What you need to know about wallets

Cryptocurrency is a viral sensation, with social media influencers hyped up for its merits and usefulness. The digital currency has taken on the appearance of a get-rich-quick scheme, promising huge profits with minimal investment.

The truth is that cryptocurrency is highly volatile and can quickly wipe you out. As with any investment, time and patience will reduce your risk and allow you to achieve success. One investment method is to bet smaller amounts at regular intervals over a longer period of time. This is known as the dollar cost average. Tap or click here for more information.

Let’s talk about wallets. Not the one in your pocket, but the one that stores your digital currency.

Before we dive in, this isn’t financial advice. Cryptocurrency is inherently risky and you should never invest money you don’t want to lose.

What are crypto wallets?

A cryptocurrency wallet can consist of an app or physical storage device that allows you to manage and trade your digital currency. You can hold multiple cryptocurrencies at the same time, so you are not limited to one. For example, you can have Bitcoin, Ethereum and Tether in your wallet.

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Your crypto is not actually stored in the wallet. Instead, your crypto wallets contain your public and private keys, i.e. the passwords that give you access to your cryptocurrencies. Your crypto is stored on a blockchain or decentralized digital ledger that tracks transactions.

The keys to the safe

Your private key gives you access to the contents of your wallet and proves that you own the wallet when you receive crypto from others. Keep this key for yourself and never share it with anyone.

You can generate public keys from your private keys, which allow you to receive money from others. You can share this key with others who in turn can send crypto to that address. But then you need your private key to access those funds.

Hot and cold

Wallets are divided into two main categories: hot and cold. A hot wallet is by definition connected to the internet. You can pay for things instantly and receive crypto in real time.

With an online or hot wallet, your keys are stored in an app or other software. This makes sending and receiving crypto as easy as using an online bank account or payment app, but leaves you more exposed.

A cold wallet is not connected to the internet and this type consists mainly of physical wallets such as USB drives. Physical/cold wallets offer the most protection against hackers in the long run. They are only connected when you want them to.

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