What is a crypto wallet? Different Types and How It Works

What is a Cryptocurrency Wallet?

A crypto wallet is a digital wallet that stores your cryptocurrency holdings. Unlike a traditional fiat currency wallet, which might be held in a bank account or exchanged for cash, a crypto wallet exists purely as digital data. This data can take many forms, but most often includes a private key—a string of numbers and letters that allows you to access your coins—and a public key, which is your wallet’s address on the blockchain.

While a fiat currency wallet allows you to store, send, and receive government-backed currencies like dollars or euros, a crypto wallet gives you the same capabilities for digital assets like Bitcoin, Ethereum, Litecoin, and more. In order to use a cryptocurrency, you’ll need to store it in a wallet. That’s because each coin is stored on the blockchain, a decentralized ledger that records all cryptocurrency transactions. When you want to send or receive cryptocurrency, your transaction must be verified by the blockchain, which requires your unique private key.

Most people store their private keys in a digital wallet, which can take many different forms. Some wallets are designed for a single cryptocurrency, while others (known as multi-currency wallets) support multiple assets. There are also hardware wallets, which are physical devices that store your private keys offline and away from potential hackers. No matter which type of wallet you choose, it’s important to keep your private keys safe and secure.

Crypto wallets are an essential tool for anyone who wants to use cryptocurrency. They provide a way to store, send, and receive digital assets, and they help to keep your private keys safe. When choosing a wallet, it’s important to consider your needs and find a wallet that supports all the cryptocurrencies you want to use.

Why are Crypto Wallets Important?

Cryptocurrency wallets are important because they allow users to store, receive, and send digital assets in a secure and convenient way. Wallets also provide users with a way to track their spending and see their transaction history. In addition, some wallets offer features such as built-in exchange services and support for multiple currencies. There are many different types of cryptocurrency wallets, including web-based wallets, desktop wallets, mobile wallets, and hardware wallets.

Each type of wallet has its advantages and disadvantages. For example, web-based wallets are typically more convenient to use but may be less secure than other types of wallets. Desktop wallets offer a higher level of security but can be difficult to use on the go. Mobile wallets are becoming increasingly popular due to their convenience and ease of use, but they may not offer the same level of security as other types of wallets.

The most important thing to remember when choosing a cryptocurrency wallet is to select one that offers the features and security that you need. With the growing popularity of cryptocurrency, there are many new wallets being developed all the time. Be sure to do your research to find the best wallet for your needs.

Why Do You Need a Crypto Wallet in Austraila?

There are many reasons why you might need a cryptocurrency wallet. Perhaps you want to invest in Bitcoin or another digital currency. Or, maybe you want to use cryptocurrency to pay for goods and services. Whatever the reason, a cryptocurrency wallet is essential for anyone who wants to use this type of currency.

How Does a Crypto Wallet Work?

How do crypto wallets work? Most wallets generate a new address for each transaction to increase anonymity and security. Once you have created an account on an exchange or online wallet, you will be able to generate a new address. Each time you want to receive funds, you will generate a new address. Your old addresses will remain active and can still be used to send funds, but it is generally considered bad practice to use the same address more than once.

Your private key is stored in your wallet and is used to sign transactions. This provides mathematical proof that the transaction came from your wallet. Your public key is also stored in your wallet and is used to receive funds. When someone wants to send you funds, they use your public key. You can then use your private key to unlock the funds and spend them.

Most wallets also allow you to view your transaction history and check your balance. This information is stored on the blockchain and can be accessed using your public key.

Cryptocurrency wallets are essential for anyone who wants to use or invest in cryptocurrencies. They provide a way to securely store your private and public keys and interact with the blockchain. Without a wallet, you would not be able to send or receive digital currency or monitor your balance.

Different Types of Crypto Wallets

There are many different types of cryptocurrency wallets, each with its own advantages and disadvantages. Here’s a look at some of the most popular options:

Software Wallets

Software wallets are cryptocurrency wallets that exist as computer programs. Desktop software wallets must be downloaded and installed on a computer, while mobile software wallets can be downloaded as smartphone apps. Software wallets give you full control over your private keys but are generally less secure than other types of wallets. This is because software wallets are often connected to the internet, making them more vulnerable to hacking.

Web-Based Wallets

Web-based wallets are online services that allow you to store, send, and receive digital currency. To use a web-based wallet, you simply create an account on the provider’s website. Your private keys are then stored on the provider’s servers. While web-based wallets are convenient, they’re generally considered less secure than other types of wallets since the provider has control over your private keys.

Hardware Wallets

Hardware wallets are physical devices designed specifically for storing cryptocurrency. Hardware wallets are considered to be the most secure type of cryptocurrency wallet since they’re offline and not connected to the internet. Hardware wallets usually come in the form of USB devices, although some newer models are designed to look like credit cards or key fobs. Hardware wallets give you full control over your private keys and often include advanced security features like 2FA. However, they can be somewhat expensive and may not work with every type of digital currency.

Paper Wallets

Paper wallets are a piece of paper with your public and private keys printed on it. They can be generated using online tools or by using a printer to print out your keys from a software wallet. Paper wallets are considered to be a very secure way to store cryptocurrency since they’re completely offline. However, they can be lost or damaged and may not work with every type of digital currency.

Hot Wallets and Cold Wallets

A hot wallet is a wallet that is connected to the internet. A cold wallet is a wallet that is not on a computer that’s connected to the internet. Hot wallets are convenient because they allow you to quickly send and receive cryptocurrency. However, they are also more vulnerable to hacking because they are constantly online. Cold wallets are less convenient because you can't use them to quickly send or receive cryptocurrency. However, they are much more secure because they are offline and not accessible to hackers.

Hot Wallets

A crypto hot wallet is a digital wallet that stores cryptocurrency in a way that makes it easy to spend or transfer. The term “hot” refers to the fact that the wallet is always online and connected to the internet. This makes it convenient for users but also exposes the wallet to greater security risks.

3 hot wallets to consider

Metamask Wallet

Metamask is the most commonly used wallet for Ethereum and similar cryptocurrencies. It comes in the form of a browser extension, and a mobile app. You can use metamask to store, send and receive Ethereum, BNB, MATIC and many other cryptocurrencies. Most people use it as a browser extension in order to interact with web3 websites and dApps such as Uniswap and Pancakeswap. Metamask also contains its own inbuilt token swapping service so you can swap between various tokens in your wallet.

Trustwallet

Trustwallet is similar to metamask in that it allows you to interact with web3 websites, however Trustwallet is only available on mobile, it is capable of storing and sending more cryptocurrencies, such as Bitcoin and Tezos not just Ethereum based currencies. Trustwallet also has its own cryptocurrency- Trustwallet token (TWT). Trustwallet also lets you trade coins and tokens within the wallet.

Electrum

Electrum is a PC based Bitcoin wallet. It has advanced features to keep your Bitcoin safe such as offline mode, multisig and the ability to use third party plugins. It is a good wallet for the advanced Bitcoin user who wants a level of control over their wallet software.

Exchange Wallets – A Hot Wallet Subcategory

Exchange wallets are another type of wallet that you might consider. When you sign up to a crypto exchange, the exchange will provide you with a wallet for storing, sending and receiving cryptocurrency. This type of wallet can offer some advantages, you can never forget or lose the private key, and IT security is handled by the exchange. If you forget the password to the exchange, you can always reset your password. In a lot of ways, an exchange is a very forgiving and safe way to store cryptocurrency for newbies. Most exchanges, like FAMEEX provide extra security through 2FA and whitelisted withdrawal addresses.

Cold Wallets

A crypto cold wallet is a type of cryptocurrency storage that involves storing your digital assets offline in a physical device. This could be a USB drive, an external hard drive, a paper wallet, or even a dedicated hardware wallet. The main advantage of using a cold wallet is that it reduces the risk of your funds being stolen by hackers, as they would need to physically gain access to your device in order to do so.

3 cold wallets to consider

Brainwallet

A brainwallet is a way of storing Bitcoins in your own mind by memorizing a seed phrase. If the seed phrase is not recorded anywhere, the Bitcoins can only be accessed by the person who knows the phrase. Brainwallets are not recommended for general use because human memory is fallible, but they can be useful in special situations, such as when fleeing a country as a refugee.

Paper wallet

A paper wallet is an old and dangerous way to store Bitcoin. It involves having a single private key and Bitcoin address, which are usually generated by a website. This method has many problems and should not be used. Instead, seed phrases offer a much better solution for storing Bitcoins. With seed phrases, the user writes down 12 or 24 random words generated by their wallet.

Ledger wallet

Ledger's hardware wallets are used to store private keys for cryptocurrencies offline. These wallets are device-based, which means they use storage mechanisms—USB drives—to store private keys, thereby making it difficult for hackers to access the key from an online location. Ledger offers two different hardware wallets: the Ledger Nano S and the Ledger Nano X wallet.

How to Choose the Right Crypto Wallet in Australia?

Choosing a crypto wallet depends on what you want to use it for. If you want a wallet for long term storage, you might want to choose a cold wallet method. If you want extra security you might want to use a hardware wallet. If you want anonymity and privacy maybe you could attempt storing your coins in a brain wallet. If you want to interact with web3 dApps online you would need to use a web3 wallet such as metamask or trustwallet. If you do a lot of trading you would use mainly an exchange based wallet.

The most important thing is to download a well known wallet and one that takes security seriously, do not accidentally download a fake crypto wallet or you could lose all your crypto.

Which Wallet is Best for Beginners in Australia?

The best crypto wallet for beginners is the Ledger Nano. It takes care of private key management and can be used with a wide range of cryptocurrencies. If you prefer to have a hot wallet, for beginners you can sign up for an account at FAMEEX which comes with a full featured exchange wallet for all the popular cryptocurrencies.

FAQ - Questions that people in Australia commonly ask about

• Which crypto wallets are safe in Australia?

As long as you download the wallet from its official website it should be safe, beware of unofficial playstore downloads with jailbroken phones, if you send crypto to a fake wallet you can pretty much guarantee it’s gone forever.

• Do I really need a crypto wallet?

Yes. Cryptocurrency is very useful for a number of reasons these days and will only become more vital to own in the future. Having a crypto wallet ensures that your coins are safe and that you can always send value wherever you need.

• What are the risks?

Forgetting the password to your wallet or losing your wallet, another risk is that it could be hacked if you are not careful with security, although there is a low chance of this.

• How much does it cost to open a crypto wallet in Australia? 

It costs nothing to download and use a crypto wallet.

• Can crypto wallets be hacked? 

The wallet itself can not be hacked, but a hacker may find out your password or private key if you are not careful.

This is not investment advice. Please conduct your own research when investing in any project.