Hey Guys,
Hope all are doing good.
Great!
Today I come up with a new topic, i.e. Cryptocurrency Wallets. We will see how many types of wallets are there and how it is stored.
So, let's start then :)
Before starting this, I assume you all know some basics about cryptocurrencies and blockchain. If not, please have some basic knowledge from here
Cool!
You all know what is a wallet right?
of course Saroj! Because we all have money, and for storing it we need a wallet.
That's right!
Yaa, we all know, we are storing physical money inside a wallet. Have you ever thought, about how digital currencies or cryptocurrencies are stored?
Let's explore, how
You may hear that bitcoins are stored in wallets. If this were true, then if you copied your wallets you'd own double the number of bitcoins. Clearly, you couldn't have digital money that works this way. So no, bitcoins aren't stored in wallets.
Then, where are bitcoins stored?
Well, ownership of bitcoins is recorded on Bitcoin's blockchain, which is, as we know, the database replicated on over 10,000 computers around the world containing every Bitcoin transaction ever. Bitcoin wallets store private keys(not bitcoins!) and their software makes it easy for the wallet to see how many coins they control and to make payments.
Got some idea?
Great! I'm happy for you :)
Now, let's see how many types of wallets are available for cryptocurrencies.
As you can see in the above image, bitcoin wallets are 3 types
- Software wallet
- Hardware wallet
- Paper wallet
Let's explore them one by one.
1. Software Wallet
Software wallets are nothing but, they can be some wallet software or mobile applications or also a desktop applications. Bitcoin wallets are apps that can at least
Create new Bitcoin addresses and store the corresponding private keys
Display your addresses to someone who wants to send you a payment.
Display how many bitcoins are in your addresses.
Make Bitcoin payments.
Software wallets are easy to use, you can access these using your mobile apps, software, or a website. But, these are less secure to store large amounts of bitcoins. Because, as you know, apps or software can be hacked by a hacker.
Some examples of software wallets are
blockchain.info
electrum
Jaxx
breadwallet etc.
2. Hardware wallet
Sometimes Bitcoin wallets can have a hardware component also. Private keys are stored in chips called small handheld devices. Hardware wallets are nothing but, they are like Pendrive or SSD, where we can store the bitcoin's key. These are more secure compared to software wallets.
But, before storing a bitcoin address into a hardware wallet we need to make sure that, the address and key are encrypted. Otherwise, if we lost the device, then anyone can access our data. two popular hardware wallets are called Trezor and Ledger Nano.
3. Paper wallet
These are nothing but, typically a paper, where we print the bitcoin addresses and keys. These are also more secure than software wallets. Paper wallets are used for storing large amounts of bitcoins. Again, we need to encrypt the bitcoin's addresses and keys before storing them in a paper wallet, as these can be stolen.
Wait wait... not finished yet!
There are also 2 types of wallets in bitcoin or cryptocurrencies.
These are Cold Storage and Hot Storage.
The phrase "Cold Storage" is keeping a note of those private keys on offline media, such as a piece of paper or a computer not connected to the internet.
And a hot wallet is a wallet that can sign and broadcast transactions without manual intervention. Exchanges, which control many bitcoins need to manage lots of Bitcoin payments, they often have a hot wallet that controls a small proportion of their total bitcoins.
Yeah, here we ended this topic!
I am sure, you got some idea of how we are storing bitcoins, and their types.
Awesome!
See you soon with a brand new article.
Top comments (0)