What is a cryptocurrency wallet, and how to create it?

What is a cryptocurrency wallet?

A cryptocurrency wallet is a tool for creating and storing your addresses and keys that give you access to digital assets. It is software that allows you to manage cryptocurrency – to buy, sell and hold. Wallets have two components – a private key and a public key.

There are two main classifications of wallets

Classification by form 

According to the form, cryptocurrency wallets are divided into two types:

• cold wallets;
• hot wallets.

We deal with hot wallets all the time. There are desktop/mobile wallets and online services (web wallets). Thanks to the constant connection to the blockchain through the World Wide Web, this is a handy thing. You can check or replenish your balance and even withdraw all funds at any time. But the constant connection to the Internet is alarming because we are not the only ones who can get to our wallets.

This is not the case with cold wallets. A cold wallet only requires an Internet connection at the transaction’s time, which a priori protects it from hacker attacks.

Cold wallets also come in several forms:

• A software wallet is some software for a PC or smartphone. When creating this wallet, all the data necessary for operations are stored in the file “wallet.dat”
• A paper wallet (for the old schoolers) is a printout of your data: your wallet address and private key.
• A hardware wallet is a special device (flash drive), the principle of which is quite simple but effective. This device generates private keys for login with the help of a random number generator.

 Classification by the level of privacy

A custodial wallet is a digital currency transaction software with addresses and private keys managed by an operator or custodian. Consequently, this operator must guarantee security to the client, and the client, in turn, has to pass the verification (identity verification procedure).

A non-custodial wallet is software for transactions involving digital currencies, which is fully managed by the client. Such applications can be both desktop and mobile. You do not need to confirm your identity to manage such a wallet. There is a significant disadvantage in complete control of the wallet: in the case of data loss, no one can guarantee you the restoration of access to your assets. As a rule, non-custodial wallets are less convenient and easy to use.

Is it worth storing your assets on cryptocurrency exchanges?

Progress does not stand still, and most cryptocurrency exchanges follow it. Exchanges use custodial wallets. Each customer has an account and a balance, and the exchange itself owns the addresses where the funds are stored. Such exchange is, for example, WhiteBit.

The WhiteBit exchange, which is gaining popularity in the EU, uses the custodial format. But, 96% of all assets are stored in cold wallets, which provides high security. Also, the exchange uses reliable means of cybersecurity: WAF, anti-phishing systems, and two-factor authentication. The world security rating cer.live places WhiteBit in the top 3 of the safest exchanges. It is worth noting that the exchange has a large insurance fund, which is replenished at the expense of the commission for transactions.

The registration procedure for new users is quick and convenient and can be done from any device (smartphone, tablet, or laptop). To access all functions, you will need to pass KYC (Know Your Client). Although the procedure takes from several to 24 hours, it helps to filter out a large number of fraudsters. And in the case of data loss, verified clients can quickly regain access to their money.

The majority of popular exchanges are willing to fight for each client. But, before you start working with them, you need to check all the information and read reviews.

Conclusion

It cannot be claimed that there is a versatile way to store data. When choosing where to keep your assets, you have to consider all the nuances. You should not risk safety only because of the beautiful logo or a well-known name. But, depriving yourself of convenience and fast access because of mistrust of big cryptocurrency exchanges is not the best decision.