One of the first steps to take for anyone who wants to enter the world of cryptocurrencies is to create a “wallet”.
What is a wallet?
Simply put, a wallet can be considered the equivalent of a bank account. It is through this account that transactions are made: interacting with digital assets, transfers to other people/entities, paying other people/entities, or simply depositing cryptocurrencies.
Contrary to popular belief, digital wallets do not store the coins themselves. Instead, wallets should be thought of as a tool that allows you to interact with or access the blockchain where your cryptocurrencies are actually stored, much like an online account interacts with your money deposited in a bank.
What these digital wallets actually contain are the private keys and public keys of a specific user, in addition to other types of information.
Private Key and Public Key
- Public key – To make this concept simpler and easier to understand we can say that public keys are comparable to the IBAN of a bank account. This number can be shared so that another person can make a transfer. Everyone can view your public key, or address, and thereby transfer cryptocurrencies, but only the owner of the private key can access those associated funds.
- Private Key – On the other hand, your private key is similar to a PIN for your bank account. It is these keys that give access to cryptocurrencies. If this key is lost, access to the account is lost and cannot be recovered. Normally, when you create a wallet, a 12-word phrase or “seed phrase” is generated, which is used to recover this private key. This key and seed phrase is something that should NEVER be shared, under any circumstances. It is advisable to store this seed phrase on physical paper or in some password encryption software so that it is untouchable in case of any hacking attempt.
When you hear someone say that they have cryptocurrencies, what they are actually saying is that they have a private key that shows that they are the real owner of these digital assets.
Hence, it is important that when choosing a wallet it is one where the user is in possession of the private key or private key.
Types of wallets
In this digital world, there are two types of wallets hot and cold wallets.
- Hot wallets – these are called hot wallets because they are somehow connected to the Internet, thus more prone to hacker attacks. This type of wallet is a software that you can install on your PC/smartphone or you can access online from a browser. Within these, there are also wallets that keep your private keys safe (something to avoid) and others where the user is in charge of keeping the private keys safe, undoubtedly the preferred ones.
- Cold wallets – cold wallets, better known as hardware wallets, have no connection to the Internet. Usually, devices similar to a USB stick are used to store the keys. They are considered much safer alternatives for protecting your private keys, especially for someone who plans to invest a larger amount
“Not your keys, not your coins“. If you don’t have your private key you don’t truly own your coins. This phrase is a motto in the cryptocurrency world that one should follow to the letter to try to keep your assets protected.
Wallets are indispensable for managing cryptocurrencies, so we consider it imperative to do good research to choose the ideal wallet that will provide us with the greatest security and effectiveness in managing our digital assets.
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