Cryptocurrency Wallets! Is Your Funds Safe?

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Cryptocurrency Wallets! Is Your Funds Safe?
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While the cryptocurrency market is going
mainstream its very important for users to keep
their funds safer. While keeping all of our funds
on exchanges is very risky it's better to keep a
majority portion of your funds in a
Cryptocurrency wallet that stays offline just
like a pen drive or a data card. Lets look at
the types of wallets we have in cryptocurrencies
which you can use to keep your funds safer.
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What is a cryptocurrency wallet? A
cryptocurrency wallet is a tool you can use to
interact with a blockchain network to send,
receive, and store cryptocurrencies. It can be
divided into three main groups- Software
wallet Hardware wallet Paper wallet
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Type of wallets depending on their working
mechanisms may also be referred to as hot or cold
wallets. So how do they work? Contrary to popular
belief, crypto wallets don't really store
cryptocurrencies. Instead, they work as a sort of
gateway, providing the tools you need to
communicate with the blockchain. In other words,
these wallets can generate all the information
you need to use cryptocurrencies.
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Let's take a simple example. Imagine that Alexa
wants to build a brand new Bitcoin wallet to
receive a payment from Bob. The easiest way for
her to do that is to use a crypto wallet program.
When Alexa creates a new wallet, the program
generates multiple pairs of public and private
keys, along with several blockchain addresses. To
simplify, let's consider only one pair of keys
and a single address.
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First, the program calculates the pair of keys,
one public key, and one private key. Next, the
public key is used to generate a unique Bitcoin
address. This is the address Alexa needs to
provide. Bob then sends bitcoins from his wallet
to Alexa's wallet. Note that the coins never
leave the blockchain. They are just transferred
from one address to another. While it's safer for
Alexa to share her Bitcoin address with others,
she should never disclose her private key to
anyone.
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HOT AND COLD WALLETS As mentioned,
cryptocurrency wallets may be defined as hot or
cold according to the way they operate. A hot
wallet is anyone that is connected somehow to the
Internet. For example, when Alexa creates an
account on any exchange and sends funds to her
wallet, she is depositing into a hot wallet, hot
wallet is convenient for traders and frequent
users because they are easy to set up and the
funds are quickly accessible. On the other hand,
cold wallets tend to be a much safer alternative
for Alexa to store her bitcoins because they have
no connection to the Internet.
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