–A complete guide on Wallets and their Distinctions–
In the whole world, even in old eras, there were packets or purses for carrying money or valuable things such as gold, coins, jewelry, and etc. Nothing has changed, it’s only about the medium which is applied on a blockchain! Known as wallet.
It’s merely the same but on greater scales and more applicable! With the advent of blockchain technology, the concept of wallets has evolved, adapting to the digital age.
What Are Blockchain Wallets?
Blockchain wallets serve as digital stores, to manage, and interact with cryptocurrencies and other digital assets securely. Unlike traditional wallets, which primarily hold physical cash and cards, blockchain wallets operate on the principles of cryptography and decentralized ledger technology. These wallets leverage the immutability and transparency of blockchain networks, allowing users to maintain full control over their funds and engage in peer-to-peer transactions.
When you want to transfer money or do something on a blockchain network, your wallet uses a special secret code called a private key. Think of it like a password that only you know. With this private key, your wallet creates a special stamp called a digital signature. This digital signature is like authenticity proof and integrity for your transaction. It shows that you are the rightful owner of the money or assets you’re trying to send. It’s like having your unique signature on a document. The person receiving the transaction can then use another code called a public key, which is like your wallet’s address, to check and verify the digital signature. They can make sure that the transaction really came from you and that it hasn’t been tampered with.
Public key:
A public key allows you to receive cryptocurrency transactions. It’s a cryptographic code that’s paired to a private key. While anyone can send transactions to the public key, you need the private key to “unlock” them and prove that you are the owner of the cryptocurrency received in the transaction.
Private Key:
A private key is an alphanumeric code used in cryptography, similar to a password. In cryptocurrency, private keys are used to authorize transactions and prove ownership of a blockchain asset.
Now that we comprehend these info, let’s have an overview on this comparison table.
| Aspect | Public Key | Private Key |
| Purpose | Used for verification and encryption | Used for decryption and digital signing |
| Accessibility | Can be openly shared with others | Must be kept confidential and known only to the owner |
| Generated from | Derived from the private key | Generated randomly or through a specific algorithm |
| Usage | Used by others to verify transactions and encrypt messages | Used by the owner to decrypt messages and create digital signatures |
| Importance | Essential for ensuring security and authenticity | Crucial for accessing and controlling digital assets |
Types Of Wallets:
Before discussing types, it is crucial to make sure that we are familiar with these 2 important sorts:
- Custodial Wallets:
Custodial wallets are provided by third-party services, such as cryptocurrency exchanges or wallet providers. In custodial wallets, the service provider holds and controls the private keys on behalf of the users. This means that the users’ funds are essentially held and managed by the service provider. Users interact with their funds through the service provider’s platform or interface. Custodial wallets often offer user-friendly interfaces, customer support, and additional services like backup and recovery options. However, users relinquish direct control of their private keys and rely on the security measures and trustworthiness of the service provider.
- Non-Custodial Wallets:
Non-custodial wallets, also known as self-custody wallets, give users full control and ownership of their private keys. Users generate and manage their private keys, which are typically stored locally on their own devices or in an offline format. Non-custodial wallets provide a higher level of security and privacy since the users have exclusive access to their funds and are not dependent on a third-party service. However, users are responsible for managing the security of their private keys, including securely storing and backing them up. Non-custodial wallets can be software wallets installed on devices or hardware wallets that provide offline, cold storage solutions.
Now that we understand these info, let’s have an overview on this comparison table.
| Aspect | Custodial Wallets | Non-Custodial Wallets |
| Control of Funds | Service provider holds and controls the private keys | User has full control of private keys |
| Security Responsibility | Relies on the security measures of the service provider | User is responsible for wallet security |
| Convenience | Often offer user-friendly interfaces and customer support | Users need to manage their own wallet and security |
| Privacy | May require personal information | Offers greater privacy as user information is not shared |
| Backup and Recovery | Service provider may offer backup and recovery options | Users need to securely backup and manage their own keys |
| Ownership of Assets | Users hold assets through the service provider | Users directly own and control their assets |
| Dependency | Relies on the availability and reliability of the service provider | User’s wallet functions independently |
Now that we acknowledge them, we can now move on to,
Types Of Wallets Available For Storing And Managing Cryptocurrencies And Digital Assets
Hot Wallet:
A hot wallet refers to a type of cryptocurrency wallet that is connected to the internet and actively used for transactions. It is typically accessed through software or web applications and provides quick and convenient access to funds. Hot wallets are commonly used for day-to-day transactions.
Cold Wallet:
A cold wallet, also known as a cold storage wallet, is a type of cryptocurrency wallet that is kept offline and not connected to the internet. Cold wallets are primarily used for long-term storage and provide a high level of security since they are not vulnerable to online threats, such as hacking or malware attacks. Cold wallets are often hardware devices or paper wallets where the private keys are securely stored offline.
Hardware Wallets:
Hardware wallets are physical devices designed specifically for storing cryptocurrencies securely. They offer an offline, cold storage solution and provide an extra layer of protection by keeping the private keys offline.
Software Wallets:
Hot wallets/Software wallets are applications or software programs that can be installed on devices such as computers, smartphones, or tablets.
They can be further categorized into:
- Desktop Wallets:
Desktop wallets are installed on a computer and provide control over the private keys. They offer a higher level of security compared to online wallets.
- Mobile Wallets:
Mobile wallets are smartphone applications that allow users to manage their cryptocurrencies on the go. They offer convenience and accessibility, but users should ensure their devices are secure. Examples include Trust Wallet, TONKeeper etc.
- Web Wallets:
Web wallets are online wallets accessed through a web browser. Users should choose reputable web wallet providers. Examples include MetaMask and TONKeeper etc.
What can be stored and kept in wallets?
- Cryptocurrencies
for more info about profitable cryptocurrencies you can check out our comprehensive guide on it. - Tokens/Jettons
- NFT
for more info about NFT you can check out our comprehensive guide on it. - History
- Smart contracts and etc.
As blockchain technology continues to evolve and shape the future of finance, it is essential to choose wallets wisely, considering factors such as security measures, user-friendliness, and the level of control desired. By understanding the various types of wallets and their features, users can navigate the world of blockchain with confidence, safeguarding their digital assets.
