Millions of people use cryptocurrency wallets, but there is a considerable misunderstanding about how they work.
Unlike traditional pocket wallets, digital wallets do not store any currency. So, Cryptocurrencies do not get stored in any single location or exist anywhere in any physical form. All there is are records of transactions stored on the blockchain.
Cryptocurrency wallets are software programs that work with public and private key pairs. Moreover, the wallets provide a user interface via which you can monitor their recorded balance on the network and conduct transactions.
So, when a person sends you Bitcoin or any other type of digital currency, they are permanently signing off ownership of the coins linked to their wallet address.
And once the transaction is verified, the network records Bitcoins ownership on your address.
There are several types of wallets that provide different ways to store and access your digital currency.
Cryptocurrency wallets can be broken down into three distinct categories; software, hardware, and paper wallets. Software wallets function on a desktop, online or mobile device. Hardware wallets use software but fall in their own category.
Remember that all third-party exchange accounts are linked to online ‘hot’ wallets, as mentioned before. You do not own the keys to your online exchange account and are always at risk of losing direct access.
In addition to the above, you might also want to have a small portion on a mobile wallet to be able to take with you for easy access and liquidity purposes.
Ultimately, it is up to the end-user to determine their own acceptable level of risk in terms of their investment. This usually depends on the invested amount and the need for the investor to access these funds on short notice. Take some time to assess your requirements and only then decide on the most suitable wallet(s) for you.