Discover what cryptocurrency wallets are

A digital cryptocurrency wallet is a mechanism that allows you to store cryptocurrencies and carry out transfers using your computer or cell phone. It is usually software or hardware that allows a user to save their amount in cryptocurrency

Digital wallets act as an interface interacting with Blockchain. To send bitcoins or any other type of digital currency to a digital wallet, a user is signing the cryptocurrency with a private key to the wallet’s address. To be able to spend these coins, the private key stored in the user’s wallet must correspond to the public address to which the cryptocurrency is assigned, and if that correspondence happens, the cryptocurrency will be assigned to the wallet. This transaction is registered on the Blockchain.

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Software-based digital cryptocurrency wallets, for example, do not hold user information, ensuring anonymity.
A disadvantage of this approach is that if this exchange is hacked, the funds will be lost, in addition to the control of the cryptocurrency being the exchange. Another option would be to store the cryptocurrency in a software-based cryptocurrency wallet, or hot wallets [3], which have access to the Internet. The user provides the address of his digital wallet on the exchange and his funds are transferred.
In these wallets the user’s private keys, necessary to carry out cryptocurrency transactions, are not stored on the wallet’s servers, but on the user’s computer, so he has control over the cryptocurrency. Software-based digital cryptocurrency wallets also conduct transactions and deal with Blockchain. They can store a single type of cryptocurrency, like Coinwise, or multiple cryptocurrencies, like Coinomi.

Another option is a hardware-based digital wallet, or cold storage [3], where a specific device stores the user’s private keys. This device is connected to the computer connected to the Internet only when the user wants to carry out a cryptocurrency transaction. After carrying out the transaction, the device is removed and kept off the Internet, where it is not subject to hacker attack. The recommended measure is to keep a small amount to carry out business transactions in a software-based digital cryptocurrency wallet and the rest of the funds in a hardware-based digital cryptocurrency wallet, since the latter way of storage is more secure.

Software-based portfolios

A software-based digital cryptocurrency wallet uses software connected to the Internet to carry out transactions. They can be software installed on the user’s machine or a web page. These wallets can hold only one type of cryptocurrency or be multi-coin (they store multiple cryptocurrencies). These wallets can carry out cryptocurrency transactions and deal directly with Blockchain. These portfolios can be of 3 types:


A digital desktop wallet is software downloaded and installed on the user’s computer that is not accessible via the Internet, that is, it can only be used on the computer where the software is installed. This software must have access to the Internet to be able to enter the wallet and carry out cryptocurrency transactions. If the computer on which the software is installed is attacked by malicious agents (hackers), the funds in the wallet will be compromised. An example of such a portfolio is Electrum.

A mobile digital wallet is an application, for smartphones running iOS or Android. It has the advantage of portability, being able to be used anywhere with Internet, allowing purchases in stores that accept cryptocurrency. They are usually simpler than desktop wallets, since the storage space of a cell phone is less. An example of this type of portfolio is Mycelium [6].

An online digital wallet is stored in the cloud and is accessible from any device capable of connecting to a web page. They are simple and practical to use, but they store the user’s private keys on the wallet’s server, that is, the control of the funds is not directly with the user being more susceptible to hacker attacks or theft by the wallet itself. An example of this type of portfolio is Coinwise [7].

Hardware-based wallets

A hardware-based digital cryptocurrency wallet uses a physical device to ensure the security of transactions. This device is only connected to a computer connected to the Internet to carry out the cryptocurrency transaction, and is withdrawn after the transaction.

Other types of wallet

Other types of cryptocurrency wallets also exist. The term Brainwallet [16] refers to the concept of memorizing, through the use of mnemonic phrases, Bitcoin private key addresses, and in this way, it would be safe from attack by malicious agents. However, if the person forgets or becomes disabled, the bitcoins will be lost.

Another possible type of wallet would be physical wallets [1], containing a QR Code, a public key and a private key. If that wallet is stolen, the person who has that role will be able to use the funds associated with the wallet.

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