А crypto wallet is a tool that can be used to interact with the blockchain network. Wallets are divided into three groups: software, hardware, and paper. They can also be called hot or cold, depending on how they work.
Most of the companies that provide wallets for storing cryptocurrency ethereum wallet use software, which makes them more convenient than hardware counterparts. In turn, hardware wallets are more secure – as are paper wallets, which consist of data printed on a piece of paper. However, their use is currently considered outdated and unreliable.
How do cryptocurrency wallets work?
Contrary to popular belief, cryptocurrency wallets are not designed to actually store digital assets. Instead, they provide tools to interact with the blockchain. In other words, these wallets can generate the necessary data to send and receive cryptocurrency through transactions. This data consists of one or more pairs of public and private keys.
The wallet also includes an alphanumeric identifier address that is generated from the public and private keys. Such a set of symbols represents a specific “location” on the blockchain to which coins can be sent. This means that you can share your address with other users to receive funds, but you should never disclose your private key to anyone.
The private key provides access to your cryptocurrencies, no matter which wallet you use. Thus, even if your computer or smartphone has been compromised, you can still access your funds from any other device, provided that you have the corresponding private key (or seed phrase). Please note: coins never leave the blockchain, they just move from one address to another.
You can use web wallets to access the blockchain through a browser interface without the need to download or install third-party software. This applies to both wallets on exchanges and any others that work on the basis of a browser. In most cases, you can create a new wallet and set a personal password to access it, however some companies manage private keys on your behalf. This option may seem more convenient for inexperienced users, but it is less secure.
If you do not own your private key, then you entrust your funds to another party. As a solution to this problem, many web wallets allow you to manage keys either in full or through shared control (using multisignature). It is important to know the technical structure of each wallet in order to make the right choice.
When using cryptocurrency exchanges, you should consider using the available protection tools.