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What's a Crypto Wallet & Why Do You Need One?

What's a Crypto Wallet & Why Do You Need One?

If you are using cryptocurrencies, then you probably understand the importance of using a cryptocurrency wallet.
A crypto wallet is a digital wallet that stores your assets, and access is limited at least by a password that is generally known only by the account owner.

In the event of theft of your wallet, no one can recover the stolen assets.
The reason lies in the decentralized nature of cryptocurrencies, which essentially makes every person their own bank.
This means that only the owner of the wallet really has access to the crypto.
Of course, someone could steal the assets if he gets access to the password.

Therefore, we need crypto wallets for safe cryptocurrency storage.  

Bitcoin Wallet--How It Works

The Bitcoin wallet is always composed of two keys or two parts. The first part is the public address of the wallet, which you can share with others without worrying. The second part is a private key that only you should know. You can think of a public address as your email address and a private key as your email account password.

A private key is used to encrypt transactions while the public key is used to decrypt. Therefore, the private key must always be secure. Anyone who has access to a private key is also the owner of the wallet. The public key is for sharing with third parties and tells you that you are the owner of the address that can receive funds.

The combination of a private and public key creates a digital signature. It is a special type of digital cryptography that aims to create a secure digital reference on the identity of the user or the holder of the wallet. This wallet identity is therefore based on having a combination of private and public cryptographic keys. Digital signatures prove ownership and allow you to control assets.

Perhaps this will surprise you, but Bitcoin's wallet can also be paper-based . It usually contains a public address and a private key in the textual (and usually in the QR code) form. That's technically all you need for safe storage.  You are mistaken if you think that Bitcoin can be stored on a USB stick in the form of a file. All Bitcoin information is stored on the blockchain chain.

The problem with digital files is that you can duplicate them without any problem. You probably know that this is especially true of the music and film industries, where they create endlessly illegal copies of their products. If cryptocurrency worked on the same principle, then they would all collapse quickly, as anyone could create new coins units indefinitely. Something similar is happening, among other things, in the monetary system. Blockchain technology helps prevents this.

When you send Bitcoine from one address to another, it is verified on the data block chain if it is possible to send the desired amount from your address. In other words , the entire transaction history of your address is checked , since your Bitcoins, as said, are not stored in any physical location (for example, on a USB stick or in a central database).

In this context, the cryptomat gives you access to a user-friendly cipher wallet, where you can store all the crypts that we support. We effectively act as a bank account for your digital currencies, but you can of course also send them to your private wallet.

Now that we understand the crypt of the wallet better, we can focus on the different categories and types of wallet crypts that are designed for different needs.


Different Types of Crypto Wallets

The crypto wallet is basically divided into two categories:

  1. Hot wallets - These are constantly connected to the Internet

  2. Cold wallets - These are not connected to the Internet, and there are four subcategories:

- 1 - Hardware wallets - Public and private keys are stored on a separate hardware device and written in digital form, and access to them is locked at least with a password. An example is the Trezor Model T.
- 2 - Paper wallets - Public and private keys are written on paper.
- 3 - Web wallets (including mobile) - Private keys are in some cases owned by the wallet provider.
- 4 - Program wallets  - Public and private keys are stored in a computer program and written in digital form, and access to them is locked at least with a password.

Each of the listed wallets has its advantages and potential weaknesses. We briefly examine them in the next chapter.


The Advantages & Disadvantages of The Different Wallet Types 

Hot Wallets (online, mobile)

Advantages: Hot wallets allow you to perform a virtually unlimited number of transactions in a quick and easy way. Web (e-wallet) and program wallets are usually very cheap or free. Since today we use our phones for almost everything, mobile wallets can be very convenient. They also offer scanning of the title in the form of a QR code, which enables simple and fast transactions.

Disadvantages: A wallet that is permanently connected to the Internet has a clear disadvantage because it’s the most vulnerable to hacker attacks. As such, it is not best suited for the long-term, unless you really trust the owners of the service that offers the wallet.


Cold Wallets (hardware, paper, software)

Advantages: They do not have permanent connections to the Internet, therefore they represent extremely safe storage. The connection to the Internet is established only in the case of carrying out transactions or sending cryptocurrency from the wallet. There is no need to establish an Internet connection to receive crypto because the transaction is performed on a data block chain where transaction data (and, consequently, the current state) of your wallet is stored. The sender must only know your public address. An additional advantage is that paper wallets are completely free.

Disadvantages: For cold wallets, you must first connect to a networked device and unlock them with your password. So it's a bit longer process. But beginners may also have problems starting up such a wallet. Luckily, you can find detailed instructions on the Internet. These types of wallets are more expensive but that’s the price for the additional security.

In short, it’s best to use cold wallets for the long-term safe keeping of your assets.  However, hot wallets are a good choice if you need to access your funds often and quickly.


Which Crypto Wallet Should I Buy?

Before choosing a crypto wallet, explore the options and ask yourself about your needs. Do you prefer to use a computer, or do you prefer the phone? Are you buying for long-term storage, or will you need to access your cryptocurrency very often and quickly?

Here are some of the more popular cryptocurrency wallets today:

- Ledger
- Coinomi
- Bitcoin Wallet
- CoolWallet
- MyEtherWallet
- Jaxx
- Electrum

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