In simple terms, a blockchain wallet is an essential component of the blockchain industry that keeps track of the private and public keys for all the bitcoins you own. It’s important to note that this digital wallet doesn’t physically store any coins or currency.
Rather, it’s a safe and secure place to store and manage your cryptocurrencies, such as Bitcoin and Ether. Blockchain Wallet is a specific wallet service provided by a software company called Blockchain, which Peter Smith and Nicolas Cary founded. With a blockchain wallet, you can easily transfer your cryptocurrencies and convert them back into your local currency if needed.
To create an e-wallet with Blockchain Wallet, you don’t have to pay a cent. All you need to do is complete the account setup process online. To get started, you must provide an email address and password to manage your account. Once you’ve signed up, the system will send you an automated email asking you to verify your account. After that, you’ll be given a Wallet ID, a unique identifier similar to a bank account number.
You can access your e-wallet by logging into the Blockchain website or downloading and using the mobile app. Once you’re in, you can view your wallet balance for all your cryptocurrencies and your most recent transactions. Blockchain wallets are secured using cryptography, which generates a public and private key pair to keep your crypto safe and secure. Here are a few things to note about the workings of a blockchain wallet.
Using a blockchain wallet has many benefits. It’s important to remember that transactions with it aren’t free. These transactions, whether between wallets or involving local currency conversion to cryptocurrency, incur fees. Blockchain wallet fees are the charges for using the wallet for various operations, such as transferring cryptocurrency between users or converting it back to local currency. These fees are usually dynamic and vary depending on the transaction size and type. Blockchain wallets usually come with two fees:
As a crypto user, there are two fee options available when using a blockchain wallet, and these are the priority and regular fees. The priority fee is more expensive but can ensure the transaction will be processed within an hour. On the other hand, the regular fee is cheaper but may take longer than an hour to process. Additionally, users can customize their fees according to their preferences.
As cryptocurrencies are based on a public digital ledger and are accessed via the internet, cybersecurity should be a major concern for those who intend to use and store them for an extended period of time. Therefore, creating a blockchain wallet should be a top priority for investors.
Cryptocurrency wallets typically start with a private key, a random string of numbers and letters. These private keys can also be a QR code or a mnemonic phrase. The private key generates a public key through an encryption process. Although it is easy to check if a specific private and public key is a pair, it’s impossible to derive a private key from its corresponding public key.
This one-way encryption ensures that sharing a public key does not put your crypto at risk of being stolen. The public key is then compressed into a receiving address, either a QR code or a shorter string of numbers and letters that you can use to receive crypto. You can generate multiple public keys from one private key, each with its own receiving address. As a user you usually don’t interact directly with these digital keys; they are stored in wallet files or managed by crypto wallet apps.
Now that you have an understanding of how blockchain wallets work, it’s important to know about their key features. Here are some of the significant features of blockchain wallets:
A blockchain keeps track of every transaction record across the network.
A wallet identifies and records transactions involving certain addresses or private and public keys.
A blockchain uses the same system, similar to the network’s monetary system.
A wallet acts like a bank account for users.
You cannot store keys on a blockchain.
A wallet holds the private keys required to unlock the cryptocurrency linked to a certain wallet address.
A blockchain consists of cryptographically linked pieces of data.
A wallet contains cryptographically coupled private and public keys.
When discussing “hot storage,” we mean the storage device is connected to the internet. Hot storage is easy to access and perfect for everyday use because it lets you quickly access your funds. However, there are some drawbacks to hot storage. The most significant disadvantage is that it is more vulnerable to hacking and cybercrime. You can no longer access your coins if you lose your private key. Similarly, your coins will be lost if someone steals your private key. Online (cloud), desktop, and mobile wallets are the most common hot storage wallets.
Cold storage, also known as offline storage, refers to storage not connected to the internet. It is more secure than hot storage and is useful for long-term storage. However, this increased security comes at the cost of convenience, making it unsuitable for daily transactions. Although highly secure, it is still vulnerable to physical damage or loss. There are two types of cold storage wallets: hardware and paper.
Multi-Signature Wallets require multiple private keys to authorize a transaction. The number of keys needed depends on the wallet’s initial setup, such as using 2-of-3 or 3-of-5 keys. There are two main benefits to using multi-signature wallets
Multi-Currency Wallets are a type of wallet that can store different types of cryptocurrencies at the same time. They are a convenient option for those who want to use and manage multiple cryptocurrencies without switching between wallets. With a multi-currency wallet, you can easily perform transactions involving various cryptocurrencies, such as Bitcoin and Ethereum.
In addition, some multi-currency wallets may integrate with ShapeShift, allowing you to convert one type of cryptocurrency to another without leaving your wallet. This feature can save you time and money by eliminating the need to go through an exchange.
Mnemonic wallets, also known as seed wallets, are those types of wallets that generate related private keys from a 24-word recovery phrase. The recovery seed serves as a backup for the wallet and can be used to restore all the private keys. Most modern wallets are deterministic, using a single hash function to generate all the private keys.
Hierarchical deterministic (HD) wallets are a type of deterministic wallet with sub-wallets with child and grandchild relationships. To enable this type of wallet structure, HD wallets use the BIP-32 format. These wallets are useful for companies that want to allocate keys to different departments or branches to track expenses.
Non-deterministic wallets are those in which the private keys generated on the wallet are independent and unrelated. Each private key is unique and cannot be recovered using a common recovery phrase or seed. If a user generates multiple private keys, each key must be backed up separately, creating difficulties for management when dealing with many keys.
The choice of a wallet largely depends on your preferences and usage needs. There is always a tradeoff between convenience and security when choosing a wallet. A hot wallet would be more convenient if you need to use your funds frequently for day-to-day transactions. At the same time, a cold wallet would be more suitable for storing funds for an extended period.
When selecting a blockchain wallet, choosing one that allows you to control your private keys and store them locally or offline is advisable. It’s also a good thing to choose a blockchain wallet that’s compatible with multiple operating systems, comes with a backup seed phrase, and has security features such as passwords to safeguard your funds.
With the increase in cryptocurrency market awareness, you may be interested in creating your own blockchain wallet. Understanding how a cryptocurrency wallet operates internally can be beneficial before beginning the process. Here are the steps to creating your own wallet:
Ensuring a wallet’s security is crucial, as it safeguards user assets from potential attackers, including the wallet provider itself. Blockchain Wallet prioritizes wallet security by employing several levels of protection.
Blockchain Wallet uses mnemonic seeds, a set of random English words that function like passwords. These seeds help to recover lost wallets, and the company does not store them, ensuring user privacy. Moreover, these seeds comply with industry standards, meaning they can be used to restore wallets, even if the company goes out of business.
Besides standard security measures, Blockchain Wallet offers optional features to increase wallet security. These features include two-factor authentication, IP whitelists to block unfamiliar devices, and the option to block access via the Tor network. These optional methods reduce the risk of phishing attacks and prevent potential hackers from disguising their IP addresses.
As with other digital services, Blockchain Wallet requires user passwords to protect their accounts. The company does not store user passwords, nor can they reset them if lost, to prevent internal theft.
A blockchain wallet is a gateway to cryptocurrency and blockchain technology. It is important to safeguard your key and choose a reliable one. Regardless of the type of wallet you choose, it serves the same purposes: to receive funds from others, check your balance, and send funds to others. You can explore the fascinating world of blockchain-based financial transactions with a cryptocurrency wallet.