How Does a Cryptocurrency Wallet Work?

How Does a Cryptocurrency Wallet Work

Crypto-currency appeared in 2009 to provide a response to the 2008 financial crisis. It marks the democratization of a sector long regarded as the preserve of professional traders.

The reliability of this currency and the security of transactions are at the heart of the questions of professionals in the world of finance. When one is interested in this currency, it is the disconcerting organization that surrounds its purchase and use in electronic transactions that strike the most.

The analysis of recorded data on the evolution of cryptocurrency proves that it is indeed the future of currency trading. This thesis is supported by the growing number of people who are interested in this form of primarily digital currency trading. This interest is justified by its original mode of operation.

However, for the uninitiated, the terms such as cryptocurrency wallets, blockchain or bitcoin, returning most commonly, do not evoke much. It is, therefore, time to unveil all these notions and to provide precise answers to the concerns of each other.

Cryptocurrency, what should we understand?

Cryptocurrency is a currency that basically follows the same principle as a conventional currency, except that it is purely electronic. It is characterized by the absence of physical media such as coins, banknotes, bank cards or checks. It can be spent or used to make transactions, but only online.

His greatest peculiarity is that cryptocurrency is completely out of the control of any public power. It belongs neither to a bank nor to a state and this independence is its main strength.

Cryptocurrency, a multi-currency

As for classic currencies, there are several types of cryptocurrencies. The best known and most used is bitcoin. However, there are several other types of crypto-currencies such as altcoin, ether, rifle, etc. These are actually computer protocols that create a virtual currency, each of which operates in a particular ecosystem.

This ecosystem is composed of the number of parts available, the speed of circulation and the storage power. These are the three elements that define the computed size of the currency and allow the price to evolve and gain value. At the end of 2017, bitcoin is worth € 5,247, an increase of 500%.

Cryptocurrency, the multi-purpose currency

Whatever it is, cryptocurrency can be bought on the internet. Some specialized online shops can provide you with commissions in the range of 5% to 10% of the transaction.

As electronic money, cryptocurrency is used primarily for online transactions. Most cryptocurrency buyers use it to make investments, and to that end, Bitcoin remains the preferred currency because of its sharp rise in value.

It is also for this reason that the nearly 100,000 websites authorizing online shopping payments with Cryptocurrency prefer bitcoin to other electronic currencies.

Bitcoin or other electronic money, use a crypto-currency you submit to transaction fees. Their value depends on the nature of the transaction and its value. However, in the majority of cases, these fees are significantly lower than those charged on traditional banking transactions.

Cryptocurrency portfolios

From a financial point of view, the portfolio is a term that refers to a set of financial assets held by a natural or legal person. In this context, the emphasis is more on its dematerialized aspect.

A cryptocurrency wallet is an electronic space that stores electronic money. More broadly, the cryptocurrency wallet stores key. These keys can be public or private and can be used to unlock electronic currencies.

Cryptocurrency wallet, between private and public keys

The operating principle of the portfolio is simple: when an electronic money is sent from one portfolio to another, it bears the digital signature of its original portfolio. Once in the recipient wallet, the currency must be unlocked by a private key contained in said wallet.

It is important that the key matches the public address to which the currency was sent. Once the correspondence is made, the currency is credited to the account; the whole transaction being purely virtual. To know the new balance of your portfolio, just convert your currency.

The cryptocurrency wallet is connected to a blockchain, a software independent of any control center that can store and transmit digital currencies. It securely records all cash exchanges between users.

We are talking about public and private blockchains, it is necessary to make the nuance. When public, the blockchain is open to all users. It is comparable to a gigantic digital book. Any user can read and report any digital transaction. The private blockchain, on the other hand, offers limited access and use to a small group of people.

Linked to one cryptocurrency at a time, the blockchain draws its strength from 4 factors:

  • Security
  • Transparency
  • Non-forgery
  • anonymity

It is important, however, to qualify the question of anonymity. If your identity or address is not in a blockchain, the address of your wallet can go back to you.

How many cryptocurrency portfolios can you use?

To date, only 3 types of cryptocurrency portfolios exist the hardware portfolio, the software portfolio, and the paper portfolio. Generated by specialized cryptocurrency buying sites, each of them has features that distinguish it from others.

The material portfolio

Still called hardware wallet, a hardware portfolio is a physical medium for storing private and public keys of a cryptocurrency. This is usually a USB key that can be used for online transactions as soon as it is connected to a computer.

The hardware portfolio is considered the best cryptocurrency portfolio. First, it is a medium that is not in constant connection with an Internet network. It is less prone to piracy since crypto-currencies are in contact with the net only when the internet connection is active.

 

The software portfolio

From software wallet Anglicism, a software portfolio is a software compatible with various media allowing quick access to private and public keys. We thus find in this category 3 types of compatible portfolios:

  • Computers; very versatile and quick to handle;
  • To mobiles; to have your keys available at all times;
  • Secure servers; hosted by a dedicated website.

Since they are accessible from any electronic device, server-related portfolios are the least secure portfolios of software. They are the most vulnerable to attack because of its constant connection to an internet network.

The paper wallet

More recent than the other two portfolios, the paper wallet is also a very safe way to keep your crypto-currencies. The so-called paper wallet is presented in the form of a sheet of paper on which are encrypted the public key and the private key of the wallet.

The paper wallet is the best solution if you want to keep the crypto-currencies for a while before using them. It keeps very well in a safe or at the bank. It is, therefore, a very secure wallet.

 

 

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