Cryptocurrency Wallets

Cryptocurrency Wallets: The 2020 Guide

If you want to find out more about what cryptocurrency wallets are, then look no further! 

We will break down the most popular types of crypto wallets, and exactly how each one functions.

So What is a Cryptocurrency Wallet Anyways?

In layman’s terms, a cryptocurrency wallet is usually a medium that is able to store certain kinds of private and public “keys”, which are later used for online cryptocurrency transactions. 

Just like a regular physical wallet, you are able to monitor what your balance is, receive payments, and conduct any form of cryptocurrency transactions. 

The most well known and common type of online cryptocurrency today is Bitcoin, but as of 2020, there are now over 5,000 different types of cryptocurrencies!

How Does a Cryptocurrency Wallet Work? 

Contrary to popular belief, cryptocurrency wallets do not actually store any of the currency in them.

What they do store are all of the transaction records that have occurred within the network. What they do store are all of the keys, and the software fetches all of the transaction records associated with the specific key.

Imagine you are a graphic designer. A customer from France wants to pay you back (in Bitcoin) for an awesome logo that you created for him. He opens the cryptocurrency wallet app on his iPhone, and then proceeds to send over the agreed-upon amount in the form of Bitcoin.

In order for you to be able to receive actual ownership of the newly acquired Bitcoin, the private key that is stored in your wallet must now correspond to the public key that the virtual currency has been sent to. When both of those keys match, the digital transaction will occur, and your wallet’s balance will increase, while the customer’s will decrease.

This process is somewhat similar to how wire transfers occur between bank accounts but happens much faster, and most importantly, much safer!

Check our customer portfolio to see some real-life projects.

Types of Digital Wallets

These days, most of the digital crypto wallets can be sorted in one of three categories: Hardware, Software, and Paper wallets.

Keep reading and find out how each one is unique, and what to look for when choosing the right type.

Paper Wallets

Almost as simple to understand as its name, paper wallets are just that. Your cryptocurrency wallet on paper.

These require the highest level of care and wariness from the user, due to the high risk of “damage” that could occur to your currency. The physical paper has the printed private key on it, and you can begin to perform transactions with it as long as it is in your hand, literally (which will still require some software input).

But be very wary!

If the physical paper gets damaged or destroyed in any way shape or form, so will the currency that is associated with that given wallet, as the payment information will no longer be available. 

Software Wallets

These types of wallets run on a designated software and can be broken down into 3 different categories.

Desktop Wallets

In order to send and receive cryptocurrencies with these types of wallets, you will have to install a software program on a single computer. The wallet will only be accessible through that single machine, and the chances of any damages to your wallet will be almost non-existent; making this one the safest wallets to own out there.

This also means that you will not be able to access your wallet when on-the-go, so be sure to keep that in mind when considering this type of wallet.

Mobile Wallets

These types of wallets require the need to download a mobile app on your mobile device in order to be accessed. By installing the app and opening an account, you will be ready to go ahead and conduct mobile transactions through your phone to anyone that accepts cryptocurrencies as payment.

The biggest risk of owning a mobile wallet is the chance of losing or breaking your phone, which would result in the total loss of your wallet, and therefore your currencies. 

Web (Online) Wallets

All online web wallets run on some sort of a cloud platform. This allows the user to access their wallet from multiple locations, as well as devices. 

As you can imagine, they are also the most susceptible to hacks and require layers upon layers of security in order to keep the networks secure. Everything else about these types of wallets functions the same way as the previous two examples.

Hardware Wallets

Just like the name suggests, these types of wallets run strictly on secure hardware (e.g. a USB stick).

With this type of wallet, you can take it anywhere with you, and access it on any internet-enabled device that has the corresponding software installed on it. They also closely resemble the physical wallets that we use in our everyday life, so make sure to never damage them in any way, or just like the mobile wallet, your investments could disappear forever.

If you own a business and are wondering how exactly it can benefit from investing in a crypto wallet, then keep reading to find out how, and all the benefits that come with it.

Why You Need a Crypto Wallet and How to Make One

This is where it gets way more interesting. As a business, there are several pros of having a cryptocurrency wallet for your business.

To start off, your brand can:

– have a better reputation in the long run,
– you can allow more offers to the people who use your wallet, and
– you can even develop a native coin to help your business make more money

Since you would have complete control over your wallet, you could also allow your customers to integrate it on their website through an API, thus driving more commission-based transactions for you.

То understand the process of creating a crypto wallet, we will take the Bitcoin wallet as an example here. Like most of the popular cryptocurrencies, Bitcoin’s code is open source which means everyone can view and understand it, which makes the task one step easier for you.

Depending on your use case, you can opt for either of the following two methods to create a digital wallet:

Use Libraries

These include Coinbase SDK, BitcoinJ SDK, Blockchain Wallet API, and a lot more. 

The purpose is to minimize the research and set up process so you can actually focus on the development. 

However, since these are 3rd party tools, some limitations do exist, but you shouldn’t worry about them if your use cases are common and you do not require ‘out of the box’ features.

Create From Scratch

If your business has extensive requirements, then development from scratch is highly recommended.  By following this method, you would need to sync the network by using the required APIs, program the E2E functionality of the wallet, including all security layers and testing the wallet functionality from scratch. How secure your wallet is, will have everything to do with how much trust you have in your customers and clients. 

If your business or project requires the development of a Cryptocurrency Wallet for crypto, then find out how we can develop your plan into reality. Read more about LimeChain’s Wallet development service or directly contact us at [email protected]

Continue reading to find out how each wallet differs from the others in regards to security, and which type is best suited for your company’s needs.

Cryptocurrency Wallets Security

When choosing the right wallet, security is vital. Naturally, everyone wants to have the most secure wallet out there, but with these types of cryptocurrency wallets, security will depend on the specific type of wallet.

With paper and hardware wallets, you achieve some of the best security due to the fact that these types of wallets are considered “cold” and not plugged into the internet. This is also the reason why they are also more vulnerable to being “lost” or destroyed, just like everyday physical items do around us.

Software wallets, on the other hand, are considered “hot” and run a higher risk of outside intrusion from hacks, and viruses. That is why it is almost always recommended that you create a couple of back up copies of your software wallet before anything goes wrong.

With security being on top of the list of priorities, at LimeChain we help design and develop some of the best digital exchange wallets in the business for our clients.

What is the Best Cryptocurrency Wallet for Me?

Now that you are aware of all the types of cryptocurrency wallets out there, it is time to figure out which one will be the right one for you.

If you travel a lot and do not have a stable location, then a hardware wallet will most likely be the right solution for you. On the other hand, if you will use your wallet from a single location most of the time, then you will be better off with a software (desktop) wallet instead.

When making your decision, also consider the costs that will be associated with owning and upkeeping your cryptocurrency wallet, as well as the ease of use. Both of those factors will weigh heavily on your purchase decision, and what cryptocurrency wallet you choose for storing your investments.

In conclusion…

Choosing the right cryptocurrency wallet will take some time, but will be an investment that will pay off in the future.

Be sure to take your time, and choose the right type of crypto wallet for you!

Do you have any further questions about how cryptocurrency wallets are created and what the right one for your specific need is? Just ping us at [email protected]

 

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Blog author Silvia

ABOUT THE AUTHOR

Silvia Ivanova
Head of Growth