Crypto EDU

Wallet

  • August 17, 2021
  • Beginner
  • cryptocurrency
Wallet Image

In the crypto context, a wallet doesn’t technically contain any money. Your coins and tokens exist solely in the form of records on a blockchain. What a crypto wallet stores, rather, is your public and private keys (also called a key pair), which are required to send and receive cryptocurrency and monitor your balance. 

There are three types of cryptocurrency wallets:

A software wallet is an application that can exist on your device or online, allowing you to access your key pair from your computer or mobile device. It can be bare-bones, little more than a file that contains your key pair, or it can allow you to manage multiple cryptocurrencies. Some cryptocurrency exchanges, like Coinbase, let you keep a wallet within their platform. This can make for a seamless user experience, since your key pair is stored on the exchange’s servers, but it does come with risks: Any device connected to the Internet is vulnerable to hackers, who can steal your keys, and to viruses that can compromise your data. Some digital wallets, meanwhile, don’t allow you to access your own private keys, which for many goes against the spirit of cryptocurrency, since you’re being asked to entrust third parties with your funds and your information.

Since it’s not connected to the Internet, a hardware wallet is typically safer than a software wallet, though less convenient. Also known as cold storage, a hardware wallet is usually a plug-in device, such as an external hard drive. Some specialized drivemakers, like Ledger or Trezor, offer added protections, like pin code authentication. These devices are still vulnerable to hacking and viruses but offer additional protection as compared to a software wallet. 

A paper wallet is the simplest option: a piece of paper with your key written on it. When you want to send or receive cryptocurrency, you log onto the blockchain platform and manually input the key. Although paper cannot be hacked, which is an obvious benefit, it can be lost, left behind, or physically stolen. 

Deciding which type of wallet is right for you involves a trade-off between practicality and risk. Thankfully, there is no limit to the number of wallets you can have, making it possible to have some amount of cryptocurrency accessible via a software wallet, so it can be managed on the go, and the rest be accessible via an offline wallet, either hardware or paper.

Why should you care about wallets?

If you want to own any form of cryptocurrency, you need a wallet. There’s no other way to do it.

When you sign up for Makara, a wallet is automatically created and managed for you through our custodian Gemini.

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