What are cryptocurrency wallets and how to tell the difference?
To understand different kinds of wallets, we need to first understand what are cryptocurrency wallets. A cryptocurrency wallet stores private and public keys which can be used to receive and send cryptocurrencies such as bitcoin, ethereum, litecoin, bitcoin cash, among others. As of January 208, there are nearly 1,658 known cryptocurrencies. The need for public and private keys for wallets is simple- every cryptocurrency has a private and public key. The private key makes it possible to digitally sign a transaction and write it in the public ledger.
When it comes to picking a wallet, a user must know exactly who will have a copy of the private keys. So, when exchanges say, that private keys are safe with them, a user should understand that they only have the companies’ word for it and there is no way to be sure that their private keys won’t be hacked or stolen. This brings us to hot wallets and cold wallets.
Hot Wallets
Hot cryptocurrency wallets are storage devices that are always connected to the Internet and cryptocurrencies held inside them can be spent anytime. Most cryptocurrency exchanges provide wallet services to the trader using the platform, which essentially makes those wallets, hot wallets.
Cold wallets
On the other hand, cold wallets are those that are not connected to the Internet. While users can store cryptocurrencies, they won’t be able to spend them, unless the wallets are connected to the Internet. Apart from that, the private keys in these wallets are generated offline. This makes cold wallets a lot more secure from potential security hacks and breaches.
Bitcoin Wallet
A bitcoin wallet is an app or a program that allows you to send and receive bitcoin cash or bitcoin. Wallets also come in handy to keep track of the user’s BCH or BTC balance which is held in one or more bitcoin addresses. Generally, wallets also have a feature that keeps a history of your transactions. There are some great wallets available to store bitcoins- Coinbase,Trezor, Electrum, Blockchain.info, Robinhood, among others.
Bitcoin Cash Wallets
If a user is registered with a cryptocurrency exchange that supports bitcoin cash, the exchange will provide a wallet for the user. However it is better if the user stores it in a different wallet, independent of the exchange. Some of the best known wallets to store bitcoin cash wallets are- Trezor, Ledger Nano, Atomic Wallet, Coinomi, Jaxx, Electron Cash, among others.
Ethereum Wallets
While bitcoin and bitcoin cash are primarily used as cryptocurrencies, Ethereum is a little different. Ether (which is the token for Ethereum) is not only used as a form of virtual currency, but can also be used as a method to power the ethereum blockchain. Simply put, the Ethereum wallet is a ‘gateway to decentralized applications’ on the Ethereum blockchain. It allows you to hold and secure ether and other crypto-assets built on Ethereum, as well as write, deploy and use smart contracts.
Conclusion
While there are different kinds of wallets (which are specific to desktops, or independent hardwares), it ultimately boils down to the kind of wallet, a user is looking for. If a user has sufficient faith in an exchange, they can opt for hot wallets, and if they prefer to hold on to their funds sans any external factor, cold wallets are the best option to choose.
