What is Cryptocurrency wallet?

What is Cryptocurrency wallet?

After understanding cryptocurrencies in the previous chapter, this chapter will introduce what is a "cryptocurrency wallet"? What types are they?

What is an electronic wallet?

When we go to the store to buy things, we will need to hold a "wallet" to store our assets, and the traditional one is a wallet. With the advancement of the times, many merchants have accepted the use of electronic payment for transactions. Such as Apple pay, Line pay, etc., are electronic wallets. Therefore, there needs to be a carrier that proves our "asset amount" and can be applied to "transaction payment." 

Similarly, when we conduct transactions on the blockchain, such as buying and selling on major NFT market platforms, we also need to connect the platform to a "wallet" to conduct transactions. Hence, the virtual wallet dedicated to the blockchain is called the cryptocurrency wallet.

The Features of Cryptocurrency Wallet

Since many users on the blockchain maintain anonymity, it is naturally impossible to use traditional physical wallets to conduct transactions. Instead, a cryptocurrency wallet is a virtual wallet that stores, sends, and receives cryptocurrencies on the blockchain (FT or NFT). To be used to conduct transactions on the blockchain, two significant problems of cryptocurrency wallets must be solved: "confirming the information of both parties to the transaction" and "protecting the security of your wallet." The solution is the unique mechanism of the virtual wallet - "public key" and "private key."

Public Key - Also known as the virtual wallet address, we can understand it as the account address of the virtual wallet. Both parties rely on each other's public keys to complete the transaction during the transaction.

Private Key - It is the password of the virtual wallet. Anyone who wants to use the wallet to conduct transactions must enter this password to execute the transaction, which is your virtual wallet's last line of defense. Therefore, this password is recommended not to be known to anyone and should be stored carefully.

When a user wants to use a cryptocurrency wallet to conduct transactions on the blockchain, the website will pop up various intelligent contracts that require user authentication before connecting to the user's cryptocurrency wallet. Performing a series of behaviors such as NFT transactions, gifts, listing and selling to changing the price, etc., requires the repeated signing of intelligent contracts before the cryptocurrency wallet can be authenticated.

Categories of Cryptocurrency Wallet

Generally speaking, cryptocurrency wallets are divided into two types, cold wallets, and hot wallets, which we will describe in detail below.

Cold Wallet 

Cold Wallet, also known as a hardware wallet, is currently the most secure way to protect cryptocurrencies. A cold wallet is like a USB hard drive. Only when a transaction is required will it be inserted and connected to the blockchain, and the fund record data stored in it will be updated to complete the transaction. The advantage of this is that it is almost impossible to be hacked. Still, it is also inconvenient to use a hot wallet, and it is necessary to carry a connected device at all times to conduct transactions. The most popular cold wallets are Ledger Nano, TREZOR, KeepKey, and so on.

In conclusion, this type of wallet is usually suitable for users who need to store a large amount of cryptocurrency and want to keep it themselves.

Hot Wallet 

A hot wallet is a virtual wallet with no entity and only exists on computers and mobile phones. We can use a hot wallet as long as downloading apps is more convenient, allowing users to conduct transactions quickly. Information such as account balance and transaction records can also be seen at a glance. However, it exists on the Internet, so there are more doubts about its security. The more common hot wallets are Metamask, Alpha Wallet, Coinbase Wallet, etc.

In addition to the cryptocurrency wallets corresponding to the significant blockchains, cryptocurrency exchanges that allow users to store cryptocurrencies temporarily are also a type of hot wallets, usually called cryptocurrency exchange wallets. The cryptocurrencies stored in the cryptocurrency exchange wallets cannot be used directly, and security is also entirely entrusted to the cryptocurrency exchange. If it is hacked, then the funds of the entire cryptocurrency exchange account may be stolen, which is also a problem. Although the current large cryptocurrency exchanges have strong protection nets and corresponding insurances, there is still a slight risk.

In conclusion, this type of wallet is usually suitable for users who are new to cryptocurrencies, who only make small transactions at a time, or who need to make frequent transactions.

What is Metamask? 

After introducing the hot wallet, we will introduce a very mainstream cryptocurrency wallet Metamask, also known as the little fox wallet because the logo is a fox. This cryptocurrency wallet can run on computers (PC, Mac), IOS, and Android phones. There is no need to install any software on the computer, it can be operated through the extension, and the mobile phone needs to download the exclusive apps. Metamask is a widely accepted cryptocurrency wallet on the Ethereum chain.

At present, Metamask has prosperous functions. For example, it can not only store and send cryptocurrencies but also display your favorite NFTs. You can also use Metamask to exchange cryptocurrency by binding a credit card. In addition, Metamask also supports the creation of multiple wallets simultaneously. Users can create multiple wallets according to their needs and switch them to one account. The agreements signed by different wallets are separate, and there is no need to worry that one of them will be defrauded and the other wallets will be hacked.

The above is a basic introduction to cryptocurrency wallets, and I hope it will help you understand this field better.