What is a crypto wallet?

Cryptocurrencies: threats and crypto wallet protection

Cryptocurrencies is a term that is heard in almost every corner of the internet today. Digital assets, decentralized and independent of states, they promise financial freedom and new investment opportunities. The popularity of cryptocurrencies, especially bitcoin, is growing at an incredible rate, attracting both experienced investors and newbies looking to capitalize on this new digital gold rush.

However, as with any new and rapidly evolving field, the world of cryptocurrencies harbors many dangers. One of the most serious threats is fraud. Cybercriminals are actively exploiting the growing interest in cryptocurrencies, developing new and more sophisticated schemes to defraud.

Cryptocurrency wallet protection becomes one of the most important aspects for anyone who decides to invest in cryptocurrencies. Your cryptocurrency wallet is your digital bank, and its security directly affects the safety of your funds.

What is a cryptocurrency wallet? Simple explanation

A cryptocurrency wallet is not a physical wallet that holds coins, but rather a digital tool that allows you to interact with the blockchain. Think of it like a bank account, but for cryptocurrencies.

Keys: the basis of how a cryptocurrency wallet works

The basic working principle of a cryptocurrency wallet is based on two types of keys:

• Public key: a public address, similar to a bank account number. It can be freely shared with others to obtain cryptocurrency.
• Private key: a secret password, analogous to a bank card PIN. Knowing the private key, a person can access and dispose of your funds. Therefore, it must be kept in absolute secrecy.

Cryptocurrency and blockchain: how does it work?

It is important to realize that the cryptocurrency wallet itself does not store your coins. It only contains information about your keys that allows you to interact with the blockchain. The blockchain is a distributed database that records all cryptocurrency transactions. When you send coins, this information is recorded on the blockchain and your balance is updated.

Bank Account Analogy:

• Bank account: The place where your money is stored.
• Cryptocurrency wallet: A tool to access your funds on the blockchain.
• Account number: The public key of the cryptocurrency wallet.
• PIN: The cryptocurrency wallet's private key.
• Bank database: Blockchain.

The working process of cryptocurrencies and blockchain

Cryptocurrencies work based on blockchain technology, which is a decentralized and distributed database. When a user sends or receives cryptocurrency, that transaction is recorded on the blockchain. It requires consensus to validate it, which is achieved through mechanisms such as Proof of Work or Proof of Stake, depending on the cryptocurrency.

Cryptocurrency wallet functions

Cryptocurrency wallets have three main functions:

1. Sending and receiving cryptocurrency: each cryptocurrency wallet contains a unique set of public and private keys.
2. Cryptocurrency storage: wallets do not store cryptocurrencies themselves, but store private keys that are necessary to access assets on the blockchain.
3. Transaction security: cryptocurrency wallets use various encryption and security methods to ensure safety.

Additional features:

1. Token exchange: wallets allow users to exchange one cryptocurrency for another right inside the app.
2. Access to dApps: wallets, especially those that support Etherium and other smart contracts, provide users with the ability to interact with decentralized applications (dApps).
3. NFT storage: cryptocurrency wallets have built-in support for storing non-replaceable tokens (NFTs).
4. Cryptocurrencies and loans: modern wallets offer DeFi features, allowing users to earn interest on their assets, borrow against cryptocurrency collateral or staking to generate additional income.

Getting cryptocurrency through a cryptocurrency wallet

1. Obtaining a wallet address: each cryptocurrency wallet has a unique address, similar to a bank account number.
2. Transferring the address: the sender must copy your address and paste it into the “Recipient” field when sending the transaction.
3. Transaction Confirmation: once the transaction is sent, it must be confirmed by the blockchain network.
4. Reflect the transaction in your wallet: after the transaction is confirmed, you will see the funds received in your wallet balance.

Sending cryptocurrency

1. Select currency and address: select the cryptocurrency you want to send and specify the exact address of the recipient.
2. Specifying the amount: enter the amount you want to send.
3. Confirm the transaction: check all the data again and confirm the transaction.
4. Pay commission: a commission is charged for each transaction, which is used to reward the miners.

Security tips for large transactions

• Address verification: always double check the recipient's address before sending a transaction.
• Use trusted wallets: choose wallets from trusted developers with a good reputation.
• Two-factor authentication: enable two-factor authentication to further protect your wallet.
• Keep your private keys in a safe place: never share your private key with anyone. Keep it in a safe place.
• Be careful when communicating: do not click on suspicious links or share your data with third parties.
• Backup: back up your wallet regularly.
• Software updates: always install the latest updates for your wallet to address vulnerabilities.

Types of cryptocurrency wallets: an in-depth analysis

Depending on the way keys are stored and the level of security, wallets are divided into several types.

Hot wallets are software wallets that are always connected to the internet. They provide ease of use but are more vulnerable to hacking.

Types of hot wallets:

• Desktop wallets: installed on the user's computer. Provide a higher level of security than web wallets, but are still at risk of hacking if the computer is infected with viruses.
• Web wallets: accessible through a web browser. Easy to use, but less secure as the keys are stored on the provider's servers.
• Mobile wallets: installed on smartphones. Provide mobility, but are also at risk of hacking if the device is compromised.

Cold wallets are wallets that are not connected to the internet. They provide maximum security as the keys are stored offline.

Types of cold wallets:

• Paper wallets: the simplest and cheapest option. Keys are printed on paper and kept in a safe place. However, they are at risk of damage or loss.
• Hardware wallets: a physical device, similar to a flash drive, on which keys are stored. Provide a high level of security and ease of use.

Custodial and non-custodial wallets

• Non-castodial wallets: The user has full control over their keys. This gives maximum security but requires the user to be highly responsible.
• Custodial wallets: Keys are stored by a third party (exchange, service). This simplifies the process of use, but increases the risks associated with loss of access to funds or theft by the provider.

Which cryptocurrency wallet to choose

Choosing a wallet depends on your needs and the level of security you are willing to provide.

• For beginners: a mobile or web wallet can be a good start.
• For advanced users: a hardware wallet will provide maximum security.
• For storing large amounts: cold wallets are the most secure option.

Conclusion

Choosing a cryptocurrency wallet is a big decision that affects the security of your digital assets. Don't rush into your choice, thoroughly research all available options and choose the one that best suits your needs.

Why is it important to understand this?

• Security: Knowing that cryptocurrency is not stored on your computer will make you more careful when choosing a wallet and setting it up.
• Control: You are in complete control of your funds as the private key is held only by you.
• Decentralization: Cryptocurrencies and blockchain allow you to avoid dependence on centralized financial institutions.

A cryptocurrency wallet is your pass to the world of cryptocurrencies. By understanding how it works, you can use digital assets more confidently and protect your funds from fraudsters.