What Is a Blockchain Wallet?
If you’re wondering what a blockchain wallet is, let’s start with what most people are familiar with: blockchain in the form of cryptocurrencies like Bitcoin. These are digital assets that work as a medium of exchange without the need for a central bank for verification.
But blockchain also has the potential to transform almost every aspect of society, including industries like cybersecurity, computing, shipping and education. Blockchain could even help us make our elections more secure.
Blockchain technology stores pieces of digital information in a public ledger that is verified and authenticated by thousands of independent nodes. Nodes are computers that receive a copy of the blockchain automatically as it is updated.
Each “block” stores transaction information, as well as information about who is performing the transaction. Every block is uniquely identified by a code called a “hash,” so when a block joins the public ledger — the “chain” — it is virtually impossible to edit or delete. This makes blockchain the perfect technology for authenticating financial transactions, but it could potentially be used to verify ship manifests, authenticate election results and perform a host of other security tasks.
What is a Blockchain Wallet?
A blockchain wallet is a type of software that allows users to manage, store and transfer their cryptocurrency. It usually takes the form of a digital wallet like a bank account or a digital transaction app you might have on your smartphone.
But unlike traditional wallets, a blockchain wallet doesn’t hold any assets. Instead, it may keep a record of cryptocurrency transactions, or it may simply store public and private keys that enable the user to make transactions.
These are known as “hot” wallets. They are usually driven by software and are the easiest type of wallet to use. However, they are also connected to the internet, making them more vulnerable to hacks and other types of cyberattacks.
But there are also “hardware” wallets that store keys on a physical device you can connect to a computer or smartphone. Other wallet platforms aren't connected to the internet, which keeps your keys safe from cybersecurity threats. These are known as “cold” wallets or "cold storage" because they act more like secure vaults — you can’t use them to pay for anything. You could even call a paper ledger of transactions and written key codes a "cold" blockchain wallet.
The Pros and Cons of Blockchain Wallets
Blockchain wallets come with a few benefits. For one, they enable fast transactions between two users. Instead of passing a transaction through an intermediary like a bank, you can simply move cryptocurrency from peer to peer using your wallet.
Blockchain wallets are also secure. Because you aren’t funneling your transaction through multiple systems, there’s less chance of your data being compromised. You won’t need to worry about paying fees to a bank, either.
However, all crypto transactions do incur fees as a way to reward cryptocurrency miners. The size of these fees can vary, but they usually come in the form of a static fee or a dynamic fee, depending on the cryptocurrency being traded.
Of course, there are some disadvantages to blockchain wallets and cryptocurrency in general.
At this point, not many businesses accept cryptocurrency as tender, so it can be challenging to use your blockchain wallet to make purchases. Still, the number of brands accepting cryptocurrency is increasing. Large brands like AT&T, Overstock, Expedia, Subway and PayPal now accept Bitcoin,1 and one study revealed that 36 percent of small businesses in the U.S. accept virtual currency payments.2 Cryptocurrency is also susceptible to market volatility. It isn’t as stable as a traditional currency, so the value you hold in your blockchain wallet could diminish or explode in a matter of days, or even hours.
Why Blockchain Wallets Are Becoming More Popular
Nonetheless, blockchain wallets are becoming more popular, especially considering recent events like the pandemic. As more people stay home, they are taking more time to invest in alternative financial assets like cryptocurrency. This has led to a surge in downloads of blockchain wallets.3
Current circumstances have also created a market that favors blockchain technology. High-profile security breaches have revealed the weaknesses inherent in the centralized administration of digital information.
For example, the breach of the credit bureau Equifax, a single organization, exposed the personal information of 147 million people, potentially compromising the security and legitimacy of almost all their future credit transactions.4 Blockchain promises to solve this problem by decentralizing the authentication of those transactions. Even if one transaction is falsified, it can be detected by the thousands of other nodes supporting the chain.
The Best Blockchain Wallets Available
There are several blockchain wallets on the market. Here are a few you should consider:
Ledger hardware wallets are small USB devices that you can connect to your computer or smartphone. They store the crypto assets using a PIN code and a recovery phrase. Ledger also has an app called “Ledger Live” that lets you buy crypto.
Trezor is a basic hardware wallet similar to Ledger’s products, but it also comes with an intuitive interface. Trezor backs up its product with excellent customer support and a secure password manager.
Coinkite sells Bitcoin security hardware, including an affordable hardware wallet. They also sell a small USB stick called Opendime™, which enables you to spend Bitcoin like regular cash.
Electrum is a blockchain wallet app that offers no downtimes and support for third-party plugins. It’s compatible with various operating systems, including Windows, Linux and Android.
Guarda Wallet is a web-based wallet, but it also offers a desktop version. Guarda also offers crypto buying services and other features that make buying and storing currency easy.
Blockchain Wallets for Enterprises, Companies, and Organizations
Blockchain wallets aren’t only for use by consumers. Companies and enterprises can use blockchain wallets to store cryptocurrency for their clients, or they can use them to save and secure sensitive data. As more and more industries research the business use cases for blockchain, there will be more demand for blockchain wallets and professionals trained in blockchain.
Companies can require multiple signatures to authorize a single process, thereby keeping every blockchain transaction secure. This can be accomplished by generating smart contracts that verify each stakeholder's signature. Another method is splitting a private key into separate parts, so all stakeholders are required to make a transaction.
Organizations that want extra security are better off using hardware wallets. They can also use what are called Hardware Security Modules (HSMs), which are physical computing devices that manage digital keys. HSMs are similar to hardware wallets but often larger pieces of equipment, and they can perform functions beyond only storing blockchain keys.
Keep Up with Blockchain Industry Trends
Blockchain jobs can come in many forms, and we are only beginning to discover how this technology can be used. Soon, industries like logistics, finance and computing will fully embrace blockchain, which will make tracking industry trends more important than ever. With blockchain’s wide applicability it’s never too late to tap into the technology and utilize it in your own field.