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Cryptocurrencies have taken the world of finance and investment ever since their sudden emergence into the mainstream, back in 2017, when their prices shot to record highs, which was followed by a correction, to get them to their current prices.
Ever since, the interest of investors and experts has been piqued, and huge volumes of cryptocurrencies are being traded every day.
Just like one requires a traditional wallet to store traditional currency, a cryptocurrency wallet is needed for storage and transactions of cryptocurrencies.
To understand the working of a wallet though would require an understanding of the blockchain technology, which is what drives the system of cryptocurrencies.
The blockchain is a chronological and anonymous chain of transaction. It is what makes the exchange of cryptocurrencies secure and fool-proof.
What a cryptocurrency wallet does essentially, stores the log of transactions that have been carried out under a particular user. There is a private and a public key associated with each user.
The matching of keys and carrying out of transactions is done by the wallet, and the updated balance of currencies, too, is reflected in the wallet.
Unless a particular transaction is authorised by the user with their private key, the transaction is not carried out.
Contrary to myths, no coins are stored in the wallet. The wallet merely holds the transactions that eventually add up to a particular balance of cryptocurrencies with the user.
Cryptocurrency wallets are broadly divided into two categories, hot storage wallets, and Cold storage wallets.
Hot wallets are those that store their data over the internet, while cold wallets are those that isolate all sensitive data from the internet, and data is stored offline.
The type of wallet that one chooses to use is a highly personal preference, that depends on a lot of factors, such as what features one is looking for, whether one prefers higher security or higher accessibility, the amount one is willing to invest, and how long one is looking to invest for.
That being said, it is absolutely necessary for every user to use a wallet that provides a certain degree of security, as well as usability.
While the individual preference given to all factors varies, it is necessary for the wallet to provide some standard features as well.
Mobile wallets – Advantages and Disadvantages
Hot wallets, that include desktop wallets, online wallets, and mobile wallets, have the addition of easy accessibility, ease of usage, and free availability, but at the same time, they are seen by several investors as a compromise on the extra security offered by cold wallets, which include hardware wallets and paper wallets.
Mobile wallets are wallets that, as the name suggests, work through applications on smartphones.
They combine versatility, ease of access, and security. A popular type of Hot Wallets, mobile wallets store the transaction log and keys of the user on a secure server, that can be accessed by the wallet’s application on the smartphone.
Mobile wallets are arguably the best bet for an amateur investor, who is well versed with smartphones. Despite that, they do have certain downsides as well, and like any other type of wallet, are not suited to everyone’s needs.
Mobile wallets provide some solid features and characteristics that make them a reasonable choice for a big chunk of investors in the cryptocurrency segment.
In today’s fast-paced times, almost everyone uses a smartphone.
The market has different applications for different operating systems, and there are mobile wallets available for Android, iOS, and even windows phones.
With these, one can carry their wallet around everywhere they take their phone, and can, therefore, conduct their transactions from practically anywhere.
A mobile wallet generally also has a much easier to use interface than a desktop wallet or an online wallet and takes much lesser space than a desktop one.
A mobile wallet application is generally quite inexpensive, also. Most of the very popular wallets are available for free on major application portals.
There are some disadvantages that a mobile wallet user faces, too. A mobile wallet is inherently less safer than a hardware wallet, by virtue of the fact that it is a hot wallet.
It also has a chance of using less safe security algorithms as compared to online wallets or desktop wallets, due to storage and processing constraints on a mobile device.
Generally, mobile wallets cannot offer a whole range of features, due to these constraints again, although some wallets provide some really unique ones to their users.
Unlike an online wallet, that can be used from anywhere with an internet connection, a mobile wallet can only be used from a device with the application installed, and most wallets put a limit on the number of devices that can simultaneously be used by a single user to use the wallet.
Some of the most popular mobile wallets today are Bitcoin wallet, Blockchain wallet, Coinbase, and Mycelium
Key characteristics of a mobile wallet
A mobile wallet has several different characteristics, which make it a good choice for a large number of users.
These characteristics, too, vary amongst different mobile wallets.
Perhaps the most important aspect of a mobile wallet is its developer. The development team of a wallet lends it credibility.
The security standards, tech support, customer care, reliability and stability, and even the user experience, of an application, rely heavily on the developer. Mobile wallets are no different.
The mobile wallets created by Bitcoin.com , Blockchain, Coinbase, and other such big names in the cryptocurrency industry carry the highest consumer rating on online platforms.
Mobile wallets target a plethora of users, ranging from beginners to experienced ones.
It is, therefore, imperative for a mobile wallet to be easily understandable by its users and be laid out in such a manner that provides maximum usability and ease to the user.
Most mobile application wallets use simplistic UI, and are easy to understand and navigate through. Coinbase and Blockchain wallet are amongst the highest rated ones when it comes to UI.
The size of an application is an important factor determining how many users choose to go for it.
With the ever-rising number of smartphones opting out of add on storage facilities like SD card slots, this is an issue that’s prevalent now more than ever.
Most mobile wallet manufacturers have sensed this issue, and therefore, the size of most mobile wallets is very small, ranging from around 2MB to about 12MB.
A user must, however, choose an application that balances size along with security, reliability, usability, and features. It is not necessary that the wallet which has the smallest application is the best.
Amongst the most popular mobile wallets, Blockchain wallet has the smallest application size.
One of the chief advantages of a mobile wallet is that it can be used anywhere and anytime.
This feature relies heavily on the fact that the application of a wallet is available across operating systems.
A wallet is likely to serve one better if it can be used by a user for a longer term, regardless of the smartphone that the user possesses.
Several popular mobile wallets are available on iOS as well as android. Some are also available on Windows phones.
There are certain wallets that are made specifically for certain operating systems. While those limit the user to devices with that operating system, they may prove to be more stable.
A wallet can either provide support for a number of different cryptocurrencies, or it may be dedicated to only one coin.
Since most users like to diversify their portfolios, most mobile wallets provide multicoin support.
There are, however, some popular wallets, that are meant to only transact in particular cryptocurrencies. The Bitcoin wallet, for instance, only provides support for BTH and BTC.
It is imperative for a wallet to be able to protect the assets of the user.
The security standards embedded in the wallet are what the user relies on to protect their coins. A wallet which assures users of storing all data within the app, and not allowing third party access, is inherently safer.
A more renowned developer is likely to use more secure technologies in its applications. A wallet which uses two – factor authentication will be safer than one that does not.
A recovery seed is a series of words that a user needs to input in a given order, in case the wallet is lost, deleted, or somehow tampered.
Borrowed over from hardware wallets, this is a very useful feature found in some mobile wallets now.
It adds a new dimension to the safety of the wallet, and allows the user to recover their coins in case of a cyber mishap. Enjin Coin and Blockchain wallet are examples of wallets that provide the facility of recovery seed.
The ability to perform certain actions within an application, without actually being in possession of the concerned device, is remote access.
For mobile wallets, remote access means the ability to control the mobile wallet when the smartphone is not in one’s possession.
Coinbase, for instance, allows the user to disable the wallet using remote access in case the phone is lost or stolen. This is another feature that makes the wallet more secure, by preventing theft.
Keeping a Mobile Wallet Secure
In the first place, it is important to use a wallet that is inherently secure and comes with the latest security standards.
But there are certain steps that the user themself can take that will allow their wallet to provide them the required amount of security.
The easiest, and perhaps the most important step towards the safety of a mobile wallet is to use secure passwords and usernames.
These involve alphanumeric passwords which are of moderate to long length, and do not coincide with the user’s passwords elsewhere.
The passwords should also not be something obvious, such as the name, email address, age, etc.
Another important thing for the user to do is to make sure they always keep the wallet updated to the latest edition.
Developers frequently launch updates that include bug fixes, security updates, and often, support for newer cryptocurrencies.
Lastly, it is of prime importance for the user to keep their devices malware and virus free.
A malware, like a keylogger, may easily get into the wallet and steal the passwords and keys of the user, leading to a breach of all sensitive data.
The device should be kept clean of unnecessary bloatware, and only files of secure and known origin should be downloaded. Additionally, antivirus software may also be used to add a layer of security to the device.
Frequently asked questions
Why should I use hot wallets?
If you are an amateur investor who is not looking to invest a huge amount in cryptocurrencies, it makes sense to use a hot wallet, as they are inexpensive, and the popular ones are generally secure enough for an amateur investor.
How is a desktop wallet different from a mobile wallet?
While both desktop and mobile wallets are application based hot wallets, the operating systems on which they operate are different.
A desktop wallet works on a desktop home computer, while a mobile wallet works on a smartphone.
I have a significant portion of my portfolio in cryptocurrencies. Should I go for hot wallets?
While some investors choose to go for hot wallets as well, a hardware wallet is probably the best bet for an investor who has put in a lot of money in cryptocurrencies.
Can I only invest in Bitcoins?
Unless an investor explicitly wants only Bitcoins, most wallets provide support for several different currencies, and it is a good idea to diversify one’s portfolio.
What if I want to buy a currency that I am not sure my wallet supports?
Check the website of your wallet. If it is not listed there, you may need to use a separate wallet to use that currency.
I heard of a brand new currency that is trading in huge volumes. Can I expect to buy it using my wallet?
Yes, developers often provide support for new and upcoming currencies with updates to their wallets.
What is coinbase? Is it a wallet?
Coinbase is more like an exchange for Bitcoins. It does not serve as any type of wallet.
However, coinbase does provide its own wallet that users can download and use.
Can I only send cryptocurrencies within my country?
No, most wallets seamlessly allow the transfer of cryptocurrencies across borders.
How do I receive/send coins on my mobile wallet?
Mobile wallets generate a public key, that can be shared with the person with whom you want to transact, allowing you to send/receive coins. Most wallets also allow users to create and read QR codes for easy transacting.
What is two-factor authentication? Why is it useful?
Two-factor authentication means that a user has to provide another identity such as password or fingerprint, other than a PIN, to use the wallet. It provides enhanced security as it prevents theft of one’s assets even if the PIN gets compromised.
If the wallet generates the PIN, can’t the developers steal my Cryptocurrency?
While the PIN is generated using the wallet, the wallet itself does not give you the PIN. The PIN is created by a randomiser, which doesn’t allow the developer to peek in and alter the PIN.
How does a recovery seed help me? Why should I remember words if the software is supposed to do all the work for me?
A recovery seed is a combination of words in a given order, that allows the user to recover the contents of their wallet if the wallet is ever lost, deleted or compromised.
Although most wallets are backed up, it is important to keep the recovery seed apart from the wallet as well because it is possible for all the data in the wallet to be lost.
What is an alphanumeric password?
An alphanumeric password is one that uses a combination of alphabets and numbers
What is a secure password?
A secure password is one that is tough to crack by means of brute force, and should ideally comprise of both uppercase and lowercase characters, digits, and should be of moderate to long length.
What is a keylogger? Why should I be wary of it?
A keylogger is a malicious software that tracks the keys pressed or inputs made by a user to a device. It can potentially track and record passwords and PINs, and therefore leave the user in a compromised position.