A wallet is offline or online software on which a crypto owner stores their cryptocurrency. A crypto wallet can also be thought of as an address or bank account on the blockchain.

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How do Crypto Wallets work?

A cryptocurrency wallet consists of two elements: a private key and a public key.

• A wallet's private key is the "password" used to gain access, and consists of a long, complex combination of letters and numbers. This private key is only available to the owner of the wallet. Just like the password of a bank account.
• A public key is the public address of a cryptocurrency wallet and is used to receive or send cryptocurrency. The public key is available to everyone and can be compared to an IBAN number.

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Different types of wallets

There are 3 types of wallets

1. Hot wallet
2. Cold wallet
3. Paper wallet

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Hot wallets

A hot wallet is a wallet connected to the Internet. Exchanges often offer hot wallets. Hot Wallets are the least secure wallets. Hackers can easily gain access by hacking the accounts to which the hot wallet is connected.

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Cold wallets

One of the most secure ways to store crypto is to store it on a Cold Wallet such as those made by Ledger or Trezor. In this process, the private keys are stored offline. This prevents hackers from accessing the wallet. Cold wallets are often secured with a cipher code.

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Paper wallets

With a paper wallet, the private key is written on a piece of paper. This is secure because there is no link to a computer but insecure because paper is fragile. For this reason, people sometimes choose to keep a paper wallet in a safe or by engraving the code in a piece of metal.