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The expanding prominence of digital currencies has turned most crypto enthusiasts' attention toward how to store these assets safely. Crypto wallets shine in this regard as users can securely hold their virtual currency in these digital wallets.
What is a crypto wallet? How does it work?
A crypto wallet is a digital storage system or application software that secures the deposited crypto holdings. It does not function like regular physical wallets used for storing cash or cards, due to digital coins' unique and intangible nature. As cryptocurrencies live on the blockchain, the wallet software connects users with the âtransaction recordsâ present on that blockchain.
Technically, crypto wallets accommodate the public and private keys essential to transfer, receive, and store crypto coins. While the public key is a sharable code like bank account numbers, crypto wallets are primarily used to guard the private keys. A private key can be considered as the password to your bank account or a key to a safe deposit box that verifies the ownership of stored holdings. Hence, getting access to the private key would entail getting hold of all associated crypto assets.
Types of crypto wallets
Crypto wallets are represented in two primary forms, namely hardware and software wallets, allowing users to select a storage option per their requirements.
Software wallets: Also known as hot or online wallets, these wallets are connected to the internet and exist in the form of desktop, mobile, or web-based applications. Most cryptocurrency exchanges and service providers like Globe Invest Hub integrate hot wallets where user funds are naturally stored upon acquisition. While these wallets offer convenience, they are more exposed to hacking attacks due to their online storage servers.
Hardware wallets: Also known as cold wallets, store the crypto keys offline to protect digital credentials from online vulnerabilities. As the name suggests, hardware wallets are physical devices, mostly USB drives. While these wallets are safe from online attacks, there is always a risk of physically losing them.
Besides these two primary types, crypto wallets are classified as custodial vs. non-custodial. Custodial wallets are the ones where you are the sole owner of your data without any involvement of third parties. Offline wallets generally fall under custodial wallets and are recognized for enhanced security. On the other hand, non-custodial wallets channel your private keys to a third party. In return, they perpetuate a simple and user-friendly experience for crypto holders. The wallets offered by crypto exchanges fall under this category.
Are crypto wallets important?
Losing private keys is akin to losing your crypto money; hence, wallets ensure that your keys remain safe from online attacks or hacking. Most professional investors with extensive holdings prefer non-custodial wallets with cold storage to keep full control of their assets while ensuring high-class security. However, many retail and beginner enthusiasts rely on straightforward hot wallets offered by crypto platforms to take advantage of additional facilities, side by side storing their coins. Globe Invest Hub is one such leading service where crypto market players can trade digital currencies amid reliable and secure conditions.
That said, crypto wallets -whether hot or cold - are crucial to minimizing the risks of this relatively new asset class.
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Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.