Software Wallet Meaning
What is a Software Wallet?
A software wallet (wallet app) is an application existing on an internet-connected device that allows users to store, transfer, and manage their digital assets. Simply put, it is a program enabling interactions between the blockchain and the host device. It can be installed and managed via devices such as a smartphone or a personal computer.
Since cryptocurrencies typically live on the blockchain, crypto wallets – including wallet apps – merely store the private keys used to access your cryptocurrency. This means that wallet applications simply provide an interface to the blockchain. Hence, anyone who can access your wallet app can access your private keys and spend your cryptocurrencies.
Wallet applications can either be custodial or non-custodial. Custodial means that a third party (especially a crypto exchange) holds and controls your private keys on your behalf and can sign and execute crypto transactions. On the other hand, non-custodial wallet applications grant users complete control over their private keys. As such, only the individual possessing the private keys can access cryptocurrency assets on the blockchain.
They are essentially a form of hot storage since they store the private keys online (in your browser’s data store) in an encrypted state. This makes them the most convenient type of crypto wallet as it enables easy access and a great user experience. However, the internet factor exposes private keys to online attack vectors, making them not so great for security.
Hardware wallets are the opposite of wallet apps. They are physical devices used to store private keys away from the internet. In this regard, they are considered to be the most secure.
Types of Software Wallets
Wallet applications come in the form of desktop wallets, mobile wallets, and online wallets.
- Desktop wallets: Desktop wallets are applications installed and operated on a desktop computer. Thus, the private keys are held on a desktop application that interacts with the blockchain.
- Mobile wallets: It comes in the form of a mobile application, where the host device is a mobile phone. They are generally easy to use and flexible.
- Online wallets: Also called web wallets or browser-based wallets. They are accessible via a browser extension and are considered the most user-friendly and fastest interface to interact with a protocol. However, they are susceptible to malware attacks and other security risks.