers to pay using cryptocurrency. Hardware storage can also be a simple server that has no internet connection.
- Software storage: This category includes various types of applications for desktop devices, mobile devices, and web browsers.
This is a small device that allows cryptocurrency users to hold their assets offline. To use tokens with this wallet, you simply need to connect it to any device via USB port or WiFi connection. This type of storage is considered to be the most protected method to keep cryptocurrencies safe as they remain offline most of the time. It is harder for hackers to steal tokens if the device is not connected to the internet.
Are blockchain wallets secure?
Modern wallet developers use cutting-edge technologies to provide you with the highest level of protection. In some cases, you don’t even need the internet to connect the hardware device to the app.
A typical hardware wallet generally costs from $100 to $250.
The most popular hardware wallets are:
- Ledger Nano X
This device works in combination with a special Ledger Live application that is available for both desktop and smartphones. This hardware storage uses cutting-edge technologies that allow you to conduct transactions even without connecting the device via USB port.
- Trezor One
This product was designed by SatoshiLabs and made in the Czech Republic. This storage uses the latest cryptography technologies to provide safety to the funds. The device comes with a LED display allowing you to conduct some minor activities even if Trezor is not connected to a PC or mobile device. To get access to the wallet, you need to enter a PIN code. There is also 2FA that increases the level of security of this portable vault.
SafePal is a small portable device allowing you to get instant access to your tokens. This wallet can be connected to the application using a QR connection (to minimize risks related to WiFi or bluetooth connections). This storage supports 10,000+ tokens, which is an opportunity to store all tokens in the portfolio in a single place.
- Ellipal Titan
This wallet offers a high level of protection and allows users to manage tokens via a touchscreen display. Along with other modern devices for cryptocurrency storage, Ellipal Titan uses no internet connection at all, meaning Ellipal offers the highest level of security.
- Trezor Model T
This is another great product designed by a Czech manufacturer. Model T works with 500+ tokens. The device comes with a special seed recovery phrase, which allows you to restore access to the tokens if you lose your password.
Unlike hardware wallets, software wallets are applications (desktop, mobile, or web) that store tokens online. Software coin vaults can be both for a single blockchain or inter blockchain, meaning you will be able to store their tokens belonging to various networks. The latter is better as you can swap cryptocurrency inside such an application without the necessity to go to cryptocurrency exchanges.
The most popular and reliable software wallets to store cryptocurrencies are:
- Velas wallet
This product is developed by the Velas blockchain team. This is one of the best blockchain wallets available as it allows you to store not only the Velas token (VLX), but also other coins from various blockchains, including ERC-20, BEP-20, HRC-20, and more. One of the greatest features of this storage is that fiat currency rates are constantly updating, allowing you to be aware of the current VLX rate at all times. Velas offers two versions of the app, desktop, and mobile. The desktop wallet has enhanced protection against various types of attacks and malicious activities. The Velas walletoffers a very simple user interface, the ability to stake your digital funds, and allows you to have all the most important features at hand.
This is another software wallet where you can store various cryptocurrencies. Exodus’ list of features includes sending, exchanging, and receiving cryptocurrencies. Thus, you can do whatever you do with a standard crypto wallet. Additionally, Exodus services include 24/7 support, a knowledge base, FAQ guide, and video guide.
- Coinbase wallet
Coinbase, a US-based cryptocurrency exchange, is among the top platforms to buy and sell tokens. They offer a proprietary cryptocurrency wallet that allows you to send, receive and store coins of various types. To provide higher protection levels, Coinbase stores almost 100% of customers’ funds on servers that are disconnected from the internet.
Created by the Winklevoss twins, Gemini is more than a cryptocurrency exchange. The website provides customers with a proprietary wallet where you can store various types of tokens. The wallet interface is very simple yet functional. You can see there the current price of the assets you store. There is also an opportunity to set limit orders to add cryptocurrencies to your portfolio later.
Software wallets can be browser-based, meaning you don’t even need to download any software on your PC. MetaMask allows you to store various Ethereum tokens, including ETH. While it is the fastest and easiest way to store tokens, remember that browsers are the most vulnerable pieces of software. Make sure you do not store any sensitive information in your browser. Otherwise, you risk losing your coins. In addition, MetaMask is available for mobile devices too.
Storing tokens on exchanges is risky. Hackers know that such websites always contain a lot of digital currencies. Even with the highest protection measures, those exchanges remain at high risk from intruders. If you leave your tokens on exchanges, remember that they are always in danger.
As you can see, there are plenty of ways to store coins. The cryptocurrency wallet industry provides holders with a wide array of options. It is recommended to choose the most reliable ones that allow you to conduct various transactions securely and work with several blockchains.