Guys, let’s make this clear. There are two things which must exist for cryptocurrencies to be adopted and used as a means of exchange or even as a store of value.
One of them is a cryptocurrency exchange and the other is cryptocurrency wallets.
The cryptocurrency concept
These two are the Ying and Yang and they cannot exist without the other. Let’s just say these “chaps” right there are the King and Queen, holding the crypto-sphere kingdom together. If the cryptocurrency queen- the cryptocurrency wallet dies, the whole kingdom collapses. Yes, you guess it right. Just like bees.
Before we go far, I will just like you to know that cryptocurrencies are intangible and exist within the blockchain. Coins are often a form of reward which can be “mined” or handed out depending on the protocol used by the blockchain network. Some can be mined through a Proof of work protocol while others like IOTA cannot because they exist in a blockless chain encrypted through a DAG algorithm.
So when someone says they own 100BTC or ETH, what they are telling you is that they own a private key which can “open” an account allowing him/her to transact a maximum of 100 internet money called BTC or ETH. The private keys are like the 4-digit pin code to your bank account or the password of your email account without which you won’t access your stash. That’s what owning coins and private keys is all about.
Wallets came about to safeguard these private keys and sometimes the public keys. Using the email example, public keys represents your email address and is what is used when someone wants to receive some BTC or ETH. You simply share it with the sender and within minutes you will receive your coins just like you would have an email.
What a cryptocurrency wallet is
In a nutshell, a cryptocurrency wallet is a platform that allows you to send, receive or even monitor transactions by securing your cryptocurrency’s private keys. Most exchanges have their official wallets while others would recommend signing up with a third party for what they think is a secure wallet. Ideally, the client or the owner of the coin should be the only person with the access of these private keys but like everything else in life, the owner decides.
Because we have different cryptocurrencies, each brand often suggest their own wallets. Bitcoin as the pioneering currency has its own wallet based on the Bitcoin core code called Bitcoin Core wallet, Litecoin has their called Litecoin-QT-it’s a desktop version and very problematic trust me while Ethereum has their called MyEtherWallet. This wallet can store ETH and other ERC-20 tokens launched on the Ethereum platform which demand payment in Ether.
Other than these brand endorsed wallets, there are other safe and secure third party hardware wallets like Trezor, KeepKey or Ledger. The list is long.
The best way of avoiding the herding and the yes-yes mentality is to be open minded and check reviews. Considering what users think of a wallet is important and should form part and parcel of your decision making.
The first rule of engagement if you are getting started is that once you have bought any cryptocurrency; never store them with your broker or exchange. Transfer them either to a hardware wallet or to a “more” secure third party specialist wallet provider. But really, the issue of security lies with you especially if your wallet is connected to the web. It all boils down to caution and best practices implement. Otherwise, there is nothing I would consider safe if it is connected to the internet.
Types of cryptocurrency wallets
There are many types of wallets out there and we can categorize them into two: hot- these are those that require the internet to function and Cold-wallets don’t need the internet to function. That is, they are completely offline. As such, different wallets operating either cold or hot are present.
Desktop wallets: These are apps that can be downloaded and installed in your computer. They provide a direct link to the client’s coin. Example include Litecoin-QT.
Mobile wallet: You can download these wallets as app direct from Apple or Google stores. Example include Mycelium or Coinomi.
Online Wallets: These wallets only exist in the internet through the service provider servers. No application providing the same service can be downloaded.
Hardware Wallet: These are rather secure wallets because they are not connected to the internet. They need a device like your desktop or mobile device to transact or store data. Once completed, these USB-like devices are then unplugged and the coin’s private keys stored offline. Examples include Trezor, Ledger and KeepKey. The list is long.
Paper Wallet: This wallet is completely off line and physical. If the QR code and the owner’s private keys can be printed out in paper and stored safely, then that would be a paper wallet. Even if they are offline, you can still scan the QR code and spend your coins.