Reading time: 3 minutes
Digital currencies, although very different from fiat currencies, mainly in relation to regulation and ties (or lack thereof) with state financial entities, have one element in common: the need for a place to store them.
In the case of fiat currencies, they are stored in a bank account and their value can be transacted through checks, credit or debit cards or even by paying with physical currencies in paper money. Cryptocurrencies, in turn, are stored and transacted by wallets. Follow us and discover everything about it.
What are wallets?
The wallets serve to store not only the owner’s cryptocurrencies, but also the public and private keys that give the user access to the Blockchain records of a certain cryptocurrency and allow him to transact the coins in his wallet.
Digital wallets are fundamental to any transaction involving cryptoassets and act as a user interface for sending and receiving cryptocurrencies.
What are public and private keys?
The public key is a key that encrypts the data in the message being sent. In the case of cryptocurrencies, it is the public address of the user, known by other users of the platform for sending cryptocurrencies.
Public keys are part of a type of cryptography that uses two keys – one public and one private – for sending a message: one for encoding and the other for decoding.
The private key performs the decryption of the message, being known only by the user who receives the cryptocurrencies. It is simply speaking, a random string of characters that allows you to modify the balance of a wallet, working like a password for the user’s crypto asset transaction interface (the wallet).
As digital wallets evolved, HD (hierarchical deterministic) wallets emerged, which generate an initial phrase called seed words, which are 12 to 24 random words to be memorized by the user. Thus, if the wallet is stolen or destroyed, the private key can be reconstructed.
What are the types of wallets?
There are several types of wallets, which can be grouped into two large groups. Hot Wallets are wallets that work connected to the internet, like desktop, mobile and web versions.
Cold Wallets are those that do not need to be connected to the internet to be remembered, such as paper, brain and hardware versions.
- Desktop: Store the private key on the user’s computer.
- Mobile: Store the private key on the user’s cell phone.
- Hardware: Work offline on physical electronic devices. Must be connected to a computer or mobile device to work. Ex: Ledger Nano S, KeepKey, Trezor.
- Web : Also called e-wallet, it stores the private keys on a server connected to the internet, and can be accessed by several devices.
- Paper: Physical, paper wallets that can be made offline.
- Brain: Type of wallet in which the user creates his seed words with words chosen by him, instead of following the usual process in which the seed words are chosen randomly.
- Multisig: Require more than one private key to approve cryptocurrency transactions. Commonly used in escrow services, which require 2-3 private keys to authorize the transaction.
- SVP: Acronym for Simple Payment Verification. It is a type of digital wallet that works faster as they do not have a complete copy of the Blockchain.
Did you like this content? We have much more! Follow and share the Lux Capital page to stay up to date with the most relevant content. We are on all social media too: Facebook, Instagram and LinkedIn.