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CRYPTO WALLETS EXPLAINED IN FULL

A Bitcoin wallet can be defined as a digital wallet that works in the same way a wallet in the real world does, only that it stores the cryptocurrency called Bitcoin as opposed to cash and is also used in the trading of this digital asset. You could technically use Bitcoin wallets to store and trade with other crypto coins not named Bitcoin. You could ask yourself how do crypto wallets work and when it comes to crypto wallets in general, they are meant for fluid interaction with the blockchain network and come in three main forms; software wallets, hardware wallets, and paper wallets.

When asking yourself what is a crypto wallet, you could also technically categorize cryptocurrency wallets from the functions they have and when doing this, we get hot wallets and cold wallets. For a rudimentary explanation of the three wallet types, software wallets are more convenient and available than those of a hardware type, but the latter offers more security than the former. Paper wallets are printed on paper but aren't used these days in mainstream storage or transactions regarding cryptography.

Speaking in a more practical sense about what is a crypto wallet, cryptocurrency wallets do not actually store digital assets but serve as more of a translator that relates with the blockchain by formulating the pertinent data required in the sending and receiving or selling and buying of crypto coins. With the use of keys (which are public and private), a clustered mix of letters and numbers - called the wallet address - is created and this shows where the digital currency being sent will be sent to on the blockchain. While addresses can be shared to receive money in the form of coins, a person must be careful not to ever share their private key and this is because anyone who has your private key can attain access to your account and in turn, your funds anytime they wish.

DEFINITION OF A CRYPTO WALLET

Now, we can go more in-depth into how crypto wallets work. Most crypto wallet services are software-based, meaning they are more suitable for everyday use than hardware-oriented ones. However, due to the hardware wallets being backed by hardware, they are safer and thus, might be the best type of cryptocurrency wallet if you wish to adopt large sums of a crypto coin or multiple cryptocurrency coins. The reason why paper wallets became unusable in today's digital society is that they were printed via analog means, which can be seen as outdated.

This leads us back to Bitcoin wallets and the relationship they have with the Bitcoin blockchain. You might think of it as storing if you want to make it a bit easier to understand, but having a BTC address is more intricate than that as it is digital ownership of a location in the Bitcoin blockchain. Just like with all crypto wallets explained above, Bitcoin wallets are obtained from a private key generation that grants you control of an alphanumeric address in the Bitcoin blockchain network, but sharing your private key is never to be done - only your address.

You might probably wonder if you need a crypto wallet to engage in cryptographic transactions and the simple answer is yes, you do. The basic answer is yes regardless of the kind of crypto or Bitcoin adopter you are due to the fact that you'd need a place to house the crypto you buy or receive from senders and from which you can send to others. There are different types of cryptocurrency wallets like hot wallets that your crypto exchange gives to you, a mobile wallet, a desktop wallet, a hardware wallet, or several others you could use, and below are some of the best crypto wallets:

Hot wallets: A good example of the best crypto wallet when talking about hot wallets is Binance exchange.

Mobile wallets: Types of cryptocurrency wallets under this are Trust Wallet and MetaMask. They are both multi-cryptocurrency wallets.

Browser extension wallets: The best crypto wallets or Bitcoin wallets in this category are MetaMask, MathWallet, and Binance Chain Wallet.

Desktop wallets: Exodus and Electrum are the best crypto wallets that can be used as examples of these types of cryptocurrency wallets

HOW CRYPTO WALLETS OPERATE

Crypto wallets do not just keep digital currency in them as a real-life wallet does, but instead, they serve as what people use to relate with the blockchain by offering tools enabling such interaction. The best crypto wallets basically create the relevant data you’d need if you were to transfer anything from or to your address on the blockchain network. I must reiterate again that you must not share your private key for your crypto wallet with anybody if you do now want to be taken advantage of or robbed.

The next step in crypto wallets explained and discussing how do cryptocurrencies work is explaining what to deliberate on in picking a cryptocurrency wallet. When choosing the best crypto wallet to use, you should first think about how secure that wallet is. This is the most important thing to factor even more so than the type of cryptocurrency or if it is a multi-cryptocurrency wallet but another imperative consideration is the purpose of the wallet.

If you want the best digital wallet crypto for hoarding crypto assets over a long period is surely a hardware blockchain wallet. You can help ensure the security of your digital assets by restricting the level of access that can be granted to crypto exchanges due to their lower level of security while keeping your larger funds and tokens in a safe offline wallet - several wallets might even be used to reduce the chances of funds loss. Malefactors generally love attacking a central wallet point, so you could split your private keys among your family members and friends hence, nobody has the full key.

The best coin wallets or crypto wallet apps all have a good 2FA (or two-factor authentication) that enables you to use an alternative method to log into your Bitcoin wallet if you wish to sell or buy bitcoin and this applies to other types of cryptocurrencies as well. Assuming a person hacked through to get your password and used that to try logging in, they’d still have to get past another stage of verification in the form of a pin code sent to your email or phone number to authenticate that it is really you trying to log in - you input the code details sent to your device in the space provided to fully log in.

There are even scenarios where more than one individual can claim a crypto wallet, and the best digital wallet crypto allows for multi-signature which means several keys are needed to access the wallet. To simplify, if one person wished to access the wallet, he or she would need the personal keys from all the people with a claim to the multi-signature support.

HOT AND COLD CRYPTO WALLETS

As was stated earlier, you could also say there are two different types of cryptocurrency wallets based on how they function called hot and cold wallets. Hot wallets can simply be defined as a wallet with a connection to the internet in one way or another and a good instance is making a Binance account and sending funds to the hot wallet on Binance’s official site. Binance is a good example of the best crypto wallet when talking about wallets that are easy to use and for regular crypto wallet traders.

Cold wallets, however, are wallets with no relation to the internet, instead, using a real-life medium where the private keys reside and this is why they are almost impervious to being hacked by malefactors. Due to this, the best crypto wallet cold wallets are secure for people who hoard crypto over a long period. Binance has somewhat of a cold wallet due to the fact that only a small portion of the coins they have that belong to holders are in hot wallets; the rest are in cold wallets away from the internet and they have an alternative option for crypto holders to use a mixture of both hot and cold wallets.

WHAT ARE THE TYPES OF CRYPTO WALLETS?

When inquiring about what is a crypto wallet, we need to look at the full landscape of their nature and what they are meant to do. The make-up of the best coin wallets is about how they are made but they are differentiated by their functions too. Whether they be multi-cryptocurrency wallets or single ones, to elaborate deeper on the question, how do crypto wallets work, we need to go through the main kinds of wallets.

SOFTWARE WALLETS

These are varied wallets for different types of cryptocurrency that have their special features, but the common factor in all software wallets is that they prioritize ease of use and accessibility over security. Software wallets have a close relationship with hot wallets and usually come in the form of web wallets, desktop wallets, and mobile wallets.

Web wallets: These wallets are used via a web browser, not an app with no downloading involved. They could be cryptocurrency exchanges or simple wallet services and in most cases, you create an account using a private key - although there are instances where web wallets handle your private key for you are not uncommon, it is highly advised against.

Desktop wallets: One of the best crypto wallets due to it being fairly secure, you could already tell from the name, but these are wallets that are used exclusively on desktops, not on mobile phones. They could be apps or on the web, but they all give you complete control over private keys and stuff like that. Moreover, when you create a new wallet, it is saved as wallet.dat and becomes part of your system in your local disk, but you must always remember the password and input it every time otherwise, you risk losing access to your digital assets.

Mobile wallets: The best coin wallets of this form are basically desktop wallets but on mobile as apps. Mobile cryptocurrency wallets might be the best crypto wallets when gauging the comfortability of use due to how convenient they are to the user thanks to the ease of access and scanning QR codes (eg. Trust Wallet). They are quite susceptible to malware and hacking, though, so keep that in mind.

HARDWARE WALLETS

These kinds of wallets are physical cryptographic constructs that use a random number generator to develop private and public keys. In this case, the keys are kept in the electronic construct itself away from the net (similar to how cold wallets operate.) Despite not being known for their convenience or ease of use, and speaking from a purely analytical and cryptographic point of view, hardware wallets are the best crypto wallets because they are the best at the most important aspect of developing a cryptocurrency wallet; security.

PAPER WALLETS

Paper wallets make use of printed pieces of paper where address QR codes are printed, hence, you could scan these QR codes whenever you wish to make a transfer or receive digital money. They are also cold wallets in nature like hardware wallets - some might argue more so - meaning they are impervious to any form of hacking. On the flip side, paper wallets cannot be trusted with sending crypto in bits, so you must send any money you wish to send as a whole, and it also requires a lot of manual tinkering if you are attempting to access your paper wallet on a desktop wallet through your private key.

BACKUPS

I would be remiss not to mention the usefulness of backups in such a monetary-intensive field as cryptography, it is very important to backup your wallet, not just once, but constantly. Usually, backing up seed phrases - which is more or less a root key creating the keys you use and giving you access to them - or your files in your wallet.dat file. Another thing people tend to forget about is password backing up if they chose to encrypt their password.