How Cryptocurrency Wallets Work

Cryptocurrency wallets are easy to use, transparent, and contain encryption technology to protect the contents of their wallets from the computers and users on which they are installed. Anyone with an internet connection and a smartphone can now use these wallets.

At its simplest, a cryptocurrency wallet consists of an application, a private key, and a deposit address. To ensure that only you can access your wallet, a user should store the private key securely. That is where it gets complex. Because private keys are hard to keep safe, digital wallets can be as big as the public key used to verify them. To make the process as easy as possible for users, the public key is never stored. The private key is stored on a computer, a device or on the smartphone.

On the desktop, cryptocurrency wallets are either stored in a plain text format or have a secure encryption option. On the phone, cryptocurrency wallets can be backed up and synced on the cloud or on a local device. However, there is one feature that remains largely absent from all desktop and mobile wallet applications: how to get your money from them.

Each cryptocurrency wallet has a specific feature or function that lets you spend or move your cryptocurrency. For example, each bitcoin wallet offers the same functionality that allows you to spend bitcoin. Since cryptocurrencies are only useful once they have been exchanged, it makes sense to be able to move funds from one wallet to another.

On smartphones, cryptocurrency wallets are completely different. Whereas desktop and smartphone wallets have different features for different situations, cryptocurrencies have separate and specialized solutions for specific situations. For example, bitcoin and litecoin wallets can only be used with certain websites. Cryptocurrency wallets also offer additional options for specific situations. They are either aimed at investors, users of a specific currency or users that do not intend to spend large amounts of money.

But how do you use cryptocurrency wallets without sending out sensitive information? With mobile wallets, that is where some of the most complex technologies and security mechanisms are implemented.

Security Features on Mobile Wallets

Since cryptocurrencies are not the most popular form of currency and still unfamiliar to many, mobile wallets do not give users enough information to secure their cryptocurrency securely. As a result, cryptocurrency wallets must offer extra security features. However, this is not very easy to implement.

Two of the most popular forms of security mechanisms on cryptocurrency wallets are PINs and multi-factor authentication. Users have to use a password to access their cryptocurrency wallets. However, because cryptocurrency wallets store sensitive information and can give away just about anything to hackers, these security methods are not secure enough.A better way of protecting a cryptocurrency wallet is by using multiple security features. These security mechanisms include multiple security questions that can only be answered by a specific user, all carried out by a secure system such as Trust Grid. Basically the blockchain technology on which cryptocurrencies operate verifies the identities of the transacting parties involved without making the personally identifiable information associated with those parties public.