A crypto wallet is similar to a bank account for fiat currency in that it is a personal interface for a cryptocurrency network that provides reliable storage and enables transactions. The security of a cryptocurrency largely depends on the security of the wallet, which is only as secure as the private keys.
Wallets are generally either hot or cold. The funds in a hot wallet can be used to make online purchases at any time. A cold wallet is a cryptocurrency wallet that is not intended for regular transactions, but can still receive funds at any time. Wallets can also be classified into three groups: software, hardware and paper wallets. Today, we will take a look at the most widespread group of crypto wallets ? software.
What Is an Online Wallet?
A wallet that is accessed online or through software allows the user to directly send and receive cryptocurrency through a blockchain network.
When you store crypto in an exchange app, you are able to perform transactions with the use of the app. The exchange controls the wallet your crypto is held in, and if you instruct the exchange to send crypto to another person, the exchange will broadcast the transaction to the crypto network. But this is an indirect process.
You can avoid using an exchange by sending your transaction directly to the network if you have your own software wallet. This gives you more freedom when you make payments. Since your personal wallet is held on your device, it is less of a target for hackers than your exchange, making your crypto more secure.
So that’s what an online wallet is. It’s a piece of software that allows you to send and receive cryptocurrency directly, without needing a third party to do it for you.
At this point, you may be wondering how an online wallet works. I’ll go over that in the next section.
How an Online Wallet Works
In an online wallet, you don’t “log in” using a username or password. Instead of using a traditional banking system, each time you want to make a transaction, your wallet uses your private key to encrypt a message. By doing this, it proves that you are the owner of the account.
Your private key is stored on your PC or mobile device. Since it is never transmitted, it cannot be intercepted by an attacker. Nodes that run the crypto network do not have your private key, so an attacker cannot steal your private key off the servers.
The only way an attacker can steal your cryptocurrency from an online wallet is if she hacks your personal device and steals your private key from the device. Your online wallet will encrypt your key with a password of your choosing to prevent this from happening. Assuming your password is strong, adding this extra layer of protection will help reduce the risk if your device is hacked or stolen.
When you first set up a wallet, it will display a set of seed words to serve as a backup. If your device ever crashes, these words can be used to recover your key. In this type of attack, a hacker can exploit a vulnerability to steal your cryptocurrency. However, as long as you keep your seed words stored offline in a location that is only known to you, it will usually be much more difficult for someone to steal them than if the person tried to steal your password during an exchange.
Exodus
Exodus is a popular software wallet for storing Bitcoin (BTC) and over 110 other cryptocurrencies. The service, launched in 2015 and based in Nebraska, is supported by all major software platforms.
The Exodus code is partially open-source. Private keys are controlled by the users and never leave the device where the wallet is installed. This service’s beliefs mean that there is no personal identification or interaction with banks. Exodus has partnered with several exchanges to offer a wider range of coin options for transfers.
Exodus is a free service that pays its transaction fees to miners automatically using the Bitcoin fee service. The size of a transaction in the wallet is determined by the number of inputs and outputs it has. The more input, the more expensive the transaction becomes. The wallet takes a cut of the commission for transactions made through the system.
Electrum Bitcoin Wallet
This Bitcoin wallet is reliable and has been around since 2011. This is a type of cold wallet called a “thin” wallet, where the blockchain is not downloaded to the user’s device but is stored on network servers. Private keys are stored on the user’s computer in an encrypted form and are never sent to the server.
The Electrum Bitcoin Wallet can be synced across multiple computers. Users could import or export their keys to another client program or online service if they wanted to use a different one in the future.
This crypto wallet can sign transactions offline by saving a new transaction onto a USB flash drive and then importing it onto a device connected to the internet. A wallet that is similar to a hardware wallet, but more complicated to use. It also uses two-level encryption.
Jaxx Liberty
Based in Canada, Jaxx was launched in 2016 by Anthony Di Iorio, CEO and founder of Decentral as well as a co-founder of Ethereum. Jaxx can be used on many popular operating systems, such as Windows, Linux, Mac OS, Android, and iOS. It can also be used as an extension in the Google Chrome web browser.
Jaxx integrates with ShapeShift, allowing users to access over 80 different cryptocurrencies. Transactions are fast and easy. Jaxx does not support fiat money exchange or multi-signature. It is free to use and the transaction fees go to the miners. The fees differ depending on the currency. – Users can choose from three different options for fees when transferring BTC, depending on how urgent the transfer is.
All of Jaxx’s code is available for anyone to view and use except for the user interface. It is not possible for private keys to be accessed by anyone other than the user, as they are stored only on devices that have had wallets installed on them. To verify transactions, centralized validation technology is used. This wallet is easy and convenient to use because of the intuitive controls.
However, the company has had its rough times. In 2017, a hacker stole more than $400,000 in various cryptocurrencies from Jaxx. However, Jaxx CTO Nilang Vyas said in a Reddit post that Jaxx is not designed for long-term storage of crypto assets and that users should only store small amounts of funds in their Jaxx wallets, unlike hardware wallets.
Atomic Wallet
Founded in 2017, Atomic Wallet provides users with full control over their cryptocurrency savings by storing private keys and transactional data on users’ computers rather than on the provider’s servers.
Atomic Wallet is a cryptocurrency wallet that is compatible with all known operating systems and currently supports more than 300 cryptocurrencies, including the most common ones, alongside most ERC-20 tokens and its own Atomic Wallet Coin (AWC). The app can be downloaded for free, but it does contain certain paid services:
- Purchasing cryptocurrency with a credit card (a 2% commission and minimum commission of $10).
- Currency transactions within the wallet, such as peer-to-peer.
- Transactions conducted through ShapeShift.
Since Atomic Wallet doesn’t have any servers, it doesn’t require users to register. This means the wallet does not store any private information and does not use third parties to conduct transactions.
All data is transferred using encryption, and users receive a unique “backup phrase” consisting of 12 randomly generated words. This backup phrase can be used to recover access to their wallets if other forms of verification fail, or if a mobile phone is lost.
Bitcoin Core
Bitcoin Core was created in 2009 and is based on the wallet program code that was published along with Bitcoin’s project software, thereby ensuring streamlined functionality along the network.
The Bitcoin Foundation started developing applications based on the original Bitcoin code in 2012. The main focus of the text is on the wallet being a dominant app that met the primary needs of the network, which are storage and money transfer.
Bitcoin Core is a cold wallet that was one of the first to support SegWit technology. It serves as a reference for BTC. No other currencies are supported. The wallet can be downloaded as a desktop application on Windows, Mac, and Linux computers.
The main advantage of Bitcoin Core is its security. The user’s PC is where all the information is stored and it is not dependent on third parties or other entities’ servers. A user generates a file with private keys and stores it so that no one else can access it.
Bitcoin Core provides users with anonymity, including the ability to make anonymous payments. Bitcoin Core uses an address rotation system, which makes it difficult to track the sender and the recipient addresses.
One downside of the wallet is that it does not offer much mobility, which could turn off some potential users. Bitcoin Core does not have a mobile version, and it is unlikely that this will change, as using Bitcoin Core on a mobile device goes against the wallet’s fundamental principles of operation and security. Installing a wallet on another computer or reinstalling your OS will not help you recover your funds, as you would need to go through the entire synchronization process again.
BitGo
BitGo is a blockchain company that allows users to store, transmit, and receive digital assets. The company was founded in 2013 and is headquartered in Palo Alto, California. BitGo, a BTC wallet, has added support for other popular cryptocurrencies over the years. The BitGo wallet is a web wallet that can be accessed through a desktop computer, laptop or other devices. The wallet can be stored on a user’s mobile device. Additionally, keys can be transferred to other devices.
The company has developed wallets for both individual and business use.
BitGo’s partnership with Kingdom Trust provides institutional investors with a reliable storage option for digital assets. In addition to offering online wallet services, BitGo’s expansive partnership network provides customers with a variety of services and products. In spring 2018, the wallet started supporting the ERC-20 standard, which increased the number of supported digital currencies to 90. This text is saying that the average person cannot invest in ERC-20 tokens through BitGo because those tokens are only available to wealthy investors.
There are three keys associated with each BitGo wallet–one stored on BitGo’s servers, one stored on the user’s device, and a third backup key stored off-site through the Key Recovery Service software. In order to avoid involving a third party, only two signatures are required to finish a transaction. The wallet can only be accessed with two-factor authentication, and users must confirm their IP address every time they login to their wallets. BitGo charges a 0.25% fee on all withdrawals of up to 1 BTC in addition to the standard mining fees.
Much like Jaxx Liberty, the BitGo wallet has been caught up in a scandal. In 2015, BitGo and Bitfinex worked together to create a multi-signature wallet system. The companies decided to store user funds in a mixed storage system, with some funds being stored offline in large wallets, and the rest stored online. Each user had three keys as a result, two of which were stored by Bitfinex and the third by BitGo.
In 2016, Bitfinex discovered that a large sum of money had been stolen from its users’ wallets. BitGo’s official Twitter page has confirmed that its servers were not breached, but no other explanation has been offered for how the attackers were able to pull this off.
Crypto wallets going forward
A cryptocurrency wallet is a digital wallet used to store, send, and receive digital currency like Bitcoin. Most wallets are free and easy to set up. They are the key to allowing funds to move between different blockchain networks. Before using a wallet, it is essential to understand its advantages and disadvantages, as well as the type of activities it facilitates.
In any case, software wallets are becoming increasingly popular, and according to Atomic Wallet’s PR manager, Kristina Khachatryan, they are becoming more accessible and attractive every day:
” The software wallets are becoming more accessible to more people while also becoming more multifunctional and filled with cool features. They are not losing anything in performance or security. The possibility of decentralized staking is the main event of this year. We see a lot of potential in the software wallet market and believe that it will continue to grow in popularity.
Exodus’s communications manager, Davey Zelaya, is confident that the software market will develop at a faster pace as more cryptocurrency and blockchain solutions continue to be launched:
” We expect that the market will continue to want software that is easy to use to interact with the increasing number of blockchain products and applications. We want to make it so that crypto is easy for everyone to use. Decentralized apps are currently bulky and not very user-friendly. We want to change that.”
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