How Does a Blockchain Wallet Work?

Blockchain wallets are absolutely crucial when it comes to keeping our investments safe and sound. One can always keep their investments on the exchange/marketplace where they made the investment, but blockchain wallets provide added security.

How Does a Blockchain Wallet Work?

The Case of the Missing Bitcoin

Plenty of us regret (however privately) that we did not stockpile a cryptocurrency like Bitcoin before it skyrocketed in value. It may be demoralising to have missed out on an opportunity to recoup on a timely investment, but ultimately that describes the majority of the population. Which means you’re not alone in having missed out. 

There is another, arguably more devastating, alternative. What if you had invested in Bitcoin at an opportune moment, but had no way of accessing your funds? You’d probably have a hard time letting go of that type of oversight. And while it may seem confounding to an outsider, this scenario is far more common than you might think. 

According to Chainanalysis up to 3.79 Million Bitcoins may be lost forever, and in 2021 The New York Times ran an article entitled Lost Passwords Lock Millionaires Out of Their Bitcoin Fortunes. Furthermore, popular podcasts like Reply All and Planet Money have each featured episodes that enlist the help of experts in assisting woeful listeners with tracking down their lost Bitcoin, to varying degrees of success. Not only do these sleuthing expeditions demonstrate the frequency of lost cryptocurrency, but it also introduces us to an entire economy that has emerged to help clients track down their vanished riches. Especially since each episode features different ‘Bitcoin Hunters’, and other blockchain experts, to aid them in their search. 

So how exactly do we avoid these types of oversights and protect our crypto investments? Enter the blockchain wallet.

What are Blockchain Wallets?

When you purchase cryptocurrency you have the option of simply leaving it on the exchange where you bought it. All you need to do is open an account and log on. 

Experts agree that this option can provide adequate safety, especially if your investments are relatively small. But if you’d like to increase your security, it’s time to start looking at what other steps you can take to safeguard access to your assets. Blockchain wallets are an excellent way to level up your security. Let’s take a closer look at how they work.

Traditional wallets are used to store physical fiat currency, along with your choice of cards, polaroids, and probably-too-many receipts. 

Blockchain wallets function a little differently. It may seem counterintuitive, but your blockchain wallet doesn’t actually contain your digital currency. Instead, your blockchain wallet securely stores information about your private and public keys (more on those in a moment). 

These keys are what give you access to your cryptocurrency investments, which amount to your proof of ownership. You can almost think of them like bank cards that provide you with access to your account, except in this instance, what's in your account is all your cryptocurrency and digital assets, like NFTs.

How to Choose Your Blockchain Wallet

Blockchain wallets enable users to manage a variety of cryptocurrencies, allowing them to send and receive digital assets with ease. While any blockchain wallet will permit you to manage your cryptocurrencies, only some of them are designed to help you store and trade your NFTs. Some great options for NFT collectors are Trezor and MetaMask.

Different wallets support different blockchains, so it’s key consider which blockchain you’re looking to trade/invest in before deciding which service you go for. For example, the Phantom wallet only supports the Solana blockchain, while MetaMask supports numerous blockchains. 

Users can be confident in the security measures since the transactions are cryptographically signed. Furthermore, wallets are accessible from a variety of web devices, including smartphones.

Blockchain wallets are akin to other secure intermediaries for digital transactions, like PayPal or Google Pay. Except in this instance, you’re transferring cryptocurrency rather than cash.

MetaMask is one of the most well-known hot wallets. Image source: MetaMask

Key Benefits and Features of Blockchain Wallets

Many blockchain wallets also come with additional security features that help prevent theft. Premium NFT wallets will offer features like two-factor authentication, providing an extra layer of security against any unscrupulous hackers trying to penetrate your account. The best wallets will also have robust encryption methods that protect your data from being accessed by malicious third parties.

Modern blockchain wallets across the board are easy to master and designed to be user-friendly. Sending and receiving assets is simple and highly accessible. In addition, many of them are free to set up and come with plenty of online support!

Many blockchain wallets also come with additional security features that help prevent theft. Premium NFT wallets will offer features like two-factor authentication, providing an extra layer of security against any unscrupulous hackers trying to penetrate your account. The best wallets will also have robust encryption methods that protect your data from being accessed by malicious third parties.

Modern blockchain wallets across the board are easy to master and designed to be user-friendly. Sending and receiving assets is simple and highly accessible. In addition, many of them are free to set up and come with plenty of online support!

How Blockchain Wallets work: Public and Private Keys

The first step to understanding how Blockchain wallets work is learning about public and private keys. Whenever a new user acquires a blockchain wallet, they receive a unique public and private key that is linked to their wallet.

One excellent way to understand how public and private keys function is to compare them to a traditional bank account. When someone has access to your bank account number, they are able to send you money, but they can’t physically access your funds.

To access your funds, you would need to provide your private pin number. Similarly, a public key can be shared with anybody in order to perform a transaction. But, for someone to access and control your cryptocurrency you would need the private key, much like a pin number or password. 

Now, let’s take a closer look at the two main categories of blockchain wallets.

Cold Wallets

Cold wallets, also called hardware wallets or cold storage, are widely considered to be the most secure option for storing cryptocurrency and NFTs. They’re physical pieces of hardware (they often look like perfectly innocuous USB drives), and since they’re stored offline hackers can’t access them via the internet.

It’s important to note that this is only true for wallets bought directly from the manufacturer. Secondhand wallets could potentially have been tampered with, leaving them vulnerable to hacking.

Cold wallets are a great option for anyone looking to make a long-term investment in any kind of cryptocurrency or NFT. 

The biggest drawback of a cold wallet is that trading your assets is a bit more of a task. They can also get pretty pricey.

Cold Wallet for storing NFTs and Cryptocurrencies
A hardware wallet from Ledger

Hot Wallets

Hot wallets (also known as software wallets) are more accessible for the user and make it much easier to do quick transactions. They’re a form of digital storage that you can access from your computer or your phone. 

It’s important to bear in mind that they don’t offer the same level of security that cold wallets do since they’re connected to the internet. But they are still more secure than keeping your assets in your exchange account.

Hot wallets are also often associated with an exchange. They’re typically user-friendly and have done a great job at making easy transactions more accessible to a wider audience. Another bonus is that many of them are free!

Momint’s Blockchain Wallet and How to Use It

Momint’s blockchain wallet is a user-friendly and accessible method for keeping your NFTs safe and secure. 

Another added perk of the Momint wallet is that it gives users the option of paying for NFTs via credit card. This hybrid approach allows for considerably more access to NFTs and enables anyone to easily explore this space with minimal risk. 

One of the reasons our app is so accessible is because of our choice of blockchain. To learn more about the benefits of our chosen blockchain xDai (soon to be known as Gnosis Chain) and why we chose it.

How You Can Learn More About Blockchain Technology and NFTs

Blockchain wallets are undoubtedly one of the most popular methods for keeping cryptocurrency safe and secure. Without them, we wouldn’t have the accessible cryptocurrency ecosystem we have today. 

The past few years have seen a proliferation of increasingly sophisticated blockchain wallets that are empowering users, allowing them to securely trade and manage their cryptocurrencies and digital assets with ease. Once you’ve chosen a blockchain wallet that fulfills your crypto needs, you can take the next step in exploring the world of NFTs and cryptocurrencies, secure in the knowledge that your funds are safe and protected.

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