Blockchain Wallets

#blockchain #wallets #cryptocurrency #bitcoins #security

Shikhar Bhagoliwal Feb 23 2021 · 2 min read
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Blockchain Wallet is an E-wallet used to store bitcoins or other cryptocurrencies that are bought by any user. As the signature is cryptographically signed, transactions are highly secured. Blockchain helps people in exchanging the funds through a safe and secure channel. It is comparable to different payment gateways such as Visa, Paypal but in this case cryptocurrency is the element to be transferred.

Blockchain Wallets

When a blockchain wallet is created a private and public key is generated to the user. In order to receive funds, a public key is required to be shared to the other user. In order to spend the funds, a private key is used which should not be shared with anyone. A user needs to choose a secure wallet where it has minimal chances for its private key to be leaked, otherwise the account can be compromised and there will be high chance to lose all the funds.

From Private key to Public Address

Users can send a request to another party for a specific amount of bitcoin or any other cryptocurrency, and the system generates a unique address or a Quick Response (QR) code that can be sent to a third party.

When a user makes a request, always a unique address is generated. A cryptocurrency can be sent if they have the other person's unique address. The send-and-receive process is similar to sending or receiving the amount through any commonly used gateways such as Visa, Paypal but uses cryptocurrency instead. 

On an broad perspective, there are two types of wallets:

  • Hot Wallets
  • Cold Wallets
  • Hot Wallets

     The private keys are stored on a cloud based server. In terms of accessibility, hot wallets are much more faster to use and the speed of transaction is faster than a cold wallet. But in case of security it is at a high risk of unrecoverable theft. Examples of hot wallets are Coinbase and Blockchain.info.

    Cold Wallets

    The application that runs on the device or hardware wallet and it is more secure than hot wallets. This type of wallet is not directly accessible to a third party professional. All the process are run on hardware and only the hash part of the transaction is ran on cloud or blockchain server. Examples of cold wallets are Trezor and Ledger.

    Wallets can be further broken down into more types.

    Types of Wallets
  • Desktop Wallet: These are cold wallets which provides the user with complete control over the wallet, work as an address for the user to send and receive bitcoins and helps user to store a private key. Example: Electrum, Armory, Bitcoin Core
  • Online Wallet: These are hot wallets that runs on the internet. Users can access their cryptocurrencies from any place on Earth. As it stores your private keys online, it is necessary to select an online wallet carefully. Example: Coinbase
  • Mobile Wallet: It functions similar to a  desktop wallet. It is accessible only to a mobile device and have a user-friendly interface to perform smooth transactions. They take their payments using NFC, touch-to-pay in physical stores.They are compatible to both iOS and Android Platforms. Example: Hive Android, Mycelium Bitcoin
  • Hardware Wallets: It is type of cold storage device and one of the most secure wallet, as they store Bitcoins on a physical piece of equipment that is usually plugged into a computer via a USB port. It stores the user's private key in a protected hardware device and these wallets are immune to malicious virus attacks. They are less prone to malicious attacks and are hack-proof. Example: Ledger, Trezor, and KeepKey
  • Paper Wallets: It is an insecure mechanism to store cryptocurrencies and it gained popularity between 2011 and 2016. This wallet is a printed paper that has both your private key and public key, which are accessed using a QR code. Example: Bitcoin Paper Wallet and MyEtherWallet.
  • Why should we use Blockchain Wallets?

    Any transaction requires the intervention of the banks which can result a slow process or high chances of failure. Data can also be stored in unsecured or manipulated systems. Blockchains can help in solving these problems. It is important to keep a track of all the transactions and once the transactions are made they are not irreversible.

    Need for Blockchain Wallets

    Advantages of using Blockchain Wallets

  • Security: From initiating a transaction to confirmed transaction, it is highly secured
  • In a blink transaction: The transactions are very instantaneous
  • Currency conversion: The bitcoins can be converted to any local currency
  • Accessibility:  Bitcoins Wallets are present on multiple platforms, you can check your balance, validate your transactions, initiate transactions as per your requirements
  • Less Transaction fees: Compared to traditional banks the cost of transferring amount is very low
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