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A blockchain wallet means that you are responsible for your security. Blockchain provides a highly secure environment, and the wallet also offers two-factor authentication for every transaction made.
The best way to understand how a blockchain wallet works is to compare them to a bank account. A bank account is precisely what the name implies: an account of the money at the bank. All of your deposits, withdrawals, and transfers are tracked. This goes for your checking and savings accounts. Sure, you can write checks on these accounts at any time, but if you overdraft your checking account, you're charged hefty fees.
A blockchain wallet has one significant difference beyond just keeping track of your transactions: it's not owned or operated by a bank. Instead, it's owned by you and protected by solid cryptographic encryption. This means that no single entity can control your money without accessing your private passphrase, which you alone control.
This wallet isn't just limited to Bitcoin wallets either; many other types of cryptocurrencies rely on blockchain technology for their wallets. For example, Ethereum wallets are also based on this technology, with the bonus of smart contracts for Ethereum users.
If all this sounds too good to be true, it may be. It's still early for cryptocurrency wallets, and they're not without their flaws.
How do they work?
A user enters his public bitcoin address and the amount he wants to transfer into the program. It will automatically calculate the transaction fee (if there's one) and the exact amount of bitcoins that are going to be transferred. Then, the program creates a unique code consisting of 26-35 alphanumeric characters. The recipient uses that code to claim the money. Only when the recipient enters this exact code will he be able to receive payment from the sender. The code can be stored on paper or your computer in an encrypted file.
Examples of wallets
There are lots of different wallets to choose from, and all of them have their advantages and disadvantages.
Electrum is a user-friendly Bitcoin wallet. It safeguards an individual from losing coins due to a backup error or computer malfunction by allowing the person to retrieve the wallet using a pass phrase that one can write down or memorize. There is no time delay since the Bitcoin blockchain is not downloaded.
Blockchain is one of the most popular Bitcoin wallets online, and for a good reason. It has an easy-to-use interface with multi-device functionality, secure storage, and more.
Jaxx has been around for a while now, and it’s also very popular. It supports dozens of cryptocurrencies, including Bitcoin, and has an easy-to-use interface.
Mycelium is another popular option for mobile wallets. It’s known for its user-friendly features and excellent security options.
Bitcoin Paper Wallet
A paper wallet is one of the safest ways to store your bitcoin, as it requires no digital storage device and therefore eliminates the threat of hackers stealing from your wallet. However, because it does not provide easy accessibility to your bitcoin, it makes for a poor long-term solution for storing your cryptocurrency.
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