How Cryptocurrency Wallet Works: Key Aspects

The growing popularity of digital currency has led to the need for its owners to have a place to store their electronic savings. Cryptocurrencywallets, also known as coin wallets, were invented for this purpose. explains the types of coin storage that exist, how to choose them correctly, and which one is suitable for your needs. We also discuss whether someone can steal coins from your account and how you should secure your wallet. 

Types of Cryptocurrency Wallets:

«Hot» Wallets (online storage или Hot Wallet) – these wallets exist online. One of their advantages is 24/7 internet access and the ability to conduct transactions—buy or sell cryptocurrency at any time.

They can be either on an exchange or on a separate device (computer or mobile phone). 
On exchanges, the owner can place any amount of digital coins. It's worth noting that today, 95-98% of the currency is on a server that is disconnected from the network, and only 2-5% is on a platform connected to the internet.  
Special offers exist for storing coins on exchanges, requiring downloads to PC or mobile phones. The private key is with the currency owner, not on the exchange server.  
Despite the commonality and ease of use of "hot" wallets, this storage is not entirely secure. Many hackers compromise computers and phones, siphoning money from accounts.

«Cold» Wallets. Considered the most reliable form of storing profits from buying and selling cryptocurrency. Their main feature is the lack of a network connection. Thus, hackers cannot take funds out of the storage.

«Cold» wallets are suitable for long-term asset storage.

They are divided into several types:  
Paper Wallets. A simple and popular way to store digital coins that does not require additional investment. The owner of cryptocurrency receives a Bitcoin address and a unique key, which is simply recorded on a paper medium. It should be kept in a secure place. During a transaction, the user enters the key into the wallet interface, turning the «cold» storage into a «hot» one. 
Offline Transactions. This method is suitable for those who operate with a large volume of cryptocurrency. To implement offline transactions, two computers are used: a regular "hot" wallet with constant internet access and another where a unique key is recorded and stored without a network connection.  
The transaction is initiated through the "hot" wallet, generating an authorization request, which is then copied to the second computer, where all the keys are entered. The final step is returning the case to the first device. 
The advantage of this method is that storage and keys do not come into contact.  
Key Fragmentation. The essence of the method is that the key is divided into parts. During a transaction, it is assembled back together.

How to Create a Cryptocurrency Wallet?

Before deciding to create a cryptocurrency wallet, think about why you need it and how you want to use it. Computer, mobile device, or exchange?  
Decided? Then the second stage is to ensure that the wallet operates on the platform and supports the cryptocurrencies you have.  
Our advice: always back up your key!

Risks of Cryptocurrency Wallets:

It's no secret that many countries prohibit cryptocurrency. States combat decentralized and uncontrolled digital coins, as well as operations involving buying and selling bitcoins.  
Some countries have already imposed sanctions. For example, Bitcoin is banned in Pakistan, Nepal, Algeria, Cambodia, and Bolivia. Buying and selling cryptocurrency is also illegal in Macedonia, Vietnam, and Bangladesh.  
Another risk associated with a cryptocurrency wallet is the theft of coins by the storage manufacturer. Yes, this happens. Private companies that often offer their services online are particularly prone to this. Scammers disguise themselves as them or the manufacturers complicate transfers.  
When choosing a platform, rely on reviews and user feedback. Learn how the company protects its customers' deposits.

How to Keep Crypto Safe?

We have already mentioned that "cold" wallets are an excellent solution for long-term asset conservation. However, there is another side: «hot» wallets are great when coins need to be available at all times.  
Pay attention to the condition of the equipment and software. Malware is always present. Carefully check incoming emails. Phishing emails disguise themselves with the logos of well-known companies and write in their language. Pay attention to what comes to your email.