( 09th september 2019 )
Before you start mining on your mining hardware, you should set up a crypto wallet of the cryptocurrency you’ve choose to mine. A cryptocurrency wallet is a secure digital wallet used to store, send, and receive digital currency like Bitcoin. Most coins have an official wallet. In order to use cryptocurrency, you’ll need to use a cryptocurrency wallet. Some wallets are built for a single cryptocurrency, some can be used for more than one coin, some wallets you’ll manage yourself, and some (like those found on exchanges) will be custodial. Wallets are software which can be used to view cryptocurrency balances and make transactions. Each wallet type is a little bit different, but in general, any given wallet will work with one or more cryptocurrencies and will be able to store one or more cryptocurrency-specific “Public Addresses.” Public addresses are like cryptocurrency-specific account numbers, they can be used to receive a specific type of cryptocurrency (for example, to receive Bitcoin, you need a Bitcoin address) and can be shared publicly. Each address relates back to all transactions associated with that address on a coin’s blockchain. A wallet lets you view balances associated with an address and lets you move funds around on the blockchain as long as you are the owner of the address. Proving you own the address is done with a private key (a secret code associated with a public address) in non-custodial wallets. In custodial wallets, the custodian (a third party like an exchange, broker, etc.) holds the key for you, and it is just a matter of inputting your password into their wallet app. Essentially a wallet is like your online bank account platform, your address is like your account number, the blockchain is like the bank’s ledger, and with custodial wallets the custodian is a bit like your banker.
Don’t Share Your Private Keys: As the name implies, you can share your public address publicly. However, you should never share your private keys and passwords with anyone.
Crypto is a Tally on the Blockchain, it Isn’t Stored in Your Wallet: Cryptocurrency itself is not actually “stored” in a wallet, it is stored on a coin’s blockchain. Your wallet is simply software designed to interact with the blockchain. Your wallet stores addresses, not crypto tokens (aka coins). For example, a Bitcoin wallet interacts with the Bitcoin blockchain, allowing Bitcoins to be moved between addresses by the owners of those addresses, and allowing users to see the balances associated with an address.
Technical Stuff: Many wallets are custodial wallets. With custodial wallets all you have to worry about is the balances displayed and your public address. However, full wallets, like the official wallet of each coin are a little more complicated. Behind every address is a private key (a secure digital code known only to you and your wallet). A private key shows ownership of a public key (a public digital code connected to a certain amount of currency). Then finally, each set of private and public keys is connected to a public address (an encrypted version of the public key). So your wallet is software that stores your private keys, public keys, and public addresses, lets you send and receive coins, and also acts as a personal ledger of balances and transactions.
There are several types of wallets you can use including online, offline, mobile, hardware, desktop, and paper. Each “type” refers to what type of medium the wallet is stored on, who is in control of the wallet, and whether or not the data is stored online. Some wallets offer more than one method of accessing the wallet – for instance; Bitcoin.com’s wallet is both a desktop application and a mobile app. Also, most wallets fit more than one category below. For example, Bitcoin Core is a full node coin-specific desktop wallet. Here is a quick breakdown of the different types of cryptocurrency wallets:
Full Node Wallet: A wallet where you control your private keys and host a full copy of the blockchain. Essentially every coin has an official wallet of this type and that can be found on the official GitHub of the site (there is often a link on the official website). NOTE: “Official” in this sense means “put out by or endorsed by the developers who created the coin”. Many cryptocurrencies are decentralized, so there is no real official anything.
Setting-up Cryptocurrency Wallet
Fig: Monero - Full Node Wallet
Coin-specific: A wallet that only works with a specific coin.
Network-specific: A wallet that can hold multiple tokens on a single network.
Custodial Wallet: Some wallets let you control your private keys; some are custodial (you don’t control your keys directly). Most exchange wallets are custodial wallets. Thus, you do not have full control over your funds, which makes these wallets a dubious choice.The custodial wallet is very similar in its function to the principles of a bank, meaning you do not fully control your money inside of it. Yes, the money remains yours, but it is in the hands of another company. Custodial cryptocurrency services include most exchanges, brokerage services, and platforms that allow you to buy, sell, and store digital assets. A custodial business is basically a third party that offers to protect your assets within their system. People who store digital assets with a third party need to understand that they are not 100% in control of their cryptocurrencies. Coinbase is a great example of an exchange and brokerage service that also allows people to store digital assets within their wallet system. When you download the Coinbase application that allows purchases and sales, you’ll note that it is described as “the world’s most popular cryptocurrency wallet.” Therefore, it’s safe to assume some users may think the application is a noncustodial wallet, but that isn’t the case. Examples of custodial services include Kraken, Coinex, Bitstamp, Poloniex, Bittrex, Bitfinex, Binance, and the myriad of other trading and brokerage service platforms that also offer storage.
Fig: Coinbase – the largest exchange for trading cryptocurrencies
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