What is a Blockchain Wallet?
Nobody will bat an eye if you keep cash in your pocket. But if you use cryptocurrency without a blockchain wallet, everybody loses their mind.
Aside from overdramatization, cryptocurrency can be quite risky, and getting a hold of a proper cryptocurrency wallet can save you a lot of trouble.
Let’s see why.
1. Understanding the blockchain wallet
The first thing to know about blockchain wallets is that they do not store your cryptocurrency like a physical wallet neither like a USB stick nor a cloud storage platform.
The blockchain wallet is mostly a storage room for your private and public key. The private and public keys are actually the ones that lock your cryptocurrency into the blockchain and approve transactions.
Once locked into the blockchain, your cryptocurrency will be inaccessible without your keys. And that’s why the wallets are so important in guarding them.
2. How blockchain wallets work
As there are quite a few types of wallets (cold/hot storage or hardware/software/paper wallets), they all come with lots of particularities.
Cold storage wallets are mostly never connected to the internet while hot storage wallets are connected. A hardware wallet function like a USB, a software wallet works like a program on a communication device, and a paper wallet is literally a piece of paper that holds your keys.
Aside from their particular functionalities, cryptocurrency wallets are mainly meant to provide the necessary tools for you to interact with the blockchain.
The wallet includes an alphanumeric identifier that is generated based on the public and private key to indicate the specific location on the blockchain from which the funds will be taken or to which funds will be sent.
In this equation, the private key is the most important and the one that must be kept a secret by any means. And depending on the wallet you use, it is the only way to get a hold of your cryptos.
3. The security of blockchain wallets
The security of a blockchain wallet is the most sensitive subject on this matter. It’s not like they are weak, but everything involving money is susceptible to attract bad actors that would want to steal your funds.
And because crypto is rather unregulated, hackers are always looking forward to targeting unsecured wallets.
Therefore, you need not compromise on security.
If you are looking to hodl, hardware cold storage is the most secure option.
But even with hardware wallets, you need to be careful. If the firmware implementation is not done correctly, the wallet can be vulnerable. That’s why you should use a reputable brand.
However, the greatest disadvantage of hardware wallets is their lack of connectivity. It can get quite painful to work with them on a daily basis. That’s why they are mostly used for hodling.
For more active cryptocurrency users, software wallets are more appropriate. But because they are susceptible to online attacks, you should look for it to have robust two-factor security protocols, such as the SpectroCoin wallet.
4. Uses & fees
“Paying in cryptocurrency is slow,” some say. That was true, but years ago. And even at that time, you could still make international payments in a matter of minutes (not days like in the case of banks). But the crypto environment is evolving faster than the bad press.
Software wallets evolved to be as user friendly as possible while maintaining their security, getting closer to becoming funds management tools. So, nowadays you can find wallets that go from simply holding multiple cryptocurrencies to generating one-time addresses, converting balances; and even trading through APIs.
However, the more functionalities they offer, the more they integrate with third parties like payment providers. And that can involve fees.
Generally, blockchain wallets may have fees for direct deposits and withdrawals of FIAT and for exchange services.
Although cryptocurrency wallets do not store anything but your keys, they help a lot in operating the blockchain. And as cryptocurrencies evolve, so do they.
Nowadays, Bitcoin and the other cryptocurrencies are significantly easier to use than back in the day, especially because of the numerous functionalities wallets come with, evolving to a point where we can start comparing them to banking applications.