Ethereum Wallets: A Guide on How it Works

A cryptocurrency wallet is used to store your Ethereum before you use it for trading. A wallet is a specially designed software with unique and secure features. With your wallet, you can initiate cryptocurrency transactions, monitor transactions and your balance in real-time.

In the case of Ethereum wallets, the intangible features of the cryptocurrency are the reason why Ether is not stored in the wallet. Instead, the records of your Ethereum asset are stored on the Blockchain. However, it would be best if you had an Ether wallet because it is the medium through which you interact with the Blockchain to perform transactions with your Ether.

You will understand the concept better by reading more about how the Blockchain works and is used for cryptocurrency transactions.

The Ethereum wallet address

every Ether wallet has a unique address. Your wallet address consists of a random mix that includes letters and numbers. The wallet address is randomly generated as a security measure; the wallet address is also called a ‘public key.’ You need an Ethereum address to receive Ether from a client or friend. Basically, when you receive Ether in your wallet, the sender has transferred ownership of the cryptocurrency to you.

After sharing your ‘public key’ to receive Ether from anyone, you will need to enter your ‘private key,’ which is also your password, to complete the transactions and gain access to the coins you have received. To protect your Ether from hackers and thieves, it is important that you do not share your ‘private key’ with anyone.

For convenience, all owners of Ether wallets are given a paired public and private keys, which is unique. For a transaction to be completed, you’re the characters that make up your public and private keys must be a match.

How to know what type of wallet you need

When choosing a wallet, you can either get a personal wallet or a third-party Ether wallet. The personal wallet is assigned to you at your request, while a third-party wallet is provided when you buy Ether from an exchange. It is more convenient for you to store your coins in a third-party Ether wallet.

It is convenient to use a third-party Ether wallet provided by your exchange because you can perform transactions faster since the coins are kept on the exchange, ready for use at any time. However, you should note that your ‘private keys’ are secured by your exchange which could be a limiting factor for some people who do not want the exchange to control their funds. Another fear is hacking attacks against the exchange, which could lead to loss of funds.

On the other hand, when you decide to create a personal wallet for Ethereum, you can use different options to secure your funds, and only you can use the private key.

Full node wallet option

Investors can choose to run on a full node wallet or ignore the option. Full node processes give you direct access to the Ethereum Blockchain. Without the full node option, you will be mandated to access information or verify transactions via another node.

You will need access to the complete Ethereum Blockchain to use all the full node wallet features. When you do this, your computer has all the features of a node needed to support and update data on the Blockchain and complete transactions with other nodes. The Blockchain has a massive size, so you should use a desktop wallet for the full node mode.

Ethereum wallet categories

Two main categories of the Ethereum wallet are hot and cold wallets. The features of these wallets make it easy to tell the wallets apart. For example, the hot wallet has features that allow you to store your public and private keys online for easy accessibility when you have an internet connection. While the cold wallets can be used offline to keep your public and private keys.

The hot wallet is quite vulnerable to security attacks because it functions online. However, you can rely on the offline features of the cold wallets, which are more secure.

Creating your wallet

There are certain steps to follow when you need to create your Ether wallet. It is quite easy because you can get a wallet directly from the Ethereum platform.

To get your wallet, please follow these steps;

On the website, you will view several security measures you can use to keep your funds safe. Also, there are guidelines to follow to get your wallet. The first step is to create a password. Next, follow the prompts to set up your wallet. You can now download your Keystore file and store it safely.

After securing your Keystore file, you should do a backup to ensure you never forget your private key. Your backup options include writing the private key on paper or memorize it. If you choose to write your private key on paper, please save it in a deposit box. You must ensure that no one has access to your private key.

Now you can unlock your wallet by entering your private key. This is the most suitable way to unlock your wallet for first-time users. However, you can learn the other methods to open Ethereum wallets when you gain more experience.

At this point, your wallet is active. After your session, you can access the wallet again by simply giving authorization on the website. You will see information such as your public key and the funds in your account on your dashboard.

Over time, you may want to use other wallets in addition to Ethereum. The process to set up these wallets is similar, so you shouldn’t have any problems.

The Ethereum Paper wallet

One of the safest ways to store Ether is using an Ethereum paper wallet. What this means is that you have access to a paper on which the details of your wallet are written. The Ethereum paper wallet is safe because it is offline and inaccessible to hackers. It would be best if you held your paper wallet at all times, when needed, or keep it in a safe. If you can hide your paper wallet, you have no worries about losing your funds to hackers.

Steps to create your paper wallet

The first step is creating a new wallet on myetherwallet.com. Next, download your Keystore file and select the option to print it out on paper. You will see the public and private key pair you have been assigned and corresponding QR codes on the printed paper. There is another safe way to get your Keystore details.

You can activate generators online to create your public and private keys, then go offline before printing your information. This way, no hacker can intercept information contained in your Keystore file.

Using Mobile wallets for Ether

Mobile wallets have become popular because of features such as the non-requirement to download the Blockchain before it can be used. The wallets feature work based on the activity of miners or nodes to access information about the network status. Mobile wallets are helpful to investors who need to access their accounts on the go. The wallets can be used anywhere there is an internet connection. The drawback is the vulnerability to hackers.

Examples of mobile wallets available online

One of the most popular mobile wallets for Ether is called Jaxx. Its popularity has grown because Jaxx is compatible with different devices and platforms such as Windows, MacOS, Linux, and Apple or Android mobile devices. Jaxx secures your private key by making it inaccessible on any other device. Users can sign up for the service by completing a simple process that does not require personal information or lengthy registration.

Coinomi

Another popular choice for investors who want to trade Ethereum is Coinomi. This mobile wallet secures your private key on the device used to register. Also, users are permitted to store up to eighteen coins and over two hundred tokens. Users can convert cryptocurrencies before transactions which is a convenient feature. This mobile wallet is available on Android-based devices.

Lumi Wallet

The Lumi wallet brand has built its reputation around features such as anonymous transactions, the opportunity to buy cryptocurrency directly, and compatibility with different coins. Discreet transactions are done via the personal encryption system, which secures your Keystore details on your device. You can perform transactions with BTC, EOS, ETH and store up to a thousand ERC 20 tokens.

Atomic

You may prefer to use Atomic because it allows you to do business using up to 500 coins and tokens. You have exclusive access to your account because the private key is encrypted. The user interface is excellent, and it is compatible with Android and Apple operating systems. ETH can be directly bought via the app, and your details are secured with a mnemonic seed.

Desktop wallets

You could choose to download the complete Blockchain or use the light client feature with the desktop wallet option. Desktop wallets are compatible with desktops and laptops. It is a secure wallet, and there is no need to contact miners for information or validate your transactions.

You can set up a desktop wallet in a few minutes because the process is easy. The wallet is convenient, and access to your wallet is only granted via the computer you used to set it up. However, the wallet works with an internet connection, so you should be careful and install software to block hackers, viruses, or malware. Losing your computer also puts you at risk of losing your stored funds.

Types of desktop wallets

The following are some of the desktop wallets you will find online;

Exodus — This is one of the desktop wallets designed to accommodate different coins, it has a user-friendly interface, and your private key is securely stored on the computer. The ShapeShift feature is integrated into the system, making it possible to perform crypto transactions without stress. The lack of transparency of the system is because Exodus is not completely an open-source platform. This may be discouraging for some users.

MetaMask — This desktop wallet uses a Google Chrome extension file to keep your keys secure on the computer. The wallet is user-friendly, and seamless transactions with Ether can be done without stress. It also accommodates different decentralized apps.

Mist — Mist is regarded as the official ETH wallet that is secure and can be used to perform transactions directly.

Atomic — This universal wallet supports Windows, macOS, and Linux operating systems. Over five hundred coins can be stored in the wallet, and it permits quick exchange services for crypto transactions.

Web wallets

These wallets are also called online wallets because data is stored in cloud storage systems. Web wallets are a favorite because stored data can be used anywhere in the world. All you need is internet access. All keys are stored in third-party servers, which hackers could compromise. The cloud storage system also means your data is under the control of the brand.

MyEtherWallet  

This is a web wallet known for its safety and decentralized features. The private and public keys are stored on the device used to register an account, which makes it safe.

Lumi Wallet  

The Lumi web wallet is an example of a mobile wallet with a web interface, which makes it suitable for use as both a web wallet and mobile wallet. You can perform transactions such as transfer of coins, purchase, and exchange within the app. All keys are stored securely.

There are other web wallets for Ethereum. Many of these wallets are provided by the exchanges you use.

Hardware wallets

The hardware wallets are offline cold storage wallets. They are usually hard drives or memory sticks that contain your secure information. To use the hardware wallets, you will need to plug your storage device into a computer. However, there are hardware wallets that feature screens, so you do not need to plug the device into a computer before performing transactions.

Hardware wallets can be bought on Amazon. These wallets have become popular because they offer security due to offline usage. You could also back up your data to avoid loss, and many of these wallets can be further secured with two-factor authentication codes.

Generally, hardware wallets are quite expensive when compared to the cost of a software wallet. But, the additional security features make these hardware wallets worth the investment.

Custodial Wallets

Users who choose the custodial wallet to have access to features such as secure offline storage for all keys compatibility with different devices and backups on secure servers. If you lose your access codes, you can retrieve the lost data by signing into your account on another device. The third-party services on this app are excellent for data protection.

The features of the custodial wallets are similar to the mobile and desktop wallets. However, users frown at the total control the system has over funds that are stored securely.

Now that you know a lot about Ethereum wallets, you can make better decisions. For more information, please do not hesitate to send us an email.