What is an Ethereum Wallet?
To begin, let’s look at a brief definition of Ethereum. Essentially, Ethereum is an open source software platform that allows for the creation and deployment of smart contracts. These applications are what allow for the exchange of cryptocurrencies.
An Ethereum wallet, like any cryptocurrency wallet, is a place (physical or virtual) where you keep your private and public key, both of which are necessary to facilitate the exchange of cryptocurrency. Unlike a traditional wallet where you keep your cash and cards, these wallets don’t actually store fiat currency (i.e. money with value backed by the government that issues it). Instead, your wallet stores a public and private key which are used to send and receive tokens, or ethereum.
In order to spend your cryptocurrency, the private key stored in your wallet has to match the public address the currency is assigned to be exchanged for. Anyone who trades with you needs to know your public key address to initiate an exchange with you. (Although the public key is assigned to you, there are no personally identifying characteristics associated with them, such as your name, address, etc.) If someone wants to exchange ethereum or goods with you, they would attach the information about that trade to the public key, which you are then able to access because of your private key.
What are the different types of cryptocurrency wallets?
There are two main types of cryptocurrency wallets: hot and cold. Hot wallets are wallets that are connected to the internet, while cold wallets are offline storage for your keys. There are pros and cons for both types of storage. Hot storage (desktop, mobile, or online wallets) are more convenient to use, but the added layer of ownership means a tradeoff in security for convenience. Cold storage (hardware or paper wallets) offer a higher level of security as they’re not vulnerable to cyber-attacks, but in turn give up convenience and are the owner’s responsibility to keep track of.
These wallets can be downloaded onto your computer and are only accessible from the computer on which they’ve been downloaded. These are typically known for high levels of security, but if the computer is hacked or gets a virus, the user is at risk of losing all their cryptocurrency. Exodus, Mist, or MetaMask are all popular desktop wallets.
These wallets run in the cloud and can be accessed from any computing device, anywhere. While easily accessible to the user, they store your private keys online in storage owned by a third party. MyEtherWallet and Coinbase are two of the better-known options.
Mobile wallets run on an app from your phone. These are especially useful as they can be used pretty much anywhere, some mobile wallets even offer support for NFC payments. Jaxx or Ethers Wallet are a couple of solid options for mobile wallets.
Hardware ethereum wallets are real, physical devices that store your private key offline. To use them, you simply plug the device into an internet-enabled computer when you want to make transactions. Ledger Wallet or Trezor are both examples of these.
This one is pretty self-explanatory: a paper ethereum wallet is literally a piece of paper with your keys written on it (whether in the form of a QR code or the actual number written or printed on paper). While this can be convenient, it is clearly one of the less secure methods of storing your key information. ETHAddress can help you to create a paper wallet.
Regardless of what type of wallet you use, an Ethereum wallet is an important medium for holding and securing ether and other cryptocurrency assets. Ethererum.org offers deeper insight into using Ethereum wallet, or you might check out this handy list of the top 5 wallets according to 99Bitcoins.