When it comes to business payment solutions, there are plenty of options out there. But one might be slowly gaining traction more than most: cryptocurrency wallets.
With the cryptocurrency boom, it’s not a shock that wallets are becoming a staple of financial management. Just like you need a wallet to protect your cash and credit cards, you should also know where you’re going to store your crypto.
So let’s learn about it:
Your Guide to Cryptocurrency Wallet
What is a Cryptocurrency Wallet?
Like your regular and digital wallets hold all your cash and cards, cryptocurrency wallets do the same thing. Except they store all your cryptocurrency, such as Bitcoin.
As defined by Business Insider: “a crypto wallet is a software program or physical device that allows you to store your crypto and allow for the sending and receiving of crypto transactions.”
How Do They Work?
A crypto wallet has two key elements that work effectively: private keys and public keys. It’s these two keys that securely store and allow you to transfer your cryptocurrency. Let’s explain them both in more detail below:
● The public key is like your address. You share it with people to send or take money from your account. The name public says it all: it’s about giving it out to the public.
● The private key is like your PIN code or safety deposit key. It’s the code that you enter to allow the transactions to commence. It would help if you never gave it away. It’s private for a reason.
You can send or receive cryptocurrency using these keys while keeping your funds safe and secure. But there’s another factor that impacts this all: the blockchain.
What is the blockchain? Let’s turn to Investopedia’s explanation of it:
“A blockchain is a distributed database shared among the nodes of a computer network. As a database, a blockchain stores information electronically in digital format. Blockchains are best known for their crucial role in cryptocurrency systems, such as Bitcoin, for maintaining a secure and decentralized record of transactions.”
Here’s how the blockchain and public and private keys work together:
1. When a person sends your crypto, they send ownership of the coins to your wallet’s address. The same applies if you send money to them.
2. They provide you with the details, and your private key must match the public address the currency is assigned to or vice-versa.
3. If the private and public keys match, the transaction is complete. As Block Geeks states: “The transaction is signified merely by a transaction record on the blockchain and a change in balance in your cryptocurrency wallet.”
And that’s it. That’s how simple cryptocurrency wallets work.
What are the Types of Cryptocurrency Wallets?
There are two distinct types of cryptocurrency wallets: software and hardware wallets. Let’s explain these options below in more detail:
The Software Wallet - As stated by Business Insider again, “a software wallet is a computer program or mobile app that holds private keys online”. These programs can include any of the following: Web-based, Desktop or Mobile wallets. These types of wallets are also known as “hot wallets”.
The Hardware Wallet - Much like the name itself, hardware wallets refer to devices which store your cryptocurrency data, such as USB. These are sometimes called cold wallets or cold storage and are considered the “gold standard” for crypto enthusiasts.
What are the Pros & Cons of Cryptocurrency Wallets?
There are, of course, pros and cons of using cryptocurrency wallets. Let’s take a look at a few of the key reasons for both of them below:
Pros:
● You can complete control of your money
● You can administer transactions to whomever you want and whenever you want
● Decentralized cryptocurrencies reduce resistance to who you send money to
● The high level of security ensures transactions are always safe and encrypted
● Various wallets available for different users
Cons:
● The responsibility is all on you, meaning if anything happens or goes wrong, it’s all on your plate
● There is a learning curve that comes with understanding and using these wallets effectively and safely
● Each wallet has its pitfalls, which you must learn to safeguard your crypto
We hope that this guide helps you understand what cryptocurrency wallets are, how they work and the pros and cons of using them. Please reach out to us if you would like any more information.