How Crypto Wallets Work: 5 Important, Key Things You Should Know

Nearly everyone seems to be joining the growing bandwagons that are crypto investing. The underlying motivation is the same- profit. After all, no one puts money into an investment scheme without hope for gain.

It's quite easy for Cryptocurrency investing newcomers to get confused by the terminology of blockchains, Defi, nodes, and cryptocurrency wallets. 

Investing in cryptocurrencies necessitates a thorough understanding of the DeFi wallet.

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This article will explain how cryptocurrency wallets work and the kinds of Crypto wallets that are best for you. 

What Are Cryptocurrency Wallets?

Cryptocurrency wallets are software or gadgets that allow Crypto investors to access their Cryptocurrency securely.  Wallets can also be used for other activities than storing your Crypto.

Think of a cryptocurrency wallet as a digital version of a regular wallet you use to keep your money. If you want to invest and keep your crypto safely, you should use a crypto wallet. 

Cryptocurrency wallets are decentralized.

This means there is no need for intermediaries or a third party when you want to perform certain tasks such as trading and loaning of assets. 

How do cryptocurrency wallets work?

Crypto wallets work by using a combination of private and public keys. 

A public key is also referred to as an address. You can generate your public key when you create your crypto wallet.  

You can share your public key with other people. 

People will not be able to hack into your crypto wallet when you share your public key with them. 

Contrarily, private keys, like passwords, are meant to remain confidential. Cryptocurrency investors are at risk if they lose their private keys, which can be used to access their funds on the blockchain.

You can send or even receive and store cryptocurrency with the majority of wallets. cryptocurrencies can also be bought and sold. 

Some cryptocurrency wallets permit users to swap between different tokens, stake their tokens for a predetermined return, and use decentralized applications also known as dapps on numerous networks.

Sending and receiving Cryptocurrency using crypto wallets

Every wallet will have its diverse method of sending and receiving Crypto. Below is a description of a generic method used by most crypto wallets. 

Sending Cryptocurrency

A wallet address is required to transfer funds. Your wallet has a "send" feature; use that to send money to another account. Enter the amount of cryptocurrency you'd want to send, and then press "confirm." Consider transferring a little quantity of crypto before sending a huge amount. Miners charge a fee for processing transactions, so keep that in mind while sending coins.

Receiving Cryptocurrency

To receive cryptocurrency, you have to use your public key also referred to as your address. If someone wants to send you cryptocurrency, find the "create address" option in your wallet, tap it, and next copy the alphanumeric address or QR code and give it to the person that wants to transfer the cryptocurrency. 

Keys things you should know about how Crypto wallets work

Below are the key things you need to know about Crypto wallets when you are considering using one. 

1. The types of wallets available 

There are two main types of Cryptocurrency wallets which are:

Hardware wallets

Users can keep their cryptocurrencies in a cold wallet, which is a physical device that does not require an internet connection. They're also known as cold wallets or cold storage, and they're favored because of their high level of security.

A USB, hard disk, or CD is the most common type of hardware wallet, which uses private keys to sign transactions. As a result, hackers will have a far more difficult time getting their hands on the secret keys and compromising the system.

A hardware wallet can communicate with a computer via a web browser, a different software wallet, or an app developed by the manufacturer.

Software wallets

Software wallets, also referred to as hot wallets are simple programs, software or mobile apps created for Crypto investors to hold, send, and receive cryptocurrency. 

Software wallets are also known as "hot wallets" since they require an internet connection, where the private keys are kept before being given to consumers.

Software wallets also come in the form of hosted wallets. 

Hosted wallets are those that certain exchanges offer to users so they can store their cryptocurrency on their systems. 

For instance, purchasing cryptocurrency on an exchange like CoinStats and holding it there counts as using hosted wallets, a subset of software wallets.

Software wallets can be further broken down into desktop wallets, and mobile wallets that are created as apps or web wallets. 

2. The level of security of Crypto wallets

The safety of your chosen Cryptocurrency wallet Is one of the most important things you should know. 

Private keys stored on hardware wallets cannot be accessed by the internet during the transaction chain, making them safer than software wallets.

With hardware wallets, hackers will find it very difficult to access your cryptocurrency assets. 

You should know that software wallets are way easier to hack and are quite vulnerable to security breaches because you have to store your private and public keys online. 

It is possible to circumvent this by storing only the funds intended for transfer in a hot wallet and the remainder in cold storage. It is also possible for customers to store their assets on the infrastructure of a trustworthy and secure cryptocurrency exchange.

3. The uses of the different types of wallets

A key thing you need to know about how cryptocurrency wallets work is what the wallet will be used for in the future. 

One of the advantages of cold storage is that it does not necessitate a constant internet connection, making it ideal for the long-term storage of cryptocurrencies. Hardware wallets are best used for long-term storage because they are difficult to use for short-term transactions.

It's also possible that if you need to use your crypto wallet frequently, you may consider a hot wallet. Software wallets make it much easier to send and receive cryptocurrencies because of the various features they provide, such as scanning QR codes.

4. Custodial and non-custodial wallets

Another thing to keep in mind when it comes to Crypto wallets is realizing you have to decide between a custodial and a non-custodial wallet. 

With a custodial wallet, you have your private keys held by an intermediary or a third party. 

A non-custodial wallet, on the other hand, gives users complete control over their funds without requiring them to get permission from an intermediary or a third party. 

By using a custodial wallet if your private keys are misplaced, a request can be made to a third party, who will then grant you access.

However, if you are using a non-custodial wallet and you lose your private key, there is no way to get it back because you have sole custody of it. Non-custodial wallets are appropriate if you are convinced that your private keys are safe.

5. Cost of using crypto wallets

You have to know the cost of using Crypto wallets when you are considering using one. 

There are transaction fees associated with using a hot wallet or an exchange-hosted wallet. There are a few wallets, however, that allow users to specify a fee choice based on the speed of their transactions. Creating a hot wallet is usually free of charge aside from the transaction fees.

In the range of $200 – $2,000, hardware wallets can be quite expensive. Users of a cold wallet will not be charged transaction fees, but they will be responsible for any fees associated with the use of a specific blockchain.

The CoinStats Crypto wallet: The best Crypto wallet for you 

CoinStats Wallet is a wallet that allows users to purchase, trade, and swap digital currency. It also keeps tabs on your Crypto assets and helps you make money from them. 

It uses military-grade encryption. With the CoinStats wallet, people can send and exchange funds straight from their wallets. 

By synchronizing their bank cards, users may buy cryptocurrencies with fiat instantly, and staking allows investors a 20% interest on their holdings.

Unlike its competitors, CoinStats does not have a record of security breaches. It keeps assets safe while also making it simple for people to interact with them.

Benefits of using Crypto wallets

Below are the benefits of using a Crypto wallets

The freedom to send money to anyone, whenever you choose 

Because no single entity has authority over the network, it is nearly impossible to halt transactions using decentralized cryptocurrencies.

Total control over your finances

Crypto belongs to you and you alone if you have your private key. The same cannot be said about centralized finance. When you deposit money in a financial institution, it becomes their property.

Conclusion 

There are many advantages to using one of the cryptocurrency wallets, such as the fact that you can choose from a wide variety of digital currencies. Spreading one's money across a wide range of coins reduces risk and increases overall earning potential.

Now that you know the important key things about Crypto wallets, selecting the best Crypto wallet should not be a difficult choice.