Here’s the list of topics we’ll be discussing in this blog:
What is a Blockchain Wallet?
The whole concept of Blockchain is fascinating, no doubt. However, there is a catch here. As cryptocurrencies are becoming the order of the day in financial markets, a lot of patience goes into understanding and managing them.
We know that cryptocurrencies are digital money, so where do we store them? The answer to this question is Blockchain Wallets. In layman’s terms, if you want to leverage Blockchain Technology, you should be familiar with what a blockchain wallet is and how it works.
Developed by a company named Blockchain, Blockchain Wallets are basically computer programs that allow you to monitor and transact cryptocurrencies. In these wallets, transactions are recorded in the blockchain, that is, if someone sends you cryptocurrency units the transactions are assigned to the address of your blockchain wallet but recorded in a distributed ledger. Blockchain Sign up should be done first. Following which the blockchain wallet login is required.
Here’s what you need to know about blockchain wallets.
How does a Blockchain Wallet work?
A transaction’s private and public keys are stored in the blockchain wallet store. With multiple blockchains in the network, there may arise a need for interactions among stakeholders to authenticate a transaction. Blockchain Sign up is done first and then the blockchain wallet login is required. These interactions are necessary to allow users to purchase or sell one or several cryptocurrencies.
Before understanding how blockchain wallets work, let us first discern the role of public and private keys that are stored on blockchain wallets for authenticating a transaction. These keys overall are non-identical pairs of large numbers. While the public key can be shared with anyone, private keys are generally kept as a secret.
No matter how many times you attempt to open the wallet, it will grant you access only when the order of private and public keys match with each other. Only when private and public keys pair together, users can grant access to the blockchain wallet to visualize the value of their digital assets and conduct operations on them.
Consider this example to enhance your understanding.
You can assume that someone has sent you some units of Bitcoin Blockchain. When the sender does this, the person is assigning the owner of those Bitcoin units to the address of your blockchain wallet. For you, the private key in your wallet must match the public key that the currency is assigned so that you could spend those coins.
When the public and private keys pair successfully, the balance in your wallet will increase. In this process, there is no exchange of currency units, but a transaction is committed. This transaction is recorded on the blockchain, and the changes hence reflect in your wallet.
Use of Blockchain Wallet
There are several problems associated with the traditional banking system when it comes to transactions. These transactions are slow and they need to go through an intermediary, where it might fail sometimes due to various reasons. Keeping track of transactions, accounts, etc. can also be tedious. The data could be compromised or manipulated. Blockchain wallets eliminate all these issues.
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Types of Blockchain Wallets
Basically, there are four types of blockchain wallets that are available to store and reflect any transaction on a blockchain.
- Software Wallets
- Hardware Wallets
- Paper Wallets
- Single or Multi-currency Wallets
Check this video on Hyperledger Fabric Blockchain by Intellipaat:
These are software applications that can be downloaded on desktops or mobile phones. They can even be accessed online. Blockchain signs up first and then logins into the blockchain wallet. Depending on the utility of the device on which they are to be used, they are further categorized as:
- Desktop Software Wallets: These wallets are meant for PCs and laptops. For safety concerns, it is required of you to make sure that your system is virus protected.
- Online Software Wallets: Hosted on clouds, these wallets can be accessed from any internet-friendly device through a web browser. While using this wallet, a user must make sure that their private keys are not saved online.
- Mobile Software Wallets: Available as mobile apps, these are the most flexible and popular software wallets. They also facilitate the scanning of QR codes for easy and faster fund transfer. Blockchain wallet login is an absolute mandate for these types of wallets.
The private key of users on a hardware device such as USB or any other external hard drive is stored in hardware wallets. These wallets are compatible with various web interfaces and allow support to multiple cryptocurrencies. For using these wallets, there is a need for you to link them with any internet-enabled device.
Further, you need to enter an assigned pin and confirm the same online. Provided with the security they offer, hardware wallets are undoubtedly the safest wallet options that are available.
PS: All units of cryptocurrencies are stored offline in these wallets.
In the case of paper wallets, the pair of public and private keys are generated using a software application and are then printed to authenticate a transaction. These wallets generally work with software wallets for buying and selling of funds. Basically, currency units are transferred from software wallets to the public address on paper. For unlocking these funds, currency units are transferred from the paper wallet to an associated software wallet. Termed as ‘sweeping’, this process involves QR code scanning and manually adding keys for completing the transaction.
Single or Multi-currency Wallets:
A bitcoin wallet on an iPhone
Blockchain Wallet Features
The most important features of a Blockchain Wallet are as follows:
- Blockchain Wallets are pretty easy to use. They are similar to any other wallet that you use for regular transactions.
- Blockchain Wallets use private keys and hence, are very secure.
- Blockchain Wallets let you do transactions around the world in an instant.
- Blockchain Wallets incur much lesser transaction fees compared to traditional banks.
- Blockchain Wallets let you do simple currency conversions, across multiple cryptocurrencies.
Also Read: Best Ethereum Wallets of 2023 to manage your ETH
Advantages and Disadvantages of Blockchain Wallets
There are some advantages and disadvantages of Blockchain Wallets, just like any other wallets you use for transactions. Let’s discuss them one by one.
Advantages of Blockchain Wallets:
- There are no intermediaries involved in the transactions.
- Even if you’re transacting a lot of money, the fee incurred is minimal.
- Cryptography makes sure your transactions are more secure and private.
- The transactions are much faster than traditional banks.
- They are very easy to create and manage.
Disadvantages of Blockchain Wallets:
- Cryptocurrencies tend to be volatile.
- There is very limited support for traditional banks.
- Cryptocurrency is still not widely accepted around the world which limits the application of the wallet.
As an individual user, you are liable to choose a blockchain wallet based on your preferences. It depends on how often you would like to interact with blockchain protocols and what safety level fits your individual needs the most. If you are not satisfied with any of the available wallets, you can always approach vendors for customizing your own blockchain wallet.
These customized wallets can be tailored to provide seamless experiences to both end-users and customers, avoid fees that exist within the prevailing blockchain wallets, and meet the highest standards in terms of security and safety.
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