Many beginners in the blockchain field are interested in cryptocurrencies but know very little about cryptocurrency wallets. Cryptocurrency wallets mainly consist of hardware wallets (also known as cold wallets) and software wallets (also known as hot wallets), which have significant differences in various aspects. Today, we take this opportunity to explain the content related to cryptocurrency wallets.
Firstly, let's understand that a cryptocurrency wallet is a software program centered around addresses and private keys. On one hand, a distributed ledger relies on public and private key pairs to sign transactions and ensure their authenticity. On the other hand, when cryptocurrency transactions occur, a cryptocurrency wallet can provide the key for digital signature and facilitate tracking and processing of the transactions. The security of cryptocurrency wallets is ensured due to the implementation of encryption and decentralized mechanisms.
As an important tool, a cryptocurrency wallet keeps a record of our dedicated accounts within the blockchain network. It does not store the digital assets, including cryptocurrencies (similar to our real-world bank accounts), but instead, it stores and records the user's keys (public and private keys). These keys are then placed on a specific blockchain. Therefore, when we use cryptocurrency within the wallet, it means that the wallet address (composed of an alphanumeric ID generated based on the public and private keys) and the private key must match before any operations are allowed.
For example, if someone wants to receive funds transferred from your cryptocurrency wallet, you only need to provide them with the wallet address, but you should not disclose the private key. This is because the private key is the sole password to access the assets in your cryptocurrency wallet. If the private key is obtained by someone else, it is equivalent to giving away the associated wallet permissions, and your funds within the wallet could be exposed to a direct threat.
A software cryptocurrency wallet, also known as a hot wallet, can connect to the entire blockchain. For instance, when you create an account and deposit funds on MEXC, it means you are depositing funds into MEXC's hot wallet. However, MEXC transfers the majority of users' funds to a cold wallet.
Why transfer assets to a hardware cryptocurrency wallet (cold wallet)? This is because a cold wallet is a type of wallet that is not connected to the blockchain and can be used offline. It solely uses physical media to store keys, meaning that without an internet connection, transactions cannot be conducted. This significantly weakens the effectiveness of hacking attacks on digital assets.
From this, it is evident that using a cold wallet is a safer way for users to "store" their digital assets. This type of wallet is more suitable for long-term investors. For beginners who only wish to purchase a small amount of cryptocurrency, using a hot wallet is generally acceptable. However, if cryptocurrency assets are substantial (involving several million USDT or more in cryptocurrency), it is recommended to use a cold wallet.
As the first step into the blockchain field, having a cryptocurrency wallet is essential. In the world of blockchain, as long as we remember to backup the wallet mnemonic phrase and keys, we won't have to endure the distressing experience of losing a bank account, as in real life. Software cryptocurrency wallets (hot wallets) are more common in the trading market, but hardware cryptocurrency wallets (cold wallets) excel in terms of security. Regardless of the type of wallet, only through a comprehensive understanding of the definition, underlying principles, classification, and functions of cryptocurrency wallets can we use them more reliably and conveniently.