As the crypto industry grows, the wallets where we store our digital assets are becoming more important day by day. A crypto wallet is essential for storing private keys, which are the passwords that give you access to your digital money. In addition, these wallets also allow you to send and receive cryptocurrencies such as Bitcoin and Ethereum. There are many types of wallets, from hardware wallets carried on USB sticks to mobile applications.
How do crypto wallets work?
Crypto wallets, unlike normal wallets where cash is stored, do not actually store your crypto money. Your assets are held on the blockchain. These digital currencies can only be accessed using the private key. Your keys prove ownership of your digital currency and allow you to make transactions. Here are the crypto wallets where these keys are located. These keys are defined as public and private keys. While public keys function as bank account numbers, private keys function the same as bank passwords and must be kept strictly confidential.
Crypto wallet types…
Crypto wallets are classified into cold wallets, called paper and hardware wallets, and application-based hot wallets. Cold wallets do not have an internet connection. Paper wallets are those in which the keys are written on a physical piece of paper. Storing the keys on a USB memory that is connected to the computer only when the cryptocurrency is used is considered a hardware wallet. These types of wallets are very difficult to hack because they do not have internet access. However, it still has a very bad disadvantage. When you forget or lose the key, it is almost impossible to access the coins in your wallet.
$200 million was from Bitcoin…
Stefan Thomas, who was born in Germany and lives in San Francisco, USA, has not been able to access his 7002 Bitcoins for years. Bitcoin is currently trading at over $27,000 apiece, and Thomas’ loss represents a fortune of $190 million. Years ago, Thomas forgot the password to his wallet that he carried on his USB stick. He entered the wrong password 8 times into the wallet, which was given 10 access rights for security reasons. Thomas, who has 2 guesses left, says he stopped trying to log in years ago.
These passwords can fall into the hands of unwanted people not only due to forgetting but also as a result of theft. For example, the famous YouTuber Mr. When Beast’s house was burglarized last year, he was very alarmed, thinking that $2 million worth of BTC had been stolen. However, it turned out that the thieves did not take the paper with the wallet password written on it while stealing the laptop of the famous content producer.
Hot wallets with internet connection are generally application-based. The keys are stored in a mobile or web application. However, it is very important to choose reliable applications. Because hackers can access your key when using applications with low security levels. In addition, accessibility is of great importance in daily trading. Trades can be made much faster with hot wallets.
Crypto wallet and security measures…
In addition, cryptocurrency exchanges have recently increased the security measures in the wallets they offer to their users. In most of these wallets, users’ keys are kept secret on these exchanges. Asset owners can access these keys after biometric authentication such as two-factor authentication (2FA), email confirmation, facial recognition or fingerprint. Unless the user can pass these steps, exchanges do not allow the user to trade. Of course, there are also wallets where the user keeps the keys himself, if he wishes, but in this way, the asset owner takes the responsibility of losing the key or having it stolen.
Wallets for NFT are also available!
There are wallets not only for cryptocurrencies but also for NFTs, the digital properties of our age. A work of digital art, a painting, a voice recording or even a tweet can be bought and sold in NFT format. It is very important that the wallets are compatible with the marketplaces. Most NFT wallets support Ethereum-based tokens. However, having wallets compatible with other chains is also an important issue.
Sources: NY Times, Coinbase, Crypto.com