In the earlier days, in our transaction media, the transaction was slow, we had to use intermediaries like banks, and there are issues of tracking accounts and balances. Because there was a chance for the transactions being corrupted and manipulated. So for diminishing all these problems the importance of Blockchain and Blockchain wallet has been felt.
What is Blockchain Wallet?
A Blockchain Wallet is a cryptocurrency-based wallet that allows users to regulate various sets of cryptocurrencies like Bitcoin, Etherium, Hive, etc. Blockchain wallet assists to exchange the funds efficiently, and transactions are secure as they are cryptographically approved. This wallet is accessible from the web and mobile devices. Moreover, the identity and privacy of the user is maintained properly here. That means Blockchain Wallet presents all the features which are essential for safe and protected exchanges or transfers of funds between several parties.
Simply, Blockchain Wallet is a common crypto wallet that allows users to manage cryptocurrencies. It is very comparable to the process of sending and receiving money through PayPal or any other gateway we are using nowadays. But now, you can use a crypto wallet instead of these types of gateway.
How Does Blockchain Wallet Work?
Before we jump on to - How Blockchain Wallet Works, let's explain the terms private and public keys at first and how are these keys linked to the blockchain wallet. Whenever you are creating a blockchain wallet you are also providing a private and public key which are associated with your wallet.
For example, in our regular day to day activity if you want to receive an email from someone you give him/her your email ID and expect an email from them.
Now, what if an unknown person can send an email through my account? I am giving my email address for receiving email. At the same time, I'm disclosing my email ID and I am assuming that someone won't be able to send an email from my account as he needs the password of my email ID to do that.
Knowing your email address will not give someone the ability to send an email from your account. You're not giving him the password of your email. You're just giving the email address.
What am I telling you this simple example or logic? Because blockchain follows a similar process using the public key and private key together.
The public key is similar to the email address of any person. You can share your public key with anyone to receive funds.
The private key is the top-secret key which is similar to your email's password. An algorithm with encrypt and decrypt code is used in a private key to make it more secured. You shouldn't disclose it to anyone and you use this key to spend or send your funds.
Now imagine, instead of sending an email, you want to transfer money to your friend. The transfer will be done through your blockchain wallet. With your blockchain wallet now you can send and receive cryptocurrencies.
Remember again!
As I said Blockchain Wallet has two keys - Public key and Private key. Public key is shared with everyone just like an email address. Private key is just like your password which should be kept secret with the sender.
With Blockchain wallet, no one will be able to send cryptocurrencies (just like emails) using your public key, till they know your private key (password).
But if someone knows your private key you can say that your account is hacked and you may lose all the crypto you have in your account.
Main Benefits of Blockchain Wallet
- It allows instant, barrier-free, intermediaries-free transactions. And the transaction charges are also very cheap.
- It's highly guarded or secured. If you can keep your private key secure, then no one can hack it.
- It's simple to use. It's like another software or wallet that you use for your daily transactions.
- These wallets assist you to do transactions across multiple cryptocurrencies.
Types of Blockchain Wallets
Basically, there are two types of Blockchain wallets based on private keys - Hot wallet and cold wallet.
Hot Wallets
Hot wallets are like regular wallets that we apply for our daily transactions. These wallets are user-friendly.
- These are online wallets through which cryptocurrencies can be transported quickly. They're available on the internet. For example - Coinbase, Blockchain.info, etc.
- These are very easy to access, available online 24 hours, and can be accessed from desktop or mobile. But it has a risk of unrecoverable theft or hack.
- Private keys are cached in the Cloud for more high-speed transactions.
Cold Wallets
Cold wallets are related to a vault where cryptos are stocked with a high level of protection.
- Cold wallets are digital offline wallets where the transactions are signed offline and then disclosed online later. They're not maintained on the cloud or internet. They are maintained in offline to ensure high security. The examples of Cold wallets are - Trezor, Ledger, etc.
- Cold wallet helps in protecting the wallet from unauthorized access or form hacking and other online vulnerabilities.
- Private keys are stored in a separate hardware (which is disconnected from the internet) or paper document.
Again, wallets can be separated by three types in case of the wallet's nature. For example - Software wallet, hardware wallet, and paper wallet.
During 2006 to 2011, paper wallet was the popular method to store cryptocurrencies, mainly bitcoin. Where onetime private key and wallet address generally create on the computer and printed out on paper. Though it is an obsolete, unsafe, and old wallet system.
In the paper wallet system, your fund was secured until you use the computer. When you are using the computer your security is compromised and there have a chance of account theft. To provide an extra layer of security to cold storage a wallet called Hardware has been invented. Hardware wallet is like a vault where you don't need a private key to transfer the amount. You need a security pin to open that hardware or vault. Here's you will use "seed words" for any security purpose or to recover your account.
Seed Words - a series of irregular words used to revive/replace your wallet and recover your currency
Software wallet is based on computer software. It could be on desktop, mobile, or online. Here without any third party interference, you've the overall control of your wallet. And most of wallets are now online wallets, it could be accessible from anywhere. But you need to put a lot of belief to the owners of the website and need to check their level of safety system.
Maybe I will discuss about these wallets in the next article. And I would like to write about the Hive wallet as well. So stay in touch!
Read Also -
- What is Blockchain? Simplest Explanation of Blockchain Technology Ever - Click Here
- Consensus Rule of Blockchain - A Simple Explanation - Click Here
- Best Blockchain for Development in 2020 - Click Here
- Basic Definitions of Web 1.0, Web 2.0, Web 3.0 and Their Differences - Click Here