Cryptocurrency is a booming market, with 3,000 projects spanning a broad range of use cases in 2020. Bitcoin development is especially hot, and your cryptocurrency advisor may recommend you get involved. The best way to do this is by developing a secure blockchain wallet. Of course, a hot wallet has flaws, but a cold wallet is used by the biggest cryptocurrency exchanges to protect their holdings.
In this guide, we’ll explain what a cryptocurrency wallet is, how it works, and how we can work with you to develop storage solutions to ensure your fintech security.
A blockchain wallet is a digital wallet to store your cryptocurrency balances. There is a specific project called Blockchain Wallet, which stores bitcoin (BTC) and ether (ETH). Beyond that, crypto wallets developed by companies like Ledger, Trezor, and Archos can handle dozens of cryptocurrencies.
These wallets use both hardware and software to store crypto keys. They’re able to send, receive, hold, and track your coin balances and even be used to store non-fungible crypto tokens. Users of blockchain wallets have exponentially increased from 10.98 million in the fourth quarter of 2016 to 44.69 million by the end of 2019.
Despite their market proliferation, their actual function can be confusing to the non-technical crowd. They don’t technically hold your physical currency like a leather wallet holds your cash and credit cards. Instead, they work more like credit cards, simply tracking your crypto balances according to each corresponding blockchain’s digital ledger.
Each cryptocurrency you own has a set of public and private keys. Your address is derived from your public key that other users can send currency to. Your private key is held only by you and is used to cryptographically sign transactions. Both keys are stored securely generated and stored in your cryptocurrency wallet. These electronic wallets can use either hot or cold storage, so let’s explain the difference.
Hot wallets are connected to the internet, allowing them to directly communicate in real time with their respective blockchains. This enables faster processing, while also potentially exposing our holdings to hackers. Several cryptocurrency exchanges have had their hot wallets hacked, including most recently Upbit, a South Korean exchange that lost approximately $50 million worth of ether.
Still, these exchanges do need a portion of their holdings stored in hot wallets for the liquidity and efficiency of the market. While cybersecurity is an issue, hot wallets are not inherently unsafe, just potentially vulnerable. There are several types of hot wallets:
Cold storage is nothing new. Like a freezer, we store documents long-term in drives disconnected from the internet. Think of a thumb drive – when it’s plugged into your laptop, it’s hot, but when it’s unplugged, the data is no longer accessible remotely. In this manner, a cold wallet essentially acts as a safe or bank vault for your cryptocurrency assets not meant to be spent.
Just like your company’s private data, or even your own finances, a mix of hot and cold storage options are inevitably used. This balances both security and convenience to maintain the viability and value of your crypto assets. There are several types of cold wallets.
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There are also companies, which provide the cold storage of digital assets as a service. They keep your assets safe on cold wallets with private keys that are not revealed even to you, and you can withdraw them when you need them (although the process can take several hours). It seems like a reasonable option for anyone who’d prefer to rely on an established company’s reputation rather than try to set up appropriate security measures themselves. Before you go for it, make sure that you trust your company of choice, though. An example of such a digital custodian is Vo1t.
If you’re still confused, don’t worry. An experienced cryptocurrency advisor can help you create both hot and cold solutions, both for internal use and white-label sale to clients. Here’s how to get started.
Ulam Labs is a leading software development firm. Our professional and experienced coders can develop any type of blockchain or cryptocurrency project for your business. Whether you're looking to leverage existing technology for a specific purpose or launch your own cryptocurrency, we can help along the way.
Contact us today to speak with one of our professional technical associates. We'll guide you through our blockchain wallet offerings and explain how to integrate them into your business.
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