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Blockchain technology offers a solution to the global financial system through cryptocurrency. With digital wallets, users can manage their cryptocurrencies and conduct financial transactions. These transactions are cryptographically signed, providing a higher security level than traditional banking systems. This feature ensures the privacy of users’ data, making blockchain technology a trusted option for financial transactions. Digital wallets store users’ data while the cryptocurrency remains on the blockchain. The private keys used to access each individual’s assigned cryptocurrency are stored in the wallet.
For example, Alice owns two bitcoins, which are hosted on the blockchain. However, Alice can hold or pay other users through a crypto wallet. Each wallet does not store bitcoin itself, but rather the private keys each user uses to access their portion of bitcoin (or any crypto).
Several blockchain wallets are available for users to choose from. These include Electrum, Coinbase Wallet, CoinDCX, Bitcoin Wallet, Bitcoin Core, Coinomi, Crypto.com Wallet, Ledger Wallet, CoinPayments, and SecuX Hardware Wallet.
Types of Cryptocurrency Wallets
There are several types of cryptocurrency wallets, including:
Web wallets store users’ private keys like every other wallet, but the keys are stored on servers. Users can access their funds immediately when connected to the internet, such as through cryptocurrency exchanges. The downside is that users have no access to their private keys as they are stored on the crypto exchange servers, which means an attack on the server will expose users to loss of funds. This vulnerability informs why experts advise keeping small quantities of coins on web wallets for short-term use, while large amounts should be stored in more secure wallets for long-term holding.
Mobile wallets are applications designed to operate on mobile devices, storing users’ private keys on those devices rather than on servers. These user-friendly wallets enable easy use of cryptocurrencies for e-commerce and physical payments, much like credit and debit cards. However, mobile wallets do have their limitations. One limitation is that they are more susceptible to hacking and malware attacks than other wallets. For example, if a user loses their mobile device, they will lose access to their funds stored in the wallet.
Desktop wallets differ from mobile wallets in terms of where they store users’ private keys. Rather than being held on the mobile device, desktop wallets keep these keys on the desktop hard drive. Users must use specialized software rather than web browsers to access desktop wallets. The private keys are stored locally on the desktop, ensuring they are not stored online or hosted by third-party servers like web wallets. Additionally, the security of desktop wallets is typically higher than mobile wallets, making them a popular choice for those who prioritize security in their cryptocurrency transactions.
Paper wallets are simplified versions of cold storage where your private and public keys are printed on paper. This way, your wallet, and coins are entirely offline and can be accessed with your keys at wish. Even though this type of wallet is highly secure, it comes with its risk, which is that the misplacement of the sheet of paper containing your private key means a permanent loss of funds.
Hardware and paper wallets are known as cold wallets, while web, mobile, and desktop wallets are categorized as hot wallets due to their need for constant internet connectivity. Cold wallets are known for their high level of security, as they are not easily hackable by cyber criminals. Also, they don’t rely on mobile devices (like phones), laptops, or desktops to store crypto funds.
Cold wallets are independent physical devices, similar to a USB or a small portable device similar in size to an Apple watch, without the straps. Some hardware wallets come with biometric locks and other advanced security features. Because they do not rely on mobile devices or computers to store cryptocurrency, they provide an added layer of protection for users’ digital assets.
Benefits of Blockchain Wallet
Blockchain Wallets’ have the following benefits:
Blockchain wallets are very secure because they use private keys. Users must keep these keys secret, especially in cold wallets, since they are not stored on servers to avoid losing them or getting into the wrong hands.
2. Borderless Transactions
With these wallets, there are no limitations on international transactions, and neither is there a need for special information to be supplied for such transactions as with traditional banking.
3. Instant Transactions
In traditional banking, there are records of transactions taking days to get to the recipient due to their volume. Crypto wallets eliminate this as large transactions across different countries and continents can be processed, and the recipient will be credited instantly.
4. Low Transaction Fees
Transaction fees can vary widely depending on the type of cryptocurrency and its consensus mechanism. For example, Bitcoin and some other coins have relatively expensive transaction fees due to the high energy consumption and complexity of their consensus mechanisms. However, other cryptocurrencies such as USDT, Solana, and many others have very low or even zero transaction fees, depending on the wallet platform used.
In addition to their primary function of storing and managing cryptocurrencies, blockchain wallets offer a range of other benefits. One such benefit is the ability to hold multiple coins and convert from one native coin to another. Furthermore, blockchain wallets offer a high degree of privacy, with users’ data and financial transaction records securely stored on decentralized storage. As blockchain technology continues to evolve, wallets are becoming increasingly sophisticated, with many also being used to store non-fungible tokens (NFTs), digital identities, and other credentials. These benefits make blockchain wallets an essential tool for anyone looking to take advantage of the many benefits of cryptocurrency and blockchain technology.
Blockchain is the future, and it is impressive to see Identity.com contributing to this desired future through the Solana ecosystem and other Web3 projects. Also, as a member of the World Wide Web Consortium (W3C), the standards body for the World Wide Web.
Identity.com, as a future-oriented company, is an open-source ecosystem providing access to on-chain and secure identity verification for businesses, giving their customers a hassle-free experience. Our solutions improve the user experience and reduce onboarding friction through reusable and interoperable Gateway Passes. Please refer to our docs about how to help you with identity verification and general KYC processes.