A crypto wallet is a way to store your cryptocurrency, be it Bitcoin or Ether or Dogecoin or any other token. These currencies are secured through private keys, and you can store these keys in several different ways, all of which are simply called wallets. As a crypto investor, you don't need to 'mine' the tokens you own — you can simply buy and sell them on an exchange or even directly from others, and once you do that, you transfer the 'keys' to the coins to access them. Here's what you need to know about how this works.
What are private and public keys?
While talking about cryptocurrency wallets, it's important to understand what public and private keys mean. As the name suggests, cryptocurrency is based upon encryption technologies. This uses a combination of keys — a public one to identify the block of tokens and a private one to access them. Basically, without these, a crypto wallet is as good as no wallet. That's already a massive oversimplification, but if you're simply here to learn to trade about crypto, it can be simplified further.
Private keys are the passwords that allow you to check your balance, execute transactions and other services. Much like your username on a payment app that allows you to receive money, your public key on a crypto wallet allows you to receive tokens. Remember, both are equally important.
What exactly is a cryptocurrency wallet?
A virtual currency wallet or a crypto wallet is essentially software or an app on your mobile device where you store your digital assets such as Bitcoin, Dogecoin, and Ethereum. Not just that, you also use the same wallet to sign your cryptocurrency transactions digitally. A crypto wallet also keeps your digital currencies secure as access to it is protected by a password. Besides, if you like holding a wallet, you can opt for a physical device on which you can run your wallet apps. Bitcoin price in India stood at Rs. 29.75 lakhs, Dogecoin price in India stood at Rs. 15, and Ethereum price in India stood at Rs. 2.05 lakhs as of 11 am on August 6.
What are hot and cold wallets?
Hot wallets are on the Internet so that you can more easily access them, to use to buy or sell cryptocurrency. However, there is some concern about the security of such a system because it's also more accessible to attackers. That said, active traders will typically maintain at least some funds in a hot wallet for transactions.
On the other hand, a cold wallet is offline — instead of keeping your data on the cloud, you could download it to a USB device or a hard drive and keep your tokens safe there until you're ready to trade. This sounds like a great idea in theory, but if the wallet is damaged and you can't access the keys, then the coins are also gone forever, so you'll need to weigh the pros and cons of both approaches. Many stories of hard drives failing, USB drives being lost, and coins gone forever over the years.
Then there are also paper wallets, a more extreme cold wallet — where the private key is actually written down on paper to make it impossible to hack. This is also susceptible to getting damaged from the environment, being lost, or simply having minute errors in copying the codes, which would again render it useless, so whatever you do with your money, look into the risks first.
Store at the exchange
Besides hot and cold (hardware) wallets, many ask if storing money at cryptocurrency exchanges is possible. The answer is yes, but it isn't seen as the most secure place to store your valuable cache of digital tokens. According to a report, exchanges lose $2.7 million (over Rs. 20 crores) every day on average, and the figure is set to only increase in the future.
While you won't face the same issues in a reputable exchange, simply as a security precaution, it makes sense to spread your assets in different ways, based on different security needs and on the amounts you think you will be transacting regularly.
How to set up a digital wallet?
There are several digital wallets you can find online. Many exchanges also have their own wallets, separate from the exchange and can be used, but two hugely popular ones are Exodus and Mycelium.
Setting up and using these apps is pretty simple and just like using any online service. You create an account, log in with your details, and follow the simple on-screen instructions to transfer your cryptocurrency from other storage to these wallets.
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