What is digital wallets?

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A digital wallet is a tool that you can use to interact with a network of blockchain.

There are many types of digital portfolios that can be divided into three groups: Software, hardware, and paper portfolios It can also be referred to as Cold and Hot portfolios depending on their working mechanisms.

Most digital portfolios are of software quality, making their use more convenient than hardware portfolios, However, device portfolios tend to be the safest alternative, On the other hand, the paper governor consists of a wallet printed on a piece of paper but its use is now obsolete and unreliable

How does Digital wallet work?

A digital currency governor does not store numeric currencies contrary to common belief, Instead, they provide the tools to interact with the blockchain In other words, This wallet can create information needed to send and receive digital currencies via transactions on the two localities, which consists of one or more pairs of public and private keys, as well as several other things.

The wallet also includes an alphanumeric identifier, generated based on public and private keys, which is essentially a specific location on the two locators to which currencies can be sent. This means you can share your address with others to receive money but you must never disclose the private key to anyone.

The private key allows access to your digital currencies regardless of the wallet you are using, So even if your computer or mobile phone is hacked, you can still access your money from another device as long as you have the corresponding private key, Also note that currencies are not left on the glucose but are moved from one address to another.

What are cold wallet and hot wallet?

As mentioned before, digital currency portfolios can also be defined as “hot” or “cold” according to how they work.

A hot wallet is any wallet connected to the Internet in one way or another For example when you create an account on Binance that sends currencies to your wallet, you deposit in the Binance hot wallet It’s very easy to create this portfolio and can be quickly accessed making it convenient for other users and traders.

On the other hand, cold portfolios are offline instead of using a physical means to store keys offline, making them resistant to online piracy attempts, Cool portfolios tend to be the safest alternative to “store” your work. This method is also known as cold storage and is particularly suitable for long term investors or “hodlers”.

Binance holds only a small percentage of digital currencies in hot portfolios as a means of protecting users’ money and keeps the rest of the currencies in cold, offline portfolios The Binance Dex platform provides an alternative for users who prefer not to hold their money in a centralized trading platform It is a decentralized trading platform that allows you to fully control your own keys while you can also trade directly from your cold storage devices (device wallets).

Types of digital wallet:

Software Wallet

Software walls come in different types and each has its own unique characteristics, most of which are related to the Internet in one way or another (hot wallets). The following are descriptions of some of the most common and important types: Webmasters, desktop wallets, and mobile portfolios.

Web wallet

You can use webcasts to access the blockchain through the browser interface without having to download or install anything including both platform portfolios and other browser-based portfolio services.

In most cases, you can create a new wallet and set a password to access it, but some Web Portfolio Service Providers keep and run private keys for you, although this may be more appropriate for inexperienced users, it is considered dangerous

Simply put, if you don’t have your own keys, you trust your money with someone else who now allows you to manage their keys either completely or through shared control (through multiple signatures) so it’s important to check the technical way each wallet works before choosing the one that’s most appropriate for you.

You should consider using the protection tools available when using digital currency exchange platforms, the Binance platform has provided many security features such as Device Management, Multi-factor Authentication, Anti-Phishing Code, and Withdrawal Address Management.

Mobile wallet

The mobile wallet works just like desktop portfolios but are designed specifically for smartphone applications these applications are very convenient and easy to use, allowing you to send and receive digital currencies using QR codes.

As such, mobile wallet is particularly suited to the day-to-day transactions and payments making them a viable option for Bitcoin, BnB and other digital currencies Trust Wallet is a prominent example of digital mobile portfolios

Mobile phones are vulnerable to malicious applications and malware infections just like computers so it is recommended that you encrypt your mobile wallet with a password and back up your private keys (or raw phrase) in the event your smartphone is lost or damaged.

Hardware wallet

Wallet devices are physical electronic devices that use random number generator (RNG) to create public and private keys, and then store keys on the same device and are not connected to the Internet this type of storage serves as a cool wallet and is one of the safest alternatives.

While providing higher levels of security against online attacks, these portfolios can pose risks if the firmware is not implemented properly, wallets also tend to be less easy to use and access to money is more difficult than hot wallets.

To overcome the lack of access problem you can use Binance Dex to connect your device directly to this trading platform a safe way to access your money because private keys never leave your device some web walker service providers also offer a similar service, allowing wallets to connect to their browser interface.

You should consider using wallets if you plan to keep your digital currencies for a long time or if you are carrying large amounts of digital currency most wallets you set up a PIN to protect your device and a recovery phrase that can be used if your wallet is lost.

Paper wallet

A paper wallet is a piece of paper with a numeric address and key printed in the form of QR codes and can then be scanned to perform digital currency transactions.

Some paper wallets you download their instructions to create new addresses and keys when you are not online in this way, these portfolios are highly resistant to online piracy attacks and can be considered a substitute for cold storage.

But the use of paper portfolios is dangerous and should not be encouraged by the many drawbacks if you still want to use them. It is important to understand the risks as a major shortcoming in paper portfolios that they are not suitable for partial sending of funds, but only their entire balance can be sent at once.

For example, imagine that you created a paper wallet, executed several transactions to finance it, and finally had a total balance of 10 BTC, If you decide to spend 2 BTC you must first send 10 BTC to another type of portfolio (e.g. desktop wallet) and then you can only spend a portion of the money (2 BTC), You can later return the 8 BTC to a new paper wallet for this reason wallets and portfolios are a better choice.

Technically if you import the key for the paper wallet into a desktop wallet and spend only a portion of the money, the digital currency will be sent to the Change Address automatically generated by the Bitcoin and if you do not manually assign the change address to a title that you control, you will likely lose your money.

Most software portfolios process the change address for you and send the remaining currencies to a title that is part of your wallet but the important thing is to remember that your paper wallet will be empty after you submit your first transaction regardless of the amount so you don’t expect to reuse it later.

Desktop wallet

As the name suggests, the desktop wallet is a program that you download and install on your computer that gives your desktop wallets complete control over your keys and finances, unlike some web-based versions, When you create a new desktop wallet a file called “Wallet.dat” is stored locally on your computer and this file contains the private key information used to access the digital currency addresses so you must encrypt it with a personal password.

If you encrypt your desktop wallet, you will be prompted to provide your password each time you run the program so that you can read the wallet.dat file if you lose this file or forget your password, you may lose access to your stored funds with this wallet.

Therefore, it is necessary to back up the wallet.dat file and keep it in a safe place instead you can also export the private key or the initial statement (seed phase) By doing so, you will be able to access your money using other devices if your computer stops working or cannot be accessed in one way or another.

The desktop wallet can be considered more secure than most versions of webmasters in general, but it is important to make sure your computer is clean of viruses and malware before setting up and using a digital currency wallet.

Importance of backup: 

Loss of access to digital currency portfolios can be very costly so it is important to back up them regularly in many cases this is achieved by backing up wallet.dat files or raw phrases (seed Phrases). The initial phrases play a very similar role to the special keys but are easier to manage if you choose to encrypt using your password remember to back up your password too.

Notes: Digital wallet is an integral part of the use of Bitcoin and other digital currencies as they are one of the infrastructure segments that allow funds to be sent and received via the blockchain networks

Blockchain wallet:

The blockchain wallet is a digital portfolio that allows users to manage Bitcoin, Ethereum and other encrypted currencies.The “blockchain” wallet is provided by the blockchain software company founded by “Peter Smith” and “Nicholas Carey.”

How to use the blockchain wallet?

– Electronic portfolios allow individuals to store their encrypted currencies in the case of the blockchain portfolio, users can manage their encrypted account balances, such as: Bitcoin and Ethereum

– The process of creating a blockchain account and wallet is a free process, and the account setup process is online Individuals must provide an email address and password to use for account management, after which the system will send an automated email requesting account verification.

– Once the wallet is created, the user is provided with the wallet ID, a unique identifier similar to the bank account number, Wallet owners can access their e-wallet by logging in to the blockchain site, or by downloading the mobile app.

– The blockchain wallet interface displays the current balance of the wallet for both Bitcoin and Ethereum codes and displays the most recent user transactions, Users can send a request to another party to get a specific amount of encrypted currency, and the system creates a unique address that can be sent to the third party to send it through or can be converted to a QR code.

– A unique address is created each time a user submits a transfer request and users can also send the Bitcoin or ether when an external person provides them with their wallet address

– The sending and receiving process is similar to the wallet in PayPal but uses an encrypted currency instead of cash Users can replace the Bitcoin with the Ethereum or vice versa.

– Currency rates that indicate the amount they will receive are displayed based on the current exchange rate, with the price changing depending on how long the user takes to complete the transaction transfers do not appear immediately in the wallet because it takes some time to add transactions to the two currencies for each.

– Users can purchase or sell Bitcoin through the wallet interface, with this service running by a partner such as Coinify or SFox to make a purchase, the user must either transfer money from a bank or use a credit card.

– Bank transfers will incur payment charges and may take several days before the Bitcoin is received, using a credit card allows immediate access to the Bitcoin, but the process has a larger fee (for example, up to 3%).

By community member Adham Helmy