If one is looking to buy the bitcoins or trade in the cryptocurrency market, they need a wallet to operate. The wallet is a software program that stores private and public keys. It monitors your balance and interacts with different blockchains to enable users to do the trading.
In a cryptocurrency market, the wallet does not store the actual funds. The funds are not get stored in the physical form in the entire blockchain network. It gets saved in a bank account owned by the exchange. What the wallets store is the information or data of the balance which depends on your transactions.
How does it work?
When a client sells you a cryptocurrency or bitcoin, it signs off the ownership to those coins to your wallet’s address. To unlock these funds or spend them for the trading, the private key on your wallet must match the public address assigned to the coins. When these key matches, your wallet will display increased balance with the added coins and the seller’s coins will decrease accordingly.
In these transactions, no currency is transferred anywhere only the balance changes as per your trading.
Types of crypto wallets
To store and access your cryptocurrencies, you can use different types of wallets. The wallets could be software, hardware, and paper. The software wallet can further categorize into desktop and mobile or online.
Desktop wallets provide high security. You can download and install them on your PC or laptop. The threat here is, in case your computer gets a virus or hacked then you can lose all your money.
One can access online wallets using any computer device from any location on the net.
These wallets are stored on the cloud and stores your private key.
A third party called crypto exchange controls these wallets. These wallets are more vulnerable to hacking and threats.
One can use mobile wallets from anywhere. You can use them at your retail stores. These wallets run on mobile phone apps and are small and simple so that it can get stored in the limited space available on your phone.
Hardware wallets provide you a safer option. The hardware like USB stores your private key. You can do all the transactions online, but your keys remain protected offline. Hardware wallets also keep you safe from hackers.
Hardware wallets are easy to use, you can plug them into any computer system connected to the web, then enter the pin, do the transactions and go offline.
Paper wallets give you a very safe option, and it is indeed easy to use. The paper wallet has a piece of software that securely generates a pair of keys including private and public keys and print out them on a paper.
When transferring the cryptocurrencies or bitcoins using paper wallets, the funds get moved from the software wallets to the public address given in the paper wallet.
If you want to spend or withdraw the balance from your paper wallet, all you need to do is to transfer funds from your paper wallet to the software wallet. This process is called Sweeping.
Now when you know about the different types of crypto wallets, you can choose what you think is best for your trading.
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