It’s been a long time since digital wallets appear but we are obviously not going to talk about Paypal or subway cards. We will tell you about cryptocurrency wallets, necessary for dealing with digital coins.
A cryptocurrency wallet is a service that allows to store and transfer cryptocurrency. The number of such services increases with growing popularity of virtual currencies.
All cryptocurrencies are based on public key cryptography. A user sends their “visible” public key to another, the information is encrypted using this key and transferred back. Then a user decodes the information with their private key. You might say: “Well, that’s exactly how digital signature looks like!”, and you’ll be absolutely right. Wallets enable users to exchange keys or, roughly speaking, cryptocurrency itself. The open key is user’s public and available cryptocurrency wallet address where others send cryptocurrency. The user will then use the private key to “decode” the cryptocurrency and, thus, will be able to manage it.
All cryptocurrency wallets are based on blockchain technology. Depending on the way the wallet works with blockchain, one differentiates local and online wallets. Local wallets, like Bitcoin Core, download the whole blockchain on user’s computer and permanently update following the general chain of data. This type is the most secure, however, not every user can afford storing such an enormous amount of data on their hard drive. Later so-called thin wallets appeared. A thin wallet is a client that works with blockchain stored on the wallet’s server. Users don’t have to keep gigabytes of data on their computer, however, such systems are not that secure. That’s the way usual digital wallets, such as webmoney, operate. Among thin cryptocurrency wallets Electrum is probably the most popular.
Online wallets are the most easy-to-use and respectively the most popular. These are, for example, wallets that users create on cryptocurrency exchanges (Mt.Gox, Kraken, Bittrex, Poloniex) or other online services. Although it is rather convenient to use such wallets, users have to bare some risks. If the exchange goes bankrupt, or its funds are arrested, or it simply closes (there have been many cases already) – you are likely to lose your funds or at least to have problems with their withdrawal. Anyway, online wallets are fast and easy, and that’s why hundreds of thousands of users are in favor of this option.
Sometimes users also store their digital keys using printed QR-codes or even write them down in their notebook. Hackers will never find your private key if you keep it in your pocket, so this security measures are quite efficient. However, users still have to import their keys to online platform to carry out operations with their digital currency. Some online wallets, like for example, Bitcoin Wallet for Android also can work on mobile devices.
Moreover, there are wallets that work with one digital currency, like myetherwallet.com that supports only Ethereum, or with multiple currencies.
Finally, you can choose any wallet you like, but the most important thing is to keep your private key secure, so that nobody can access it both physically and virtually.