The popularity of digital currency does not seem to fade away soon. The world is opening up to the possibilities of using cryptocurrencies such as Bitcoins, Ethereum, and altcoins. However, the continuously escalating popularity of cryptocurrencies has also presented some notable implications for the demand for blockchain wallets.
It is quite obvious that large-scale adoption of cryptocurrencies would require wallets to store them, just like you need wallets or vaults for storing fiat currency. Many people are worried about finding out a suitable blockchain wallet they can use for storing valuable crypto assets.
The following discussion provides a detailed impression of ‘What is a blockchain wallet used for?’ alongside important factors pertaining to security of blockchain wallets. In addition, you can also find an outline of the different types of blockchain wallets alongside the important factors to consider for selecting a blockchain wallet.
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What is a Blockchain Wallet?
Any discussion on blockchain wallet would start with a definition. Blockchain wallets are just cryptocurrency wallets that help users in storing and managing different types of cryptocurrencies. The blockchain wallet provides better ease of exchanging funds alongside offering secure, cryptographically signed transactions. Most important of all, blockchain wallet download functionalities allow you to use them through the internet.
Blockchain wallet offers all the necessary features required for transfer of funds between different parties with highest levels of security. Blockchain wallet simplifies the process of payment with cryptocurrencies as you can use them like any other digital payment solution like PayPal. Some of the notable examples of blockchain wallets include Bitcoin paper wallet, Electrum, Mycelium, Blockchain.info, and many others.
Read More: Top 5 DeFi Wallets For 2021
Working of Blockchain Wallet
The ease of accessibility of blockchain wallets through the web shows that anyone could get started with a simple blockchain wallet download. However, you need to understand what exactly happens when you create a blockchain wallet. A clear impression of the working of a blockchain wallet could help you understand its functionalities comprehensively. Blockchain or crypto wallets could show you the account balance, including Bitcoins, ICO tokens, or other digital assets in your ownership. The wallets basically serve as a bank vault for crypto assets.
When you complete a blockchain wallet download process, followed by setting up the crypto wallet, the wallet generates a private key. In addition, you would also get a public key related to the concerned wallet. The private key is the most important element in the working of blockchain wallets, and you cannot risk compromising it. You could not disclose the private key anywhere or lose it as the private key is mandatory for accessing your wallet. If you lose your private key, then you can lose the crypto assets in your wallet.
Another crucial element in the working of a blockchain wallet refers to the public key or the blockchain wallet address. Wallet users can share the public key with people who want to transfer crypto-assets to them. People who have to send cryptocurrencies to a wallet should include a private key to their own crypto assets and the blockchain wallet address of the receiver.
The process of sending cryptocurrencies to a blockchain wallet basically implies transfer of ownership to another individual. Therefore, the private key of the cryptocurrencies should match perfectly with the public address of the receiver. Every transaction with blockchain wallets is completely encrypted, and the wallets of the involved parties reflect respective changes in balances.
Reasons to Choose a Blockchain Wallet
Many people who are beginning their journey in the blockchain world could ask questions such as ‘What is a blockchain wallet used for?’ and satisfy with generic replies. Anyone could guess that blockchain wallets are used for storing blockchain tokens, coins, or assets. Apart from their basic functionality, blockchain wallets also present some notable features which favor their use in different applications.
- Blockchain wallet is similar to any other software you can use for daily transactions.
- The wallet ensures security, only with the responsibility of users to safeguard their private key.
- Blockchain wallet allows faster transactions throughout borders without any intermediaries and restrictions.
- A simple blockchain wallet download could also let users carry out transactions with multiple cryptocurrencies.
- Most important of all, blockchain or crypto wallets could also ensure considerably lower costs for transferring funds in comparison to traditional banks.
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Variants of Blockchain Wallet
The next important factor other than private keys and blockchain wallet address refers to the types of blockchain wallets. As of now, you can find two distinct variants of blockchain wallets such as hot wallets and cold wallets. The hot wallets are highly user-friendly and suitable for day-to-day transactions, just like normal wallets. On the other hand, cold wallets work like a bank vault with the highest levels of security.
Hot wallets are one of the notable examples of online blockchain wallets which can enable quick cryptocurrency transfers. Hot wallets are easily accessible online, with some notable examples such as Blockchain.info and Coinbase. On the contrary, cold wallets work as digital offline wallets. In the case of cold wallets, the transaction signing process happens offline, and the transaction completion information goes online.
Most important of all, cold wallets maintain the private keys in offline environments, thereby presenting better prospects for security. Storing the private keys in cold wallets on separate hardware or on a paper document facilitates security improvements. The hot wallets provide easy access throughout the clock through any desktop or mobile device. It is important to note that the approach for transactions followed in cold wallets provides better safeguards against unauthorized access.
You could also discover many other categories of blockchain wallets, which are variants of hot and cold wallets. The variants of hot wallets also referred to as software wallets, are available in web, desktop, and mobile versions. Cold wallets are available in two different variants, such as paper-based wallets and hardware wallets.
Also Read: Know Everything About Crypto Wallet
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Software Wallets
A software wallet is basically an application on a device such as a desktop, a mobile device, or a laptop. So, a blockchain wallet download on a device such as desktop or mobile or even a web browser gets you a hot wallet. How? The internet connection provides the right explanation here.
Desktop wallets involve downloading an application and installing it on the computer for generating the private key. The private key stays on the computer. Web-based wallets are accessible through a browser from any device of choice with an internet connection. Mobile wallets are also similar to web-based wallets in functionality, as you can just use a mobile app for creating a blockchain wallet.
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Paper-based Wallets
Paper-based wallets are one of the most convenient variants of blockchain wallets. It worked as an offline process involving a printed paper with the public and private keys. Users can access the keys by using a QR code. Paper wallets can work with software wallets for transferring funds to a public address on the paper wallet from software wallets.
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Hardware Wallets
The final addition among the different variants of blockchain wallets would bring hardware wallets into the equation. They have been gaining profound levels of popularity in recent times for offering improved levels of security. Furthermore, hardware wallets are capable of offering easier cryptocurrency transactions. Users can connect hardware wallets like a USB to a computer or laptop and carry out transactions without risking exposure of their private key.
Also Read: 5 Best NFT Wallets In 2021
Security of a Blockchain Wallet
The concept of public blockchain wallet addresses and private keys for safeguarding blockchain wallet transactions is quite simple. However, it is also important to reflect on the essential factors of security you can get with a blockchain wallet. Before you choose a blockchain wallet, you need to check whether it offers the following security features,
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Email Verification
Make sure that the wallet offers an email verification facility for confirming payments through the blockchain wallet. You can check this step in the initial process of setting up the blockchain wallet.
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Password Protection
The password or the private key of the wallet is an important requirement for security and is a vital requirement.
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Two-step Verification
The wallet should also enable two-step verification for enabling access to users.
Factors to Consider before Choosing a Blockchain Wallet
With so many blockchain wallets available at your disposal, you can face confusing choices. Here are some factors which can help you choose a blockchain wallet effectively.
- The wallet should provide a seamless and easy-to-understand UI with user-friendly and easily navigable elements.
- You should look for a wallet that follows the open-source code philosophy for ensuring possibilities of improvement in the future.
- The blockchain wallet should have the capability to support multiple blockchain assets.
- Most important of all, the reputation of a wallet in the blockchain community could also provide credible guidance on choosing blockchain wallets.
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Final Thoughts
Now, you know the answer to ‘What is a blockchain wallet used for?’ along with a clear idea of their functionality. Blockchain wallet is more than just a digital variant of the wallets you use for storing fiat currency. The most important highlight of a blockchain wallet is the assurance of security with the help of a private key. At the same time, the blockchain wallet also simplifies the transfer of funds with the public wallet address.
Furthermore, the distinct variants of blockchain wallets, such as hot wallets and cold wallets, present credible options for wallet users. You can choose the type of wallet which suits your requirements in cryptocurrency payments or trading. Learn more about blockchain wallet and their functionalities in detail now!
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