How Do Blockchain Wallets Work?

Setting up a wallet account means you have created an address that indicates your “ID”. You can use this address to send and receive funds. To send cryptocurrency to someone, you will use your private key, which is only shared with you and works the same way as a password. It won’t get hacked, and you should not share it with anyone. To receive cryptocurrency from someone, you should use your public key. Your public key won’t let other people send money from your wallet; it is somewhat similar to a receiver.

Hot Wallet VS Cold Wallet

Basically, depending on how wallets keep and store the private and public keys, there are two kinds of wallets named hot and cold that will be introduced in the following.

Hot Wallets

One of the most prevalent online crypto wallets is hot wallets that are pretty easy to set up and use. By creating an account on any exchange and downloading a mobile or desktop wallet, you have successfully set up a hot wallet and can start transferring cryptocurrency right away. Hot wallets store the private key into the cloud to transfer faster. Although hot wallets are highly accessible since they are connected to the internet, they are more likely to get hacked.

Software Wallets

Software wallets are typically hot wallets that have many different parts, each with its own set of unique specifications and features. Software wallets are available on desktop or web-based devices. Breadwallet, Jaxx are popular software wallets. Software wallets are available in three forms:

Desktop Wallet

The desktop wallet can be downloaded from any device and desktop, but it is only accessible from the desktop you've installed. The Desktop wallet stores the private key on the desktop. You can unplug the wallet from the Internet, do some offline transactions, and then bring it back online.

Online Wallet

An online wallet can be accessed from any desktop or device, and a private key is stored online and managed by a third party.

Mobile Wallet

Mobile wallets are similar to online wallets, but they are only available on smartphone applications and are easy to use at any time. One issue with these kinds of wallets is that they easily get lost and are vulnerable.

Cold Wallets 

Cold wallets are digital offline wallets in which the transactions are signed offline and revealed online. Cold wallets store the private key in hardware or paper documents. Cold wallets are always safer than other wallets because they act as a vault to carry out daily transactions.

Hardware Wallet

Hardware wallets are kind of cold wallets. They look like USB devices and can't connect to the Internet or run complicated applications. Hardware wallets store private keys offline and connect to your PC via a “Bridge” program. Ledger, Trezor, and KeepKey are the top hardware wallets on the market.

Paper Wallet

A paper wallet is a kind of cold storage that comes in the form of printed paper and consists of a private and public key and QR code to carry out your transactions. You can keep your private key offline, but you should ensure it won't get lost.

Blockchain Wallet Features

As we know, the most crucial factor within the blockchain is privacy. Blockchain wallets implement private keys to provide security. You can operate your transactions across multiple cryptocurrencies like Bitcoin, Ethereum, Solana or other cryptocurrencies. Also, these wallets reduce your transaction fees more than traditional banks. Blockchain wallets are easy to use and display and are available for anyone.

Final Remarks

Blockchain and its features bring us innovation and provide so many opportunities. To enjoy the benefits and utilize whatever the blockchain offers, you should educate yourself about the main concepts and various details. Although at cryptologi.st we are giving financial advice, we provide detailed educational posts on many subjects related to the crypto world. We also help you make confident crypto decisions by analyzing 1500 top cryptocurrencies in the market. You will find all you need to know here at cryptologi.st.