A cryptocurrency wallet is a software which stores data regarding crypto on a hard drive of a PC (or another device) or connects to an internet service where the currency is stored. To perform a transaction the software connects to blockchain which serves as a ledger and stores records on movements of each coin, the cryptosystem verifies the legitimacy of each payment and then transfers cryptocurrency. Regardless of the typing of cryptocurrency wallets, first of all, a user must enter the private key in order to get access the funds.
Is it possible to store different cryptocurrencies in one wallet?
Different cryptocurrencies can be transferred only within those systems where they were emitted, so it is impossible to put, for example, Ethereum coins into a bitcoin wallet. Now the number of promising cryptocurrencies keeps growing and users require a storage where they would be able to keep coins of different systems. That`s why the market answers this problem and online services appear where users can create multicurrency online wallets within one account, each currency still functioning within its own system. For example, Bitcoin OX Wallet manages different cryptocurrencies in one application for free. With these digital wallet users only need to sign into their accounts in order to get access to all their coins.
Typing of cryptocurrency wallets: hot and cold wallets
There are two major types of cryptocurrency wallets: hot wallets and cold wallets. Hot wallets are installed on a device and they keep up constant connection to blockchain either immediately or via a server of some online service where the wallet was created. Constant connection allows instant payments from any part of the world provided that there is stable internet connection. However, the weak point of hot wallets is clear. Constant internet connection enables hacker attacks.
A cold wallet keeps user’s cryptocurrency safe of hackers. It is also installed on a user’s PC, but it doesn’t keep up constant internet connection so hackers can’t reach it. Due to its autonomy cold wallet is a good option for storing cryptocurrency but not for instant transactions. Private key is entered only at the moment of transaction.
The main ways to store a private key
On paper. After a private key and a bitcoin address have been generated, they should be put down on a piece of paper. Then the user should keep it secret from anyone. Scanning the key may be dangerous as it raises vulnerability.
Secret sharing. The idea is to divide a key into multiple shares, each share containing no valuable data. In order to reconstruct the key an agreed number of shares should be brought together. Even if one piece of this puzzle gets stolen, the key will remain secure.
Offline signature. This method is suitable for users who deal with large amounts of crypto, as it involves the following steps:
1) installing a hot wallet onto a device with internet connection (no entry of secret codes);
2) generating a transfer of funds;
3) copying the transaction file to another device with a wallet supporting digital signature installed and with the keys entered;
4) signing the transaction;
5) moving the file to the device with internet connection and finishing the transfer.
This method is safe as keys are applied with no internet connection. It is advisable to keep backup copies in case some problems with the device should occur.
Multisignature. This method is good for companies with high turnover rate. So, several keys are created, one for each member of top management team who share responsibility for using funds. That`s why one person cannot do anything with the crypto, in other to authorize a transaction signatures of all responsible parties are required.
Regarding cold wallets, it should be noted that despite of their high security and inaccessibility to hackers, they still cannot provide 100% safety of cryptocurrency. Material data carriers can break down or get lost so a user should keep backup copies of all necessary data.