Wallets

Cryptocurrencies

It would be great to start this video off by saying that wallets within the world of cryptocurrency are just like wallets in the real world, however, they're not.

Unlike wallets in the real world, which typically contain real money, cryptocurrency wallets do not contain cryptocurrency. In fact, cryptocurrencies aren't actually stored anywhere, as they are digital i.e. they do not have a physical form. Instead, all of one's cryptocurrency-related transactions, representing ownership of the cryptocurrency, are logged within a blockchain, in the form of a cryptographically secured ledger.

So what do cryptocurrency wallets contain and what is their purpose? We'll, cryptocurrency wallets contain a users Public and Private keys, allowing wallet owners to use their keys to send and receive cryptocurrency to one another.

A public key is your public address and can be shared with other users of the network to allow them to send you cryptocurrency.

A private key or private address on the other hand remains private and is used only by the wallet owner to send his or her cryptocurrency to others.

In actuality, public and private keys, or addresses, are comprised of alphanumeric strings generated using asymmetric encryption algorithms such as RSA, a topic we'll explore in more detail later within the encryption segment of this course.

Most people new to cryptocurrency trading will typically start by using popular centralised cryptocurrency exchanges such as the Binance or Coinbase apps, and as such, will never see or have access to their own private keys. Instead, centralised exchanges store private keys on behalf of their users within hosted wallets, allowing users easy access to various trading options via their password-protected online account.

However, more and more people are moving towards decentralised hardware, desktop and mobile wallets. Providing them with a safe and easy place to store their cryptocurrency funds outside of hosted wallets within exchanges.

Wallets are often categorised as either hot or cold. Hot wallets, or hot storage, refer to wallets that are typically always connected to the internet i.e. hosted, desktop and mobile wallets, whereas cold wallets, or cold storage, refers to wallets that are kept offline while not in use e.g hardware USB wallets.

So now that you know what a crypto wallet is, let's recap while looking at a few different types of wallets

Hosted

Hosted wallets are convenient, easily accessible, and easy to use. However, the disadvantages of hosted wallets are that your Public and Private keys are stored by a third party, online, putting your cryptocurrency at risk should the platform be hacked. An although all hot wallets are vulnerable to online attacks, hosted wallets are considered to be the most vulnerable.

Desktop

Installed on a users personal computer, desktop wallets are by nature more secure than mobile wallets, as they're simply harder to steal. However, they're also considered less secure than hardware wallets, as the latter can be easily locked away when not in use.

Mobile

Mobile wallets are not dissimilar to desktop wallets, however, they come with the added benefit of being accessible on the move, as they're stored on a mobile device. Popular mobile wallets include the Coinbase Wallet, from Coinbase and Trust Wallet from Binance, not to be confused with hosted wallet offerings within the Coinbase and Binance centralised exchanges.

Hardware

Hardware wallets are amongst the most secure of all wallets, storing your private keys on a portable external hardware device, such as a USB stick. Their security comes from the fact that they only need to be connected to the network when transacting and can otherwise be kept locked away in a secure place, for example, in a safe.

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