Because cryptocurrencies are typically referred to as coins or tokens it is perhaps unsurprising that we’ve settled upon the term wallet as an analogy for a place to store the digital assets. But since cryptocurrencies are digital, what exactly is a cryptocurrency wallet, and how are they used to store the various coins and tokens used to represent digital blockchain assets?
In short, a cryptocurrency wallet is a software application that is used to store the private keys that convey ownership of the digital assets known as cryptocurrencies.
The private key in cryptocurrencies is paired with the public key and is what allows for verification that a wallet address holds the cryptocurrencies when they are being transferred to a different address. The public key is what is shared to have coins sent to your wallet, while the private key is used to prove you have the coins when you’re trying to transfer them.
Types of cryptocurrency wallets
Cryptocurrency wallets are available in several versions, with differing functions and features, and a variety of user interfaces. Some store just one type of cryptocurrency, while others can hold dozens or hundreds of different cryptocurrencies.
The wallets come via several different platforms. There are basic web-based wallets, such as those you use when you purchase Bitcoin or other cryptocurrencies from an exchange. One such popular web-based wallet is MyEtherWallet. Its popularity stems from the fact that it can be used to store any of the hundreds of Ethereum ERC-20 compatible tokens. Another plus point is that it is free to use. This open-source client-side interface allows for easy interaction with the Ethereum blockchain.
There are also desktop cryptocurrency wallets that are installed on a PC, and mobile cryptocurrency wallets for use on smartphones and other mobile devices. Exodus and Jaxx are popular desktop wallets.
One of the most secure cryptocurrency wallets is the hardware wallet. These are small devices that were created specifically to store and secure cryptocurrencies. The most popular hardware wallets are the Ledger Nano S and the Trezor. Both can hold hundreds of different cryptocurrencies, and as long as they aren’t connected to the internet are considered 100% secure.
A final type of cryptocurrency wallet is the paper wallet. Where the other cryptocurrency wallets store the public/private keys of the cryptocurrency within the software application, often in an encrypted state, a paper wallet has the private key (and possibly a QR code) printed on a piece of paper. Because they can be generated offline, and are never connected to the internet, they are considered the most secure type of wallet. Of course, since they are paper, they are subject to other risks such as theft or accidental destruction.
They might be called wallets, but cryptocurrency wallets do much more than just hold your currency, cards, and receipts. They are a connection to the blockchain, allowing users to send and receive, keep track of, and secure their coins. Some wallets even have features that allow you to swap one cryptocurrency for another. In that way they are a blockchain interface, not just a storage medium.