What is a Blockchain Wallet, and How Does it Work?

The number of people using Blockchain wallets increased to 84.02 million in August 2022 from 76.32 million in August 2021. The rising popularity of cryptocurrencies is due to the increasing growth in crypto wallets. The use of Blockchain and its byproducts has a direct impact on how firms operate.

A Blockchain wallet enables you to maintain and use your cryptocurrencies as a regular wallet does for your cash. Individuals who own cryptocurrencies should be well-informed about Blockchain wallets and how they work. Cryptocurrencies are increasingly being used as a financial asset, a method for making digital payments, and a tool for the digital economy.   

A growing number of people are embracing cryptocurrencies like Bitcoin and Ethereum because of their advantages over old fiat currencies. You must understand how they function if you intend to employ any Blockchain-based cryptocurrencies.  

A cryptocurrency wallet that helps users in managing different cryptocurrencies and also exchange funds, is known as a Blockchain Wallet.

Table of Contents

1) What is a Blockchain Wallet?

2) How do Blockchain Wallets work?

3) Types of Blockchain Wallets

4) Benefits of Blockchain Wallets

5) How to use a Blockchain Wallet?

6) What are the Blockchain Wallet Fee?

7) Blockchain Wallets Comparison

8) Challenges of using Blockchain Wallets

9) Conclusion

What is a Blockchain Wallet?

A Blockchain wallet is an online wallet that helps users store, manage, and exchange their cryptocurrencies. Individuals using this wallet can maintain a balance of Ether, Bitcoin and other crypto assets. This method charges a high fee depending on factors such as the transaction size.  

Advantages of using Blockchain Wallet:  

1) Offers a method for long-term management of various crypto forms.  

2) Provides a public key for use in crypto transactions.  

3) Offers a private key that serves as a "digital safe" for added security.  

The Blockchain Wallet address, linked to both the public and private keys, is the crypto ID. The private key is your password for accessing your data and resources on the Blockchain.  

A cryptocurrency wallet is a user interface that enables you to accept funds from other users, send cash to other users by writing transactions, and search the actual supply of your cryptocurrency for information.   

The account setup process in this method is done online. Also, you can create a free e-wallet using this method. Individuals must give an email address and password for account management, and the system will automatically request that the account be validated.  

It shows the current wallet balance along with the latest transactions. It also allows distributed users in a crypto network to communicate and transact value with each other. This includes low-cost and high-speed occurrence. 
 

How do Blockchain Wallets work?

We use wallets in our daily life to store money. Similarly, Blockchain wallets are used to store private and public keys that can be used for transactions. You can sell and purchase goods using cryptocurrencies. The way Blockchain Wallets work is centered around understanding the concept of private and public keys. 

The private key and public key come into existence when a Blockchain Wallet is generated. The public key can be shared with the public, while the private key cannot. Both the keys act as passwords. Matching the right public key to its corresponding private key is the only thing that allows users to view their asset value.

Types of Blockchain Wallets
 

The most common crypto wallets are custodial, web, desktop, hardware and paper wallets. Each type has a different level of usability and security. Here are some details on each of the categories mentioned below:

1) Custodial Wallets: A custodial wallet service (like Coinbase or Kraken) is part of the private key and protects a user's funds. They are user-friendly and are generally preferred by newcomers, where they don't have to manage the private key themselves.

It allows users to initiate a transaction through the platform of their choice to send funds using a wallet address. There are some advantages of using a custodial wallet:

  a) Less responsibility held by users

  b) Simple and easy to use for beginners

  c) Ability to reset passwords to regain access to digital assets

2) Web Wallets: These websites have software for managing communications with the Blockchains. It helps you to store your keys online. In web wallets, to make a transaction, you have to log in to the website that . These are user-friendly cryptocurrency wallets helping in easy exchange of buying and selling coins.

3) Mobile Wallets: In a nutshell, mobile wallets are smartphone apps that work with Android or iOS. When you locate a merchant who accepts cryptocurrency, they function similarly to Google Pay or Apple Pay. 

These websites have software for managing communications with the Blockchains. It helps you to store your keys online. In web wallets, to make a transaction, you have to log in to the website, which holds a copy of your private key. These are user-friendly cryptocurrency wallets helping in easy exchange of buying and selling coins. 

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4) Desktop Wallets: These are software programs that enable a user to access crypto wallets directly without the help of a browser. When you use a desktop wallet, your private keys are saved locally and not on the Internet. That makes them less likely to be attacked by hackers, but if your computer crashes or someone steals it, you could lose access to your cryptocurrency.

You can disconnect the wallet from the Internet, conduct some offline transactions, and then reconnect it. The desktop is a backup server in cases where the primary server is lost. These wallets are cost-efficient. Electrum is one of the widely used desktop wallets.

5) Hardware Wallets: You can keep your private keys on different devices with hardware wallets. When conducting transactions, you typically insert these little devices into the USB port on your PC.

Hardware Wallets provide good security. You need the device to access your funds. There are a few disadvantages of using the hardware wallets. A few are shown below:

However, there are some drawbacks to using hardware wallets: 

  a) You must pay for your wallets 

  b) They range from less to more costly 

  c) They limit your ability to make transactions while travelling

6) Paper wallets: They are physical copies of your private and public keys. They create a pair of public and private keys for crypto transactions. The data is shown in hexadecimal or QR (Quick Response) codes. Paper wallets are one of the best ways to secure extensive cryptocurrency holdings.

A paper wallet in Blockchain is immune to online attacks. But, due to the development of safer choices like hardware wallets, most experts no longer advise storing large amounts of cryptocurrency in this manner.

Benefits of Blockchain Wallets

Blockchain wallets have been discussed in detail above, alongside their different types. Let us try to learn about its benefits now. Some benefits of Blockchain Wallet are as follows:

a) Security: Blockchain wallets allow users to access their asset value only when the private key matches with the public key. This helps heighten security. The use of cryptography also helps ensure safe and private transactions.

b) Ease of use: Similar to the functions of a physical wallet, Blockchain wallets are easy to use.

c) Express Transactions: They allow instant transactions to take place regardless of location. The transactions occurring without intermediaries is an added bonus, as the margin for error decreases considerably. Huge amounts of money can be transferred easily.

d) Low Transaction fee: Blockchain wallets do not extract huge chunks of fee for transactions. It costs less.

e) Easy currency conversion: A wide range of cryptocurrencies are allowed to undergo transactions, making it easier for currency conversion.

f) Easy to signup: Unlike creating a bank account, Blockchain wallets have an easy signup process. They are not governed by strict regulations and verification demands. 

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How to use a Blockchain Wallet?

Your cryptocurrency is not stored in a Blockchain wallet. Cryptocurrencies are kept on the Blockchain (the digital ledger system used to manage cryptos and other assets using a specific crypto network). Simply put, this process protects the digital key that determines your cryptocurrency ownership. 

If you need a specific amount of Bitcoin or other crypto assets, you can send a request to another party, and the system gives a unique address. This address can be sent to a third party or converted into a Quick Response (QR) code. This stores financial information and is easily readable by a digital device. They are similar to online payment providers that facilitate online transactions through financial institutions.  

Users can swap, or convert Bitcoin into other crypto-assets and vice versa. This method makes it simple to change crypto without affecting security. First, let's talk about the public and private keys. When you create a Blockchain Wallet, you get private and public keys related to your wallet.  

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Elements of a Blockchain Wallet

Following are a few of the elements of a Blockchain Wallet:

a) Public key: A public key is similar to your email address. It can be shared with anyone. A public key is created when your wallet is made, and you can give the public key to anyone to receive money. It is used to encrypt the information before posting it on the Blockchain. 

b) Private key: The private key is strictly confidential. It is similar to your password and should not be disclosed to anybody. This private key is what you use to spend your money. There is a good chance that your account will be hacked if someone discovers your private key, and you risk losing all cryptocurrency deposits you have made. 

c) Address: Your public key generates a shorter number of characters and letters that serves as your address. It helps in finding the location of your cryptocurrency wallet in the Blockchain. Anyone having your crypto Wallet address can send crypto funds to you.

What are the Blockchain Wallet Fees?

Blockchain Wallet uses a process called dynamic fees, meaning that the fee charged per transaction can differ based on various factors. The charge size might vary significantly depending on the transaction's size and the network's availability at the transaction's time. The powerful computers known as miners can process these transactions inside a block.  

Crypto wallets offer a primary fee, which can be processed within an hour. The regular fee is cheaper, but it will take more than an hour. The customer may also customise the costs. However, the transaction can be delayed or declined if the customer sets the cost too low.   
 

Blockchain Wallets comparison

Following are some of the Blockchain Wallets that will undergo comparison:

a) Ledger Nano S: This is a hardware wallet that guarantees premium security and allows users to access numerous accounts. It supports Bitcoin, Ethereum, and Litecoin.

b) Jaxx: Bitcoin and Ethereum are a few of the various cryptocurrencies supported by this wallet.One of its prime features is the possibility of currency conversion within the wallet. Jaxx users can view their balance right after processing is completed.

c) Bitcoin Paper wallet: This wallet prioritises security as it dampens the threat of hacking. You can print your own Bitcoin wallet as well with it.

d) Blockchain.info: The Blockchain.info is well-known for its low transaction fee. It is a cryptocurrency wallet that is available for Bitcoin and Ethereum. It offers a hassle-free procedure for creating custom wallets.

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Challenges of using Blockchain Wallets

Here are some of the challenges of using Blockchain Wallets:

a) Unpredictable price changes: Blockchain wallets become less preferred when the value of cryptocurrencies keeps changing. The instability of price is a major let-down.

b) Complicated refund process: Accuracy is an important factor that needs to be considered when conducting crypto transactions. If Cryptocurrency gets transferred to the wrong account, it cannot be refunded, unless the owner accepts a request for refund.

c) Seed phrase: Account security can get breached if the seed phrase is not kept safe.

d) Network limitations: They have a limitation of network and legacy support.

e) Low reach: Cryptocurrencies have still not trickled down to being mainstream as most merchants do not accept it.  

Conclusion

Ultimately, Blockchain Wallet is a doorway that provides access to the world of cryptocurrency and Blockchain Technology. This blog covers all that you need to know about what is a Blockchain Wallet , how it works, its types and many more.