Before Blockchain wallets came along, traditional wallets were the ones used to store cash. They were slow, they had a central point of failure (the banks), and they had an issue of keeping track of all the balances in the accounts.
Furthermore, they were prone to hacks. This method proved to be a method full of issues and problems. Trust was fully on the central banks to keep your money safe. Then Blockchain technology came into the picture, and with it, it disrupted every industry. And the most affected sphere was the finance industry. If you weren’t as sceptical as most people to novelty, then you saw the benefits that Blockchain brought with it. This is what brought us the Blockchain wallets, a modernised way to store your cash in the form of crypto.
What is a Blockchain Wallet?
A Blockchain wallet is a crypto wallet that enables users to store and manage their cryptocurrencies.
Some benefits of using a Blockchain wallet are:
Exchange of funds is easy — you don’t have to go through complex and time-consuming technical stuff to make your transactions.
It’s secure — you can safely do your transactions without any hurdle.
The wallet is accessible from the web and also mobile devices.
Your privacy is maintained — you’re able to make your transactions without your name showing in the Blockchain.
Has features that are necessary for secure and safe transfers and transactions between different parties.
A Blockchain wallet works in a similar way you send and receive money through your PayPal account. But instead of fiat cash, cryptocurrency is used. Examples of Blockchain wallets are: Ledger, Trezor, Jaxx, Paper wallets among other Blockchain wallets.
So how does a Blockchain wallet work?
How Does a Blockchain Wallet Work ?
To understand how Blockchain works, you first need to understand what a public key and a private key are. You’ll also need to understand how these two keys are related to Blockchain wallets.
Whenever you create a Blockchain wallet you’re provided with both the public key and the private key associated with your wallet.
Here’s an analogy to explain this:
Imagine a person (let’s call him John) who knows your email address. Every time John wants to send you an email he has to use your email address to send those emails. You give out your email address to the ones you want to send you emails. But these people can’t use your email account to send out emails to others.
For them to send emails from your email account, they need to have access to your account’s password. Blockchain wallets follow a similar process using a private key and a public key.
So, speaking, your email address acts like the public key. You can send it to anyone whom you want to send you money in crypto form. The private key acts like your email’s password. To access your Blockchain wallet and spend the money in it, you must use the private key.
Your private key should never be disclosed to anyone else. If anyone gets access to your private key, then it’s game over. You’ll lose all your cryptocurrencies and go through a huge loss.
Features of Blockchain Wallet
It’s easy to use — it’s quite user-friendly.
It’s highly secure — since it uses cryptography this makes it hack-proof.
3.The transaction is an instance — you don’t have to wait for days to receive your cash. It takes less than 24 hours to receive cash from others.
- Multiple currency conversions — this shows that you can use the crypto wallets to convert one currency to another.
Types of Blockchain Wallets
There are two main types of Blockchain wallets:
Hot wallets (storage) — they’re like normal wallets which you carry for your day-to-day activities and it’s user friendly.
Cold wallets (storage) — these wallets act like vaults where cryptocurrencies are stored. They’re highly secure in that they have a high level of security.
Hot Wallets
They’re online wallets through which cryptocurrency can quickly be transferred. They’re mainly on the cloud on the internet. Examples of these wallets are, Coinbase, Blockchain .info, and many more.
The private keys are stored in the cloud for faster access and transfer. Hot wallets are easy to access, they’re available 24/7. But they have a risk of unrecoverable theft once hacked.
Cold Wallets
Cold wallets are digital offline wallets where the transactions are signed offline and later disclosed online. For example, Trezor and Ledger.
In cold wallets, cryptocurrencies are stored in hardware or a printed paper document. The method of transaction helps in protecting the wallet from unauthorized access and vulnerabilities.
Blockchain wallets can further get categorised and distinguished on these criteria:
Software wallets — an application downloaded on a device (either desktop or mobile). Examples of software wallets include Jaxx, Bread wallet, Copay, among others. It’s often web-based. This wallet is usually accessible online.
Hardware wallets — they’re often like a USB drive. Mostly, they have plug and play technology.
Paper wallets — printable public key and the public key that can be kept on paper and stored in a secure place.
Figure 1 — Software wallet Meta Mask
Software wallets can further be differentiated into:
a) Desktop Wallet
b) Online Wallet
c) Mobile Wallet
Desktop Wallets
Desktop wallets are like cold wallets in that the private keys are stored in cold servers. You can unplug them from the internet and do all your transactions offline.
In case the main server gets down or gets lost, you can use the cold server as a backup. You can download this wallet on any computer. But to access it, you must use it in the system you first installed on it.
For safety purposes, you must make sure to keep backups on your servers, always keep your systems in check, and always ensure that you keep your computer away from others to prevent theft.
The great thing about these wallets is that they’re cost-efficient. A great example of a desktop wallet is Electrum, and it’s one of the most popular cryptocurrency desktop wallets.
Online Wallets
These types of wallets run on the cloud and the internet. You have the freedom and the benefit of accessing them on any device. The private keys are stored online in the cloud and managed by a third party.
You have to depend on third-party services. The wallet can be accessed from Android, Desktop, and iOS in Apple. This wallet is sort of a universal one because of its accessibility on multiple devices.
Mobile Wallets
Mobile wallets are similar to online wallets except they’re designed and built specifically for mobile usage or mobile accessibility.
The mobile wallets are user-friendly in that the user interface for making transactions is made easy. A great example of a popular mobile wallet is the Mycelium crypto wallet.
Figure 2 — Three different hardware wallets
Hardware Wallets
Hard Wallets are typical cold storage devices like a USB flash drive used to store the private keys in a protected secure hardware device. These wallets are similar to portable devices that can be plugged and played using your computer.
They are less prone to malicious attacks, malware, hackers, and anything that might have bad intentions for your cryptocurrencies.
Great examples of Hardware wallets are Trezor, Ledger Nano S, and Keep key. These are some of the best and top hardware wallets currently in existence.
Point to note: To make a transaction you have to ensure that your hardware wallet is plugged into your system before doing any transaction.
Paper Wallets
Paper wallets are an offline process of storing cryptocurrencies. They are often printed in the form of paper consisting of a private key and a public key, or a public address (often accessed using a QR code). Since paper wallets are safe they’re widely used for storing large amounts of cryptocurrencies.
Examples of paper wallets are Bitcoin paper wallet and My Ether wallets. These are the paper wallets that are widely used.
To make a transaction, paper wallets work with software wallets or also known as online wallets. And to transfer funds from your software wallet, you must send it to the public address as shown in your paper wallet. That is the QR code shown on the printed paper wallet. Make sure you check out bitaddress.org if you would like to store your crypto on a paper wallet.
Comparison of Blockchain Wallets
Blockchain info
1) Support both Bitcoin and Ethereum
2) It’s easy to use
3) It has low transaction fees
Ledger Nano S
It’s a hardware wallet:
1) That offers high security for your account.
2) Is available for Bitcoin, Ethereum, and Litecoin users.
3) It’s possible to maintain multiple accounts and access anytime.
Bitcoin Paper Wallet
1) Helps you to print your Bitcoin wallet and keep it only for yourself.
2) It minimizes the threat of hacking.
Jaxx
Software wallet that enables currency exchange within the wallet.
Additional information
Included in this list is the Crypto Fiat Networx Exchange (CFXN) wallet.This is a new international wallet that supports multiple Fiat currencies and Cryptocurrencies.
The wallet uses a token chip conversion system to convert your crypto to its equivalent cash, one crypto to another crypto, and cash to crypto without the use of any middleman.
The wallet is still in its infancy. To get to know more about CFXN as a project and in case you want to be partners with the project kindly reach out to the founder’s project at tdb@cfxnx.com