Written by Michael Hudson on 15 February 2018
As a child I had a 'piggy bank'. A blue one in the shape of a hippopotamus. He was called Hungry Hippo (named after my favourite board game at the time). I would diligently collect coins throughout the week (the best spot to find them was down the sides of my Grandfather's TV chair as they fell out of his pockets) and silently count them as I slid them into the slit at the top of Hungry's back.
As a young teen, I traded in good old Hungry for my first bank issued ATM card, tucked in a bright blue, velcro-sealing wallet for safety. Much excitement ensued as I discovered that not only could I deposit my money, there was this wonderful machine that I could use to withdraw money too! Not considering much about the fact it was purely the money I deposited and not an endless stream - although that lesson came rather quickly.
I find it fascinating that for my children, finance may be a vastly different experience. They may never know what a bank is, let alone a bank card. They may never know the frustration of endless administrative and legislative obstacles involved in securing their money. They may never understand what finance charges are. And it is my hope that they never will.
For their financial future, is a digital one. One where a wallet means something drastically different than my antiquated bright blue, velcro-sealing one. One where their wealth is stored within a cryptocurrency wallet.
A cryptocurrency wallet is a storage and transaction system for cryptocurrency tokens such as Bitcoin, Bitcoin cash and Ethereum. Each wallet has two alphanumeric strings, called keys. One is your private key and the other is your public key. Your private key is what you use to access your wallet to make payments (much like the password to your internet banking account), while your public key is essentially your wallet's 'address' and allows others to make payments to you (similar to your bank account number).
Unlike a bank account, opening a cryptocurrency wallet directly with the blockchain is a remarkably easy process. No lengthy application forms. No queues and identification documents. Simply generate your wallet address, either online or offline, and you’re set to go!
The difficult part is choosing which type of wallet suits you best. Factors to take into account with a cryptocurrency wallet include safety, usability and interface, depending on your spending habits and technological understanding.
The first and most common option are wallets that operate online. Web-based wallets store your private keys online, on a computer controlled by a third party. There are several of these services available, and most are linked to both desktop and mobile wallets. This allows your address to be available across any of your devices, from anywhere in the world. While they are the simplest of wallets, they do hold a certain level of risk as a result of this accessibility and reliance on the third party.
Desktop wallets are accessible from your personal computer, such as a desktop or laptop. The wallet not only allows the user to relay transactions on the network, but it also has the software capabilities to create a wallet address for sending and receiving cryptocurrency, and storing a private key for it. This allows the wallet to be non-reliant on a third-party service, therefore lowering risk, although malware is still a threat.
Mobile wallets are stored and operated through applications via your smartphone or mobile device. Owning a mobile wallet will make it even easier for you to purchase good/services at a physical store. Although most of these wallets do require an Internet connection to operate, which may be a barrier to some consumers. A potential risk is that many of the organisations that offer these services transfer data through third-parties, resulting in the user vulnerable to potential private key theft. Being accessible via mobile also introduces the threat of mobile malware, most especially on Android-based phones.
Hardware wallets are physical devices that hold your cryptocurrency data much like a physical wallet. They hold private keys electronically and have the capacity to facilitate payments. These wallets are considered to be highly secure as they are offline and are therefore a popular choice among many crypto enthusiasts.
A physical document containing the public and private keys that make up your wallet. These Wallets often contain a QR Code, so that users may scan it and add the keys into a software wallet to make a transaction. The benefit is that the sensitive information is not stored digitally anywhere, therefore not under the risk of cyber-attacks or hardware failures.
At present, a number of wallet providers are focussing on creating wallets that are so simple to use that even your Internet-phobic grandma will want one. Already this year we have seen the launch of mobile Bitcoin Cash wallets that let you transact with anyone in the world via text message, or simply by tapping your phones together to send cryptocurrency from the one to the other.
Cryptocurrency wallets are evolving at a rapid speed, to improve and yet simplify the way we interact with and manage our money. So long bright blue, velcro-sealing wallet! (Just joking, I moved on from that one quite some time ago already!)