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What is a Blockchain Wallet & How It Works?

Blockchain Wallet
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Many things surrounding cryptocurrency can feel like a mystery. Now that its popularity has skyrocketed, many people are wondering how to manage this new currency; enter blockchain wallets.

A blockchain wallet is a digital wallet used to manage cryptocurrencies that works similarly to other person-to-person payment systems like Paypal. When you set up your blockchain wallet, you receive a private key and public key with which you can begin exchanging currency. 

This article will explain how a blockchain wallet is used, whether or not it is safe and how to get one set up. I’ll also discuss the different types of blockchain wallets so that you can decide for yourself which one is right for you. 

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What Can You Do With a Blockchain Wallet?

With your blockchain wallet, you can send and receive different cryptocurrencies. When you set up your wallet, you will receive a unique public key that is assigned to your wallet. This public key is what allows others to send you crypto. 

Additionally, you will receive a private key that is not to be shared with anyone else. This key allows you to unlock the encrypted currency that you receive, essentially proving that it was meant for you.

Security Pros & Cons

Cryptocurrency is not legal tender and therefore is not sponsored by the government. 

Due to it not being completely regulated, there are some risks to using and managing it. However, if you are going to transact with cryptocurrency, a blockchain wallet is your safest option. 

Here are some pros and cons of blockchain wallet security:

Pros

  • Offers offline storing for added security
  • Users have unique identifiers to ensure currency is exchanged securely
  • Blockchain is almost impossible to hack

Cons

  • Transactions aren’t insured
  • Losing a private key means losing all crypto

Types of Blockchain Wallets

There are two types of blockchain wallets; hot wallets and cold wallets. Hot wallets are connected to the internet, while cold wallets are stored offline. Because of this, cold wallets are deemed more secure and necessary if you will be storing a large amount of crypto. 

These wallets can be further divided into subcategories as follows.

Software Wallet (Hot)

A software wallet is a blockchain wallet in the form of an application downloaded on your device or computer. These are the most used wallets because of their accessibility, ease of use, and cost-effectiveness. 

With software wallets, your private key is stored on the application and is managed by a third party. Transactions are made by logging into the application.

Hardware Wallet (Hot)

Hardware wallets most often come in the form of devices like USBs. These wallets store cryptocurrency offline, making it nearly impossible for someone to steal unless they have physical access to the device. 

Hardware wallets store your private key within the device, making them more secure. To make a transaction, it will need to be plugged into a computer.

Online Wallet (Hot)

Online wallets are accessible through the platform’s website. Due to this, they are very accessible, making it easy to transact on the go. 

However, they are also one of the least secure wallets available. Not to mention, your private key is being stored by a third party.

Desktop Wallet (Hot or Cold)

A desktop blockchain wallet is installed on a computer. It can be used without connecting to the internet, making it safer than online wallets. However, when it is connected to the internet, it has about the same level of security as an online wallet. 

Because it has to be used on the computer, it is less mobile. Also, if your computer isn’t backed up, you could potentially lose all of your cryptos.

Paper Wallet (Cold)

As its name suggests, a paper wallet is a cryptocurrency wallet that is stored offline in paper form. 

The paper wallet has both your private and public keys stored on it in the form of QR codes. These are frequently used for users who have a large amount of cryptocurrency to store. 

To make a transaction with a paper wallet, you will need to use it in combination with a software wallet. You will scan the QR code into the application to transact.

How To Set Up a Blockchain Wallet

Setting up a blockchain wallet is simple, much like opening an online bank account. You should first identify the company that is most appealing to you and proceed to open the account. 

For instance, at Blockchain.com, it’s as simple as entering your email address and setting up a password.

Here are some of the most popular blockchain wallet platforms.

Coinbase

Coinbase is a software wallet application that can be downloaded on your computer or mobile phone. It has the capability to set up recurring cryptocurrency buys. You can also further protect your currency by storing the funds in a vault that delays the availability of withdrawals.

Additionally, the platform maintains crypto-insurance as well as FDIC insurance on USD cash balances. So if you’re interested in a software blockchain wallet, Coinbase is a solid choice

Ledger Nano X

The Ledger Nano X is a hardware wallet sold by Ledger. It works in combination with the Ledger Live app, which is used to transact. 

To get started, you will connect the device to your phone using Bluetooth. The device itself can store up to 1800 coins.

Related: Ledger vs. Trezor: Which Crypto Wallet is Better?

Bitcoin Paper Wallet

The bitcoin paper wallet is a safe solution for storing cryptocurrency long-term. It can be ordered online from the Bitcoin Paper Wallet website to generate your private and public keys and to print your paper wallet. 

You can use the website’s random key generation or type your own.

Final Thoughts

Blockchain wallets are used to manage different types of cryptocurrency. There are different types of wallets, including hot and cold wallets. Hot wallets are connected to the internet and allow you to move money around more quickly and easily. 

Cold wallets are stored offline, are more secure, and can be connected to a computer or phone when needed to transact. Setting up a wallet is easy and can be done from the platform’s website.

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