Understanding Crypto Wallets, the types, and their functions

Greetings all and sundry on this great platform, I am here once again to write and submit an entry for my Leofinance Bro adventure quest. I welcome you all to my blog once again guys, I hope you would bear with me as I explore this new topic with you guys. Today, I would be tackling "Crypto Wallets" as my topic for this article and I hope to do my best to come out with something interesting for reading. Under this topic, we would look at the understanding of crypto wallets including their definition, the types, and how it works.

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Generally, we know a wallet to be anything into which one stores his or her assets. Before one would be able to store and hold cryptocurrencies, he/she must first have a crypto wallet which he can transfer his assets into. This wallet where a cryptocurrency holder stores or saves assets is called a crypto wallet. Basically, it is an application whereby crypto holders store their cryptocurrencies into. These wallets store the cryptocurrencies virtually and can be assessed by entering the passkey used in protecting them. Once, you are logged into your wallet, you have full access to the cryptocurrencies in there. You can now transfer, buy, or sell the crypto assets in the wallets once you get the passkey right.

Crypto wallets have been modernized in this 21st century making it easy and faster in performing transactions on the platform without much stress, unlike previously where one would be required to enter the long keys in order to have access to their wallets. The anonymous Human that is known to have developed Bitcoin, Satoshi Nakamoto was the first person to possess a crypto wallet and then followed by Hal Finney. Finney was the first person to launch the Bitcoin client software wallet and in testing that, Satoshi Nakamoto sent 10 BTC to that wallet.

We can also define a crypto wallet as a device that helps in storing the keys for cryptocurrencies so it doesn't allow other users to have access to your cryptocurrencies. Crypto wallets involve two general keys or wallet addresses and they are the public keys and the private keys. They function separately as the public key is used in encrypting messages which can be decrypted by the corresponding private key only. The Private key, on the other hand, is used in signing into cryptocurrency transactions. If the private key is known to a different person, he/she can have access to your crypto wallet and can transfer funds from your wallet.

Crypto wallets make it very easier to send and receive cryptocurrencies among users. In sending, the recipient's address is needed and then the sender also enters the private key to confirm the transaction. Likewise, in receiving cryptocurrencies, you copy your deposit wallet for the recipient and then he transfers funds to you without much stress. There are several types of cryptocurrency wallets and we would be looking at some of them here in this article.

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Basically, there are two main types of crypto wallets and they are custodial wallets and non-custodial wallets. Both have subcategories as well and we shall look at them in this article. The custodial wallets are those in which your wallet keys are hosted and stored by a third party. On the other hand, non-custodial wallets are those in which one is responsible for the keys. You are in charge of the keys and you need to make sure it is safe and secured from others. This is the most used crypto wallet on applications and also on devices as well.

Non-custodial wallets have two subcategories and they are hot wallets and cold wallets. Cold wallets are those that do not involve the connection of the internet for use whilst hot wallet involves the connection or presence of the internet for use. Generally, there are 3 categories of wallets and they include software, hardware, and paper wallets. These three categories can be categorized under hot and cold wallets. This indicates that there can be custodial software hot wallet, noncustodial hardware hot wallet, etc.

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Hardware wallets are the most commonly used type of wallet as it grants users the ability to save their private keys offline and also be removed from the device. It looks similar to USB drive features but with other unique features included. So, basically, in order to perform a cryptocurrency transaction, one needs to plug in the hardware wallet and then execute whatever transactions he/she wants to do. Immediately it is inserted into the system, it automatically signs the signature for the confirmation of the transaction. Examples of hardware wallets are Trezor and Ledger. Basically, hardware wallets are considered or categorized under cold wallets and this is because they do not involve any internet connection for their execution.

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Software wallets, on the other hand, refer to the use of applications and mobile devices software wallets. They are installed on these devices to grant users access to making transactions with their cryptocurrencies. Some software wallets have in them cryptocurrency exchange integration where you can trade for fiats, etc. Software wallets are also categorized as hot wallets and examples include, Electrum, Mycelium, and Trezor.

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Before the modernization of things, the early crypto users used to write or type their private keys on paper and it was referred to as the paper wallets. They have both the QR code and the keys on a piece of paper. There are some disadvantages to using this type of wallet because it can easily get missing. Although some users still prefer using it but should be used with much more care to prevent it from getting missing.

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This is one important key terminology one must know when dealing with crypto wallets. These Seed words are there to keep your wallets secure. They are 12 words mnemonic phrase that serves as protection key to one's wallet. The phrase can be used in restoring lost wallets. They are needed to be stored and saved safely in a way that no one can get access to them because if those mnemonic phrases are known by anyone else, that person can access your crypto assets and steal or compromise your wallet.

I would like to end here and say a very big thank you to all the leaders and MODs of this great community for organizing such a wonderful and splendid challenge for us all to participate. Thank you all for your time and attention for stopping by my post.

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