They hold your coins, just like a physical wallet. You can get a wallet for almost any kind of digital device (Windows, Linux, Android, etc.). Wallets provide varying degrees of security, so you should have multiple kinds of wallets and not keep all your coin in one place. You would not keep all your dollars in one wallet and carry it around, would you? There are 3 basic ways to use your wallets:
- Hot storage is a wallet you carry with you containing the coin you expect to spend soon.
- Warm storage uses a wallet with extra layers of encryption to further protect your coin.
- Cold storage is a wallet that is “air gapped” or unplugged from a network for the most security.
- You are responsible for your own coin. That means you need to make backups of your wallets. If you lose your addresses/private keys, the coin is lost and there is no trusted authority to recover it for you.
- It is on YOU to learn about computer security
The “Other Cryptos”
Bitcoin is not the only cryptocurrency. All the others are collectively called Alt currencies. Here is how they differ:
- Block confirmation time -some coins boast a shorter confirmation time for faster transactions.
- Hash scheme – bitcoin uses sha256. Many others use a simpler hash scheme called scrypt.
- Derivative currencies – The block chain is intended to be a platform and indeed, several currencies have been created as offshoots of other currencies.
- Founders share – A number of coins must be issued when the first block is mined. That number is called the founders share. It can be as few as the number of coins mined in the next block or as many as the currency’s creator decides to issue.
- Total minable – This is the total number of coins that will ever be mined.
- Purpose/community – Some coins are intended for specific audiences.
There are already hundreds of these cryptos. Here are a few examples:
|Litecoin||Focus on shorter confirmation times for smaller transactions https://litecoin.org/|
|Mastercoin||A derivative of Bitcoin. Intended to enable complex financial functions such as property and smart wallets http://www.mastercoin.org/|
|42 Coin||Only 42 will ever exist. The purpose is high price and true rarity. http://www.42coin.org/|
|Lotto Coin||A Litecoin derivative. It has many gaming features (e.g. an hourly lottery and superblocks) http://lottocoin.org/|
|Maza Coin||The official currency of the Lakota Nation. It was the first crypto to be used by a political entity. It is derivative of Zetacoin which is in turn a derivative of Bitcoin. http://www.mazacoin.org/|
|Auracoin||It was launched on 3/25/14 and is the official currency of Iceland. http://auroracoin.org/|
Most of these coins will become worthless but a few will gain traction as functional currencies. Do you want to guess the winners?