A foreword on Private Keys
A Cryptocurrency wallet is where your Private and Public Key or Keys are stored. The Private Key of your wallet is the single most important piece of information as it allows you to send currency, the public key is a derivation of the Private Key that can be shared in order to receive transactions. The Private key should not be shared under any circumstances and the question of where your Private Keys are stored is of utmost importance.
One way to look at this is much like a mobile phone. Whilst your phone provides the functionality of making calls etc it is your Sim card that determines your phone number. If someone managed to obtain your Sim card they would have control of your number and be able to make calls as if they were you, whereas, if they only have your number they could only call you. Cryptocurrencies function in a similar manner; if someone has a copy of your Private key they can send funds from your wallet whereas if they have your Public Key they can only send funds to you or see your balance and transaction log. The difference is that there is only one of your Sim card and could be infinite copies of a Private Key.
Making a wallet
If you fancy having a quick look at making a wallet please visit this site:
This will allow you to make a paper wallet for hundreds of different currencies, for example, here is their Dash wallet generator:
As you will see from the above site, when you create a wallet you are given two pieces of information; the Public key and the Private key. This Public key is actually an encryption of the private key and can be shared as the payment address for others. Some currencies also allow you to further encrypt the Public key into Receiving Addresses.
Essentially either key allows you to search through the blockchain for that particular currency and find every transaction related to the wallet. This will give you all transactions involving that wallet and, from there, the balance of the wallet.
The Private Key differs from the Public Key in that, whilst both can be used to look up the value of a wallet, only the Private Key can be used to authorise payments which means without this Private Key is it impossible to send funds out of a wallet.
The Private Key can be exported and imported into your wallet. For example, if you printed the paper wallet created above you could use this to receive payments, however, you couldn’t send money without importing the Private Key into an electronic wallet. Please note that if you import a Private Key it is still active and can be in as many different wallets as you like so it is not generally recommended to export and import private keys as a method of moving funds from one wallet to another as it means your Private Key can be active in multiple locations which you may lose track of.
Types of wallet
There are many different wallets available to use that vary in security and functionality. Some of the different types of wallets are:
- Hardware Wallets
- Mobile Wallets
- Desktop Wallets
- Paper Wallets
- Hosted Wallets
As covered above the important question with regards to wallet security is how your private key can be accessed.
Hosted wallets are a very user friendly and helpful method of storing your currency. Coinomi, for example, is a very handy App that allows you to store multiple currencys in one place and Binance, one of the largest cryptocurrency exchanges, allows you to store any currency on your account and trade them easily and quickly. Both of these providers are extremely popular and for good reason. On the other hand you, as a user, are entirely reliant on their security and your Private Key(s) are in their hands. There have been many accounts of Hosted wallets being hacked and as such we would recommend being mindful of the fact that this is possibly not the most secure place to store your funds.
Mobile wallets are, as you would guess, wallets that are stored on your mobile phone. These wallets are as secure as your mobile phone is (and the password for your wallet). Please note that some hosted wallets will have an app, however, your private key will be on their server and not stored on your phone. Mobile wallets allow easy payments via a QR Code reader.
Desktop wallets are much the same as mobile wallets in that you have downloaded the wallet to your PC or laptop rather than your phone, however, they will also allow you to download the full blockchain for your cryptocurrency becoming a node on the network. Desktop wallets may also allow you to mine or stake on your device depending on cryptocurrency.
Paper Wallets are the most basic wallet which you may have created using the link above. This is a very simple wallet where you will have a paper copy of your public key that you can use to receive payments and your private key which can be imported into an alternative wallet client in order to allow you to transfer your funds.
A hardware wallet is probably the most secure method for storing your cryptocurrency and are designed specifically with this in mind. Trezor.io were the first provider of these, however, there are many available now.
Different currencies offer different official wallets: Dash, for example, have various wallets available, here is some information on the wallets supported by the official Dash site:
Using a wallet
There are lots of different wallets with various features, functions, settings and options that can, at first, seem confusing, however, the core 3 features of wallets are universal: There will be a section where your available balance is represented, a section where you will be shown your Public Key that you can shared with others to receive funds and a section where you can enter another user’s Public Key in order to send them funds.
Other than the above the wallets could hold a host of features, for example, a Dash wallet may support InstantSend or PrivateSend or a wallet for a Proof of Stake currency may allow you to Stake your funds.
There is one other large distinction between wallets: Whether or not you are a node.
With most desktop wallets when you install them they will download the Blockchain for their cryptocurrency. Once this has downloaded this will now mean you are a “node” on that network and will be part of the transaction process when your PC is on, the wallet is open and you are connected to the internet.
Hosting a node is a fully automated process and doesn’t cause any noticeable network delay, however, it is a fairly large download for some currencies and it may not be the best option for everyone. It is therefore important, if you do not wish to be a node, to make sure the client you are using does not download the whole blockchain. In general most desktop wallets will function as nodes whereas hosted and mobile wallets will not.
We would encourage you to check the documentation before you download the wallet to check whether or not you will also need to download the blockchain. In general, as it is not an onerous process and doesn’t represent a security risk, we would recommend downloading a node as it helps out the cryptocurrency’s network without noticeable cost to you, however, this is entirely up to you.
Hopefully you have a better idea now of what wallets are, or you just got bored and skipped to the end of the article, either way, feel free to experiment with creating wallets as there is no charge and you can have as many as you like.
There are two points that we would like to reiterate to our users (and anyone involved with Cryptocurrency at all!):
Be mindful of how you store your Private Key/Backup Phrase and be wary of storing large amounts of funds on Hosted Wallets.