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What Is a Cryptocurrency Wallet? How Can You Set It Up?

What Is a Cryptocurrency Wallet? How Can You Set It Up?

Crypto wallets range from simple apps to highly complex and secure solutions, and even 'paper wallets'.

By Edited by Gadgets 360 Newsdesk | Updated: 6 August 2021 11:06 IST

What Is a Cryptocurrency Wallet? How Can You Set It Up?

A virtual currency wallet or a crypto wallet is essentially software or an app on your mobile device

Highlights

A crypto wallet is as good as no wallet
Cryptocurrency is based upon encryption technologies
Hot wallets are on the Internet so that you can more easily access them

A crypto wallet is a way to store your cryptocurrency, be it Bitcoin or Ether or Dogecoin or any other token. These currencies are secured through the use of private keys, and you can store these keys in a number of different ways, all of which are simply called wallets. As a crypto investor, you don't need to 'mine' the tokens you own — you can simply buy and sell them on an exchange or even directly from others, and once you do that, you transfer the 'keys' to the coins in order to access them. Here's what you need to know about how this works.

What are private and public keys?

While we are talking about cryptocurrency wallets, it's important to understand what public and private keys mean. Basically, without these, a crypto wallet is as good as no wallet. As the name suggests, cryptocurrency is based upon encryption technologies and this uses a combination of keys — a public one to identify the block of tokens, and a private one to access them. That's already a massive oversimplification, but if you're simply here to learn to trade about crypto, then it can be simplified further.

Much like your username on a payment app that allows you to receive money, your public key on a crypto wallet allows you to receive tokens. Private keys are the passwords that allow you to check your balance, execute transactions and other services. Remember both are equally important.

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What exactly is a cryptocurrency wallet?

A virtual currency wallet or a crypto wallet is essentially software or an app on your mobile device where you store your digital assets such as Bitcoin, Dogecoin, and Ethereum. Not just that, you also use the same wallet to digitally sign your cryptocurrency transactions. A crypto wallet also keeps your digital currencies secure as access to it is protected by a password. Besides, if you are someone who likes holding a wallet, you can opt for a physical device on which you can run your wallet apps. Bitcoin price in India stood at Rs. 29.75 lakhs, Dogecoin price in India stood at Rs. 15, and Ethereum price in India stood at Rs. 2.05 lakhs as of 11am on August 6.

What are hot and cold wallets?

Hot wallets are on the Internet so that you can more easily access them, to use to buy or sell cryptocurrency. However, there is some concern about the security of such a system because it's also more accessible to attackers. That said, active traders will typically maintain at least some funds in a hot wallet for transactions.

A cold wallet on the other hand is offline — instead of keeping your data on the could, you could download it to a USB device or a hard drive and keep your tokens safe there until you're ready to trade. This sounds like a great idea in theory, but if the wallet is damaged and you can't access the keys, then the coins are also gone forever, so you'll need to weigh the pros and cons of both approaches. There have been many stories of hard drives failing, USB drives being lost, and coins gone forever, over the years.

Then there are also paper wallets, a more extreme cold wallet — where the private key is actually written down on paper, to make it impossible to hack. This is also susceptible to getting damaged from the environment, or being lost, or simply having minute errors in copying the codes, which would again render it useless, so whatever you do with your money, look into the risks first.

Store at the exchange

Besides hot and cold (hardware) wallets, many ask if storing money at cryptocurrency exchanges is possible. The answer is, yes, but it isn't seen as the most secure place to store your valuable cache of digital tokens. According to a report, exchanges lose $2.7 million (over Rs. 20 crore) every day on average, and the figure is set to only increase in the future.

While you won't face the same issues in a reputable exchange, simply as a security precaution it makes sense to spread your assets in a number of different ways, based on different security needs and on the amounts that you think you will be transacting regularly.

How to set up a digital wallet?

There are a number of digital wallets you can find online. Many exchanges also have their own wallets, which are separate from the exchange and can be used, but two hugely popular ones are Exodus and Mycelium.

Setting up and using these apps is pretty simple and just like using any online service. You create an account, log in with your details, and then follow the very simple on-screen instructions to transfer your cryptocurrency from other storages to these wallets.

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Further reading: Cryptocurrency wallet, Cryptocurrency, Bitcoin, Bitcoin Price in India, Dogecoin, Dogecoin Price in India, Ethereum, Ethereum Price in India, Cryptocurrency exchange