The requirement for excellent security measures to be implemented is rising. Introduction of Blockchain technology has redefined the way of every operation and it certainly helps in enhancing security more than ever by implementing the concepts of cryptography to protect the data. And hence, it leads to the development of Blockchain wallets that can be used to transact using Bitcoin or any other currencies to efficiently earn and transfer money.
Blockchain: An Enhanced Electric Ledger
Blockchain is a digital ledger that stores the transaction data over the network that gets divided among the recipients. The system divides the data in chunks and separate blocks are formed that togetherly chain and create a complete data of transactions. The authentication and authorization across the blockchain line are very much higher to protect and verify the data before storing it.
Therefore, the use of blockchain is not only limited to protecting the data. It verifies and stores the appropriate data that can later be traced to its origin with this efficient system. The enhanced security implementations make it appropriate for currencies and transactions and Blockchain wallets are formed to provide the utmost security to user belongings.
The increased demand for security has increased the demand for excellent payment transfer options which leads to the software development and increase in the use of Blockchain wallets. As Statista predicts, the number of Blockchain wallet users has hiked to 42 million worldwide in September 2019 and the increase in the same will be noticed.
Blockchain wallet facilitates the transactions done through cryptocurrencies. It does not work in the regular way any other digital wallets work, rather the security is high end-to-end and the implementation guarantees excellent support for enhanced transaction history and cryptography implementations. They can also be named as crypto wallets.
If you are thinking about whether these wallets store cryptocurrencies, you are wrong. Blockchain wallets differ from any normal wallets available and they store the transactions rather than the currency being transacted. If a person A has sent some B amount of crypto money through Blockchain wallet to another person, the wallet doesn’t save the amount B rather the transaction data of A to your wallet gets stored over a distributed ledger.
These wallets might seem very intuitive and seamless first, but the background processes powering up the work are very complex and preserve the highest degree of security.
How Does Blockchain Wallet Work?
Showcasing the best possible use of asymmetric encryption, Blockchain wallet uses public key and private key pairs to help decrypt the data at user end while protecting privacy throughout the time. A single wallet interacts with multiple out there and helps efficiently exchange the cryptocurrencies with the highest security measures in place.
The private key of a user is kept secret and only the user himself/herself knows the key. While the public key associated with every users’ private key is known to all. The sender first encrypts the transaction using the public key of the receiver that later receiver can decrypt using his/her private key.
This asymmetric encryption ensures enhanced privacy by increasing the complexity of calculating and matching the right pair of public-private keys. And without matching key pair, the wallet user can not open and see the transaction data and the cryptocurrency doesn’t get added to their account. There are different types of Blockchain wallets that work on the same concept as described and provide a way to transact safely.
Types of Crypto Wallets (or Blockchain Wallets)
Blockchain wallets are differentiated in three different types with their nature and environment support. Using any of the Blockchain wallets, the transaction of any kind of cryptocurrency is possible with guaranteed safety and security.
1. Hardware Blockchain Wallets
As the availability of multiple cryptocurrencies online poses a higher threat of hacking, hardware wallets assure complete safety as the private keys are stored offline on a single device.
It is one of the best and most preferable ways to use up your cryptocurrencies and store them as there are no threats of hacking or virus attacks. It can be used to store the majority of your data even if you are not comfortable with coding and algorithms as it is the most easier way to store your data.
These wallets required internet connectivity only when the transaction is required to be performed. The hardware wallet is connected to any other internet-enabled device and the confidential pin is required to enter to open the wallet. The transactions can be collected later using this method.
Some of the popular examples of hardware wallets are ‘Ledger Nano S‘, ‘Trezor One‘, KeepKey, Blockchain LockBox and more. These wallets can be used to keep track of the cryptocurrency earned and perform transactions seamlessly.
2. Software Wallets
Software wallets are programmed applications that can be downloaded on specific devices and used when the transaction is required to be performed. The popularity of these wallets is rising as the requirement for easier access to cryptocurrency and asset transactions increase. These software wallets can further be divided into three categories:
While the integration of every new technology with mobility is becoming popular, Blockchain is also ready to jump into mobile trends with its mobile wallets.
They are available on the smartphones of users as a mobile app and provide excellent support for enhanced cryptocurrency transactions. However, unlike other regular wallets that can be integrated into any marketplace app, e.g. delivery tracking system that provides support for payment through the app only with the mobile wallet integration facility, these wallets can be used only for cryptocurrency-related transactions.
However, to protect yourself from potential frauds, it is important to secure the mobile device from potential viruses and security attacks to exclude hackers from stealing away your private information.
Suitable for people playing in crypto stocks, the desktop wallets facilitate easier availability of transaction handling if mobility is not required. The desktop wallets are software programs installed on a computer that works to provide enhanced security over the crypto transactions. However, the device is required to be protected from harmful viruses to ensure confidentiality is maintained.
Online (Cloud) Wallets
The online wallets are facilitated by cloud technology and hence, can be accessed over any device (desktop, laptop, mobile or any) easily. The private key of cloud wallets are maintained by the third party and are saved online. The facilities offered through this platform are the same as any other type of wallets but due to the third party access to private keys of users, the security threats are higher as the access to key becomes vulnerable to attacks.
3. Paper Wallet
Combining the benefits of hardware and software wallets, the paper wallet poses as the best option to choose for the assets that are required to be accessed frequently. They work with software wallets to execute the requested transactions and the private key pairs get generated through software wallets and get printed to execute the transactions.
The application names fund transfer to the public address of the paper and when wanting to transfer them, the locked funds are transferred from paper wallet to software wallet. Using the sweeping process, paper wallets proceed excellently to transact the assets seamlessly. This process includes various known security measures like QR code scanner, key verification and more.
Not all Blockchain wallets come dedicated to a single currency. There are many wallets that provide crypto transaction support for various cryptocurrencies including support for BitCoin, Etherium, Ripple and more. These are known as multi-currency blockchain wallets and provide support for fund transfer and efficient transactions to provide an easier and seamless way of processing.
Hot and Cold Wallet
The blockchain wallets can be categorized into two types according to their requirements also.
Hot wallets are constant in contact with internet connectivity. These wallets can be downloaded on a desktop or in a mobile or alternatively, can be used on the web browsers. All blockchain wallets require internet connectivity to execute transactions but hot wallets are the ones that are continuously connected to the internet whether they are used or not.
The attacks on these wallets are easier as they can suffer from any security threat posed through online connections.
Cold wallets are safer to use for storing the cryptocurrency or asset details. Cold wallets are only connected to the internet when any transaction is required to be processed. Hardware and paper wallets fall under this category of Blockchain wallets.
These are preferred when constant fund transfer and transactions are not required. Ledger Nano S, Trezor and more are examples of cold wallets that store the private keys offline on a device that is not internet connectivity enabled.
Using blockchain wallets, online transactions of cryptocurrencies and other crypto assets are made easier than ever. However, choosing the one that suits all the requirements and provides excellent support when executing the transactions is required. Learning the benefits and limits of each of them, a user can make the choice between the numerous choices available in the market.