What is a Blockchain Wallet, and How Does it Work?

Imagine a world where your money isn't tied to a bank or a specific country, where you can send and receive funds instantly, securely, and without exorbitant fees. This isn't a futuristic dream; it's the reality of Cryptocurrencies, powered by Blockchain Wallets.

With over 84 million users (Statista) globally as of August 2022, Blockchain Wallets are becoming the new standard for digital transactions. They offer a secure and efficient way to manage cryptocurrencies like Bitcoin and Ether, making them as easy to use as Traditional Wallets for your cash.

As these Wallets continue to grow in popularity, understanding their functionality and benefits becomes crucial. This blog will take you through everything you need to know about Blockchain Wallets, from their types and benefits to how you can set one up and start using it. Let's dive in!

Table of Contents

1) What is a Blockchain Wallet?

2) How a Blockchain Wallet Works?

3) Types of Blockchain Wallets

4) Benefits of Blockchain Wallet

5) How to use a Blockchain Wallet?

6) What are the Blockchain Wallet Fee?

7) Blockchain Wallets Comparison

8) Challenges of using Blockchain Wallet

9) Conclusion

What is a Blockchain Wallet?

A Blockchain Wallet is an online Wallet that helps users store, manage, and exchange their Cryptocurrencies. Individuals using this Wallet can maintain a balance of Ether, Bitcoin, and other Crypto assets. This method charges a high fee depending on factors such as the transaction size.

The Blockchain Wallet address, linked to both the public and private keys, is the Crypto ID. The private key is your password for accessing your data and resources on the Blockchain.

The account setup process in this method is done online. You can create a free e-Wallet using this method by providing an email address and password for account management, and the system will automatically request that the account be validated.  

It shows the current Wallet balance along with the latest transactions addition to allowing distributed users in a Crypto network to communicate and transact value with each other. This includes low-cost and high-speed occurrence.

Elements of a Blockchain Wallet

Here are the elements of a Blockchain Wallet:

a) Public key: A public key is similar to your email address as it cancan be shared with anyone. A public key is created when your Wallet is made, and you can give the public key to anyone to receive money. It is used to encrypt the information before posting it on the Blockchain.

b) Private key: The private key is strictly confidential. It is similar to your password and should not be disclosed to anybody. This private key is what you use to spend your money. There is a good chance that your account will be hacked if someone discovers your private key, and you risk losing all Cryptocurrency deposits you have made.

c) Address: Your public key generates a shorter number of characters and letters that serves as your address. It helps in finding the location of your Cryptocurrency Wallet in the Blockchain. Anyone having your Crypto Wallet address can send Crypto funds to you.

 

How a Blockchain Wallet Works?

In the same way we use Physical Wallets to store money, similarly, Blockchain Wallets are used to store private and public keys that can be used for transactions. The way Blockchain Wallets work is centred around understanding the concept of private and public keys.

The private key and public key come into existence when a Blockchain Wallet is generated. The public key can be shared with the public, while the private key cannot and both of them act as passwords. Matching the right public key to its corresponding private key is the only thing that allows users to view their asset value.

Types of Blockchain Wallets

The most common Blockchain Wallets are Custodial, Web, Desktop, Hardware, and Paper Wallets. Each type has a different level of usability and security. Here are some details on each of the categories:

 

1) Custodial Wallets

A Custodial Wallet service (like Coinbase or Kraken) is part of the private key and protects a user's funds. They are user-friendly and are generally preferred by newcomers, where they don't have to manage the private key themselves.

It allows users to initiate a transaction through the platform of their choice to send funds using a Wallet address. There are some advantages of using a custodial Wallet:

a) Less responsibility held by users

b) Simple and easy to use for beginners

c) Ability to reset passwords to regain access to digital assets

2) Web Wallets

A Web Wallet is a Blockchain Wallet that allows users to store, manage, and transact Cryptocurrencies online through a web browser. Here are some important points to remember about Web Wallets:

a) Unlike Hardware or Desktop Wallets, Web Wallets are hosted on the internet, making them accessible from any device with an internet connection.

b) They offer convenience and ease of access but may be more vulnerable to cyber threats compared to offline storage methods.

c) Web Wallets often provide features like real-time transaction tracking, multi-currency support, and integration with various Cryptocurrency exchanges.

3) Mobile Wallets

In a nutshell, Mobile Wallets are Digital Wallets designed for use on smartphones and tablets. Key features of Mobile Wallets include:

a) Mobile Wallets allow users to store, manage, and transact Cryptocurrencies on mobile devices and are accessible via dedicated mobile apps.

b) These Wallets offer convenience for on-the-go transactions and include features like QR code scanning for easy payments.

c) They provide real-time transaction notifications and support multiple Cryptocurrencies.

d) They offer enhanced security features such as biometric authentication (fingerprint or facial recognition).

e) They integrate with various Cryptocurrency exchanges and services and enable easy backup and recovery options for Wallet data. 

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4) Desktop Wallets

These are software programs that enable a user to access Crypto Wallets directly without the help of a browser. Consider these exciting features of Desktop Wallets

a) Private keys are stored locally on the user's computer.

b) It is less vulnerable to online hacker attacks due to local storage. However, there’s the risk of losing access if the computer crashes or is stolen.

c) It can be disconnected from the Internet for offline transactions and then reconnected to the Internet to complete transactions.

d) It can serve as a backup server if the primary server is lost.

e) It is cost-efficient for managing Cryptocurrencies.

f) Electrum is an example of a widely used Desktop Wallet.

5) Hardware Wallets

You can keep your private keys on different devices with Hardware Wallets. When conducting transactions, you typically insert these little devices into the USB port on your PC.

Hardware Wallets provide good security.But there are a few disadvantages of using the hardware Wallets as opposed to some other forms of Blockchain Walletsas listed below:

a) Wallets, ranging from £40 to several hundred dollars depending on the brand and features.

b) Physical Damage: Being physical devices, hardware Wallets are vulnerable to damage. Losing or damaging your device can result in loss of access to your digital assets if you don’t have your recovery phrase or a backup device.

c) Inconvenience: Hardware Wallets need to be carried with you, which can be inconvenient, especially for frequent travellers.

d) Limited Accessibility: Not everyone has access to the internet or a computer, making hardware Wallets less accessible. Additionally, they can be challenging for those who are not proficient with technology.

6) Paper Wallets

A Paper Wallet refers to a storage method for digital coins, particularly Cryptocurrencies like Bitcoin. While various types of Cryptocurrency Wallets exist, paper Wallets stand out for their simplicity and security, although they also come with certain risks. Consider these points about Paper Wallets:

a) Data is displayed in hexadecimal or QR (Quick Response) codes.

b) This Wallet is effective at securing extensive Cryptocurrency holdings.

c) It is Immune to online attacks however safer alternatives like Hardware Wallets have become more popular.

d) Experts generally do not recommend storing large amounts of Cryptocurrency in paper Wallets anymore.

Benefits of Blockchain Wallet

Now that you have been acquainted with the basic idea of Blockchain Wallets alongside their different types, let's explore its benefits now:

a) Security: Blockchain Wallets allow users to access their asset value only when the private key matches with the public key. This helps heighten security. The use of Cryptography also helps ensure safe and private transactions.

b) Ease of Use: Similar to the functions of a physical Wallet, Blockchain Wallets are easy to use.

c) Express Transactions: They allow instant transactions to take place regardless of location. The transactions occurring without intermediaries is an added bonus, as the margin for error decreases considerably. Huge amounts of money can be transferred easily.

d) Low Transaction Fee: Blockchain Wallets do not extract huge chunks of fee for transactions. It costs less.

e) Easy Currency Conversion: A wide range of Cryptocurrencies are allowed to undergo transactions, making it easier for currency conversion.

f) Easy to Signup: Unlike creating a bank account, Blockchain Wallets have an easy signup process. They are not governed by strict regulations and verification demands.

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How to use a Blockchain Wallet?

It’s important to remember that Cryptocurrency is not stored in a Blockchain Wallet. Cryptocurrencies are kept on the Blockchain (the digital ledger system used to manage Cryptos and other assets using a specific Crypto network). Simply put, this process protects the digital key that determines your Cryptocurrency ownership. Here’s how to use a Blockchain Wallet:

Choose a Wallet Type

You can choose Non-Custodial Wallets that give you full control over your funds. Examples include MetaMask, Trust Wallet, and Rainbow Wallet. Another choice is Custodial Wallet provided by exchanges like Coinbase or Binance. They manage your private keys, but you don’t have full control.

Create Your Wallet

Download the Wallet app or use a web-based Wallet and follow the setup instructions to create your Wallet. You’ll receive a public key (like an email address) and a private key.

Receive Cryptocurrency

Click on “Receive” in your Wallet app and copy your Wallet’s public key (address) to receive funds. You can share this address with others who want to send you Crypto.

Send Cryptocurrency

Click on “Send” or a similar option, enter the recipient’s Wallet address and confirm the transaction. Remember to keep your private key safe and never share it with anyone. It’s your access to your Wallet.

What are the Blockchain Wallet Fees?

Blockchain Wallet uses a process called dynamic fees, meaning that the fee charged per transaction can differ based on various factors. The charge size might vary significantly depending on the transaction's size and the network's availability at the transaction's time. The powerful computers known as miners can process these transactions inside a block.  

Crypto Wallets offer a primary fee, which can be processed within an hour. While the regular fee is cheaper, it will take more than an hour. The customer may also customise the costs. However, the transaction can be delayed or declined if the customer sets the cost too low.

Blockchain Wallets Comparison

The following comparison among various Blockchain Wallets will help you gain some additional insight into this technology

a) Ledger Nano S: This is a Hardware Wallet that guarantees premium security and allows users to access numerous accounts. It supports Bitcoin, Ethereum, and Litecoin.

b) Jaxx: Bitcoin and Ethereum are a few of the various Cryptocurrencies supported by this Wallet. One of its prime features is the possibility of currency conversion within the Wallet. Jaxx users can view their balance right after processing is completed.

c) Bitcoin Paper Wallet: This Wallet prioritises security as it dampens the threat of hacking. You can print your own Bitcoin Wallet as well with it.

d) Blockchain.info: The Blockchain.info is well-known for its low transaction fee. It is a Cryptocurrency Wallet that is available for Bitcoin and Ethereum. It offers a hassle-free procedure for creating custom Wallets.

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Challenges of using Blockchain Wallet

Despite the revolutionary nature of Blockchain Wallets and their benefits, there are some challenges to consider as well:

a) Unpredictable Price Changes: Blockchain Wallets become less preferred when the value of Cryptocurrencies keeps changing. The instability of price is a major let-down.

b) Complicated Refund Process: Accuracy is an important factor that needs to be considered when conducting Crypto transactions. If Cryptocurrency gets transferred to the wrong account, it cannot be refunded, unless the owner accepts a request for refund.

c) Seed Phrase: Account security can get breached if the seed phrase is not kept safe.

d) Network Limitations: They have a limitation of network and legacy support.

e) Low Reach: Cryptocurrencies have still not trickled down to being mainstream as most merchants do not accept it.  

Conclusion

In conclusion, Blockchain Wallet serves as a cutting-edge gateway to the realm of Cryptocurrency and Blockchain Technology. It enables the storage of public and private keys, making the sending, receiving, and conversion of Crypto assets seamless. We hope this blog has provided you with a deeper understanding of Blockchain Wallet and Cryptocurrency.

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