What is a Crypto Wallet & How Does it Work?
Wallets occupy a strange place in the modern age. Before, it used to be common to hold your life in your wallet, with cash taking the most amount of space. This made sense because, naturally, if you wanted to buy anything or do anything, you invariably needed your driver’s license and a few dollar notes to get you by for even the most minor purchases.
However, the past ten years have been pretty devastating for the humble wallet. First, credit and debit cards started replacing dollar notes and soon enough smartphones began replacing the cards! All the while, conventional wallets became increasingly small as the need to hold notes, cards, receipts, and even contacts became something increasingly easy with new technology.
Much like the coins reinvention in the digital medium, wallets have become something new and exciting, with crypto wallets becoming the most crucial tool for anyone looking to make transactions using cryptocurrencies.
So, if you’re not sure just what a crypto wallet is and want to know what makes it different from an online bank account, then keep reading because you’re about to find out!
Big Wallet, Digital Wallet
To put it simply, a crypto wallet is similar to an online bank account or financial service such as PayPal. However, this is kind of like saying a sardine and a shark are similar because of their both fish.
Crypto wallets connect a user (you) to DeFi applications and are the gateway to the land of cryptocurrencies.
Crypto wallets act as both a form of storage and verification for crypto transactions, allowing you to hold digital currencies and tokens as well as acting as a login for crypto-apps. They can allow you to take out permissionless loans if you have the requisite collateral!
Types of Wallet
Most crypto wallets are digital like their currencies, with popular wallets either coming in the form of a browser extension (Metamask) or as an app/webpage (Coinbase, or Bubblehouse). Other crypto wallets take the form of desktop applications (Exodus) for those looking to ensure greater security.
Browser/app wallets are excellent for quickly using DeFi apps while also staying secure.
However, if you still like the idea of being able to literally hold your assets, then a physical USB-Drive wallet is also an option, such as a Ledger Nano or Trezor. “Offline” wallets or “cold storage,” such as these are arguably the most secure way to hold cryptocurrencies and digital assets such as NFTs. However, the security measures required can often lead to you losing your assets entirely if you lose your seed phrase/password. Also, if you guess incorrectly too many times, then your physical wallet can lock you out permanently, so be careful!
Offline wallets or cold storage are more secure but can be lost if you lose your password/ seed phrase. If you lose your wallet, you lose your crypto.
A Note on Ethereum
It’s worth mentioning that Ethereum is the go-to crypto for most DeFi. As a result, if you want to make purchases through apps built on Ethereum, only Ethereum tokens are compatible. Similarly, an Ethereum wallet is not compatible with non-ethereum tokens, such as Bitcoin, unless your tokens are “wrapped” beforehand.
There are also many emerging blockchains, such as polygon, which is gaining popularity - especially among those who prefer eco-friendly lifestyles. Polygon is more than 84810x more energy-efficient than Ethereum, making it one of the greenest blockchains. Purchasing NFTs on an app that leverages the polygon blockchain - such as the Bubblehouse app - assures you're buying environmentally responsibly NFTs.
That’s it for today’s blog entry on the fundamentals of crypto wallets! But, keep an eye out for more as we help you understand everything there is to the most revolutionary industry of our generation!
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