Wallet – What is a wallet and how can I open one safely?

When we talk about wallets within the context of Cryptocurrencies, they are as important as bank debit cards or our ATM password, and it sounds a bit improbable, but digital wallets are that important, since they help us manage and protect the Cryptocurrencies that we have in said portfolio.

For this reason, it is very important to know how to choose a wallet or at least to know the characteristics of a Cryptocurrency wallet, since not all of them are the same, for this reason it is necessary to know which is the virtual wallet that best suits our needs.

The term Wallet was adopted from the Anglo-Saxon word, which is specially designed to manage or administer Crypto assets; This tool is very common to find as software for a mobile phone application or as a computer program, but it can also be found as specialized hardware that stores and manages the public and private keys of our Cryptocurrencies.

Operation of the Wallets or Cryptocurrency purses

Even knowing that wallets are very useful and necessary, many will wonder how a Cryptocurrency portfolio really works and the truth is something that causes curiosity, since many know how to use a wallet but do not really know its internal processes.

Unlike the traditional system (Banks, Cash or Financial Institutions) that we have all been using, the Cryptocurrencies and tokens that are stored in a wallet are all totally digital, that is, they do not have a physical form with which you can interact. Due to this feature, digital wallets play an important role as a bridge between the physical and virtual worlds.

And it is that despite the fact that these tools are called Cryptocurrency wallets or purses, the reality is that they do not store coins as such, rather they store a series of data that is linked to a “Cryptocurrency” and this data is known as Public key and Private key. 

This may sound a bit strange, but when we refer to currencies in the word “Cryptocurrencies” it is a simple allegory to a representation of digital money, let’s remember that what is known as Cryptocurrencies is nothing more than a registration code within a Blockchain and each code is unique and cannot be changed.

 The public and private keys are linked to this code, therefore having these keys stored in a wallet is what gives us the right of ownership of a “Cryptocurrency”, it sounds a bit complicated but in reality it is not, if we look at background the meaning of public key and private key we will understand this dynamic more.

• Public Key: It is very similar to the bank account number that a bank gives us, which we can give to other people to deposit money with us. Taking it to the context of Cryptocurrencies, with this we can see the funds that we have stored, or it serves as a bridge to receive new funds in Cryptocurrencies.

• Private key: It is a representation of the security pin that we assign in a bank to access our funds, something like our ATM or bank account password. This key should never be shared since with it we can have access to the funds that we have of a Cryptocurrency in a wallet.

As we can see, the Cryptocurrency storage system is a bit different from the conventional banking system, but they have certain similarities that we can use to assimilate this new way of storing value.

How is the internal security of a wallet and types of wallets

This section differs a lot depending on the developer of the Cryptocurrency wallet, that is to say that the security measures of a wallet will depend on the person or company that has created said wallet, and it is that despite the fact that they all basically work in the same way, there are wallets that may have better security attributes than others.

For example, there are wallets that generate a series of 12 words known as “Seed” that allows the recovery of data from a wallet that was lost or deleted, there are also other simpler but less secure security processes such as copies security procedures carried out by some platforms, and there are others that are more complex but much safer, such as access through biosecurity means.

Let’s remember that not all Crypto asset wallets are the same and these can be divided into subgroups, in which each one has its own security features and covers certain needs.

Hot Wallet

They are basically the wallets that remain always online and can be accessed from a browser or an application. They are very useful if you are a user who does not have a very large amount of Crypto assets and you are always making transactions with Cryptocurrencies.

They are not recommended for those users who want to protect a significant investment in Cryptocurrencies, since being always online can make them an easy target for cyberattacks. In most cases, the private keys are guarded by the platform, this does not mean that it is a bad option to use, just that it is better suited to those people who need to carry out transactions constantly and do not have a very large balance in a digital asset.

Cold Wallet

Unlike the Hot Wallet, the Cold Wallet keeps the Cryptocurrencies safe outside the network, that is, they are not permanently connected to the Internet but they can be connected when necessary; Another important difference is that most of these types of wallets are Hardware-based wallets, that is, on a physical device that allows powerful encryption to protect Cryptocurrency funds.

Currently they are the most secure wallets that exist and are perfect for those users who want to store large amounts of a Cryptocurrency, their biggest disadvantage is that they are somewhat more expensive than most online wallets; and that all security features are under the responsibility of the user, that is, the private key, the 12 security words and other security elements must be safeguarded by the user, and if you forget any of these you may lose access to the funds from your wallet.