Cryptocurrencies and cryptowallets
Cryptocurrency, is a digital or virtual form of currency that utilizes blockchain technology,
cryptography and decentralized networ>k for secure transactions, independent of a central authority.
Cryptocurrencies relies on consensus mechanisms such as proof-of-work or proof-of-stake to
validate and add transactions to the blockchain.
It offer the potential for peer-to-peer transactions without the need for intermediaries,
providing users with greater control over their finances and privacy.
Crypto refers to the various encryption algorithms and cryptographic techniques that safeguard these entries,
such as public-private key pairs, and hashing functions.
Types of cryptocurrencies:
Most of the time, when you hear about cryptocurrency types, you hear the coin's name. For e.g. Ether, Bitcoin, Dogecoin etc.
However, coin names differ from coin types. Below are some of the types:
- Utility:
- Utility tokens are designed to serve specific functions or provide access to services on their respective blockchains.
e.g. ETH: Ethereum's native cryptocurrency, Ether, is used to pay for transactions and execute smart contracts on the
Ethereum blockchain.
- Transactional tokens:
- These tokens are primarily used as a medium of exchange or payment method.
e.g. BTC: Bitcoin is the original cryptocurrency and is widely used for peer-to-peer transactions and as a store of value.
- Governance:
- Governance tokens represent voting or other rights on a blockchain network.
e.g. UNI: Uniswap is the governance token of the Uniswap decentralized exchange platform,
allowing holders to participate in decision-making processes.
- Security:
- Security tokens represents ownership of an asset, such as a stock that has been tokenized and transferred to a blockchain.
e.g. MS Token: It represents ownership of the Millenium Sapphire, a valuable gemstone,
and allows investors to gain fractional ownership through tokenization.
Cryptowallets
A cryptowallet, short for cryptocurrency wallet, is a software program or service that allows users to securely store,
manage, and interact with their digital assets, including cryptocurrencies such as Bitcoin, Ethereum, and others.
It is called a wallet because it is used similarly to a wallet you put cash and cards in.
Instead of holding these physical items, it stores the passkeys you use to sign for your
cryptocurrency transactions and provides the interface that lets you access your crypto.
Modern cryptocurrency wallets make the blockchain accessible to everyone.
Wallets contain a public key (the wallet address) and your private keys needed to sign cryptocurrency transactions.
Anyone who knows the private key can control the coins associated with that address.
Cryptocurrencies are not "stored" anywhere—they are bits of data stored in a database.
These bits of data are scattered all over the database; the wallet finds all of the bits
associated with your public address and sums up the amount for you in the app's interface.
Types of cryptowallets are:
- Software wallet:
- A software wallet is a digital application or program that enables users to manage their cryptocurrency holdings on computers,
smartphones, or other digital devices.
- Software wallets come in various forms, including desktop wallets, mobile wallets, and web wallets.
- Hardware wallet:
- A hardware wallet is a physical device designed to securely store the private keys of cryptocurrencies offline.
- It typically resembles a USB drive or a small electronic device with a screen and buttons for navigation.
- Hardware wallets are considered one of the most secure forms of cryptocurrency storage because they keep
the private keys isolated from internet-connected devices, reducing the risk of unauthorized access and hacking.
- Paper wallet:
- A paper wallet is a physical document or piece of paper that contains the public and private keys of a cryptocurrency wallet.
- These evolved to include the keys and QR codes so wallets on mobile devices could scan them.
- However, paper wallets are easily damaged or lost, so many crypto owners do not use them anymore.