So far we have understood the concepts of cryptocurrencies or digital currencies, the blockchain, and bitcoins etc. Now, we will discuss what the digital wallet is? Why we need it? What are public and private keys? What issues can we face regarding private key? What security issues we should consider when keeping wallets?
A digital wallet is a software or program which allows us to store our bitcoins which we have purchased, and make transactions like sending the bitcoins to others and receiving from them. If we want to purchase any digital currency, first we need to have the digital wallet to store that currency. Digital wallet works same as physical wallet which we use to store normal currency notes and we keep it to ourselves for doing transactions whenever we want.
The digital wallet is the way we interact with the blockchain network of any cryptocurrency and we do transactions which are verified by that network. There are several third-parties wallet software like Bread Wallet, Mycelium, Trazer etc. Digital wallets store private and public keys.
It is a secret number which work like a lock or password. Any person purchases any bitcoin, a new private key gets generated for that bitcoin and that private key is owned by the person who bought the bitcoin, and it gets stored in that person’s wallet.
The important thing is that we don’t tell our private key to anyone and we keep it in secret as much as possible. Hackers always try to steal our private key from the wallet, and if they successfully steal it, we lose our money.
The public key is the address to any person’s wallet. We share our public key to everyone so that they can send us digital currency.
Suppose we have an application like Gmail. We create a new account, enter username and password, and our email address. Now, we share our email address to everyone so that they can easily send messages or files to us on our address, and we can easily receive them by logging into our account. Now, if any person steals our password, he can also log into our account and send messages to someone pretending we are sending. But losing email password does not hurt that much than the private key of our wallet, because if any person steals or get to know our private key, he can get access to our wallet and send all of our money to somewhere else.
TYPES OF DIGITAL WALLETS
There are different types of digital wallets. We can choose any of them which is better for us to keep.
It is an application or program which is downloaded and installed on desktop pc or laptop. Two drawbacks of desktop wallet that it can only be accessed on the computer where it is installed, and there are chances it can be hacked by any Virus, Trojan on our computer. Nevertheless, there are some applications which provide security.
CLOUD WALLET OR ONLINE WALLET
These are the applications which are accessed online, and they can be accessed from any device and locations. There are some security issues also as if someone steals our passwords and then accesses our private keys etc.
These are the apps installed on our phone just like any other app. Mobile wallets can be used anywhere including retail stores. They are much simpler than desktop wallets. Some mobile wallets also keep the backup system that when we lose our mobile phone, we can backup our wallet data.
Hardware wallets are different than a desktop, mobile and cloud wallets. They store our private keys on any physical device like USB. They are used to do online transactions, but stored offline, which increases security, as no hacker will be able to access them online. Now, if we own a large amount of cryptocurrency and we don’t want to take risk of losing it then hardware wallet is a better choice.
Paper wallet is the application which generate public and private keys and then print out them. But they are easy to lose and most people will not want to take a risk of keeping a piece of paper in their pocket which contains keys to a large amount of money.
Digital wallets store currencies, means if we want to purchase bitcoins, ethereum or any other currency then we first need to get the digital wallet. And, we need to decide which type of digital wallet we want to keep, either it is a desktop application, mobile app, cloud wallet, hardware or paper wallet. We need to consider our way of using digital currencies, either we just want to purchase and keep digital currencies, or we do daily transactions with them etc. after considering these questions, we will surely be in a better position to take decision.
There are other things to consider, like we should keep our private key in secret as much as we can, and we should keep the backup of our wallet, as we lose our wallet, we lose our money, and we should consider keeping wallet software up-to-date, so that we can get improvements, bug fixes, and security enhancements.