Every crypto holder has a crypto wallet 👝. Like the traditional wallet you’ve probably got in your bag or pocket right now, a crypto wallet is where you store your cryptocurrencies. But, unlike the physical one, a crypto wallet exists solely online. Cryptocurrencies don’t have physical forms, and their wallets operate to accommodate that.
While every cryptocurrency owner has a wallet, many actually don’t know how it works. In this post, we’ll talk about crypto wallets and share some interesting facts about them. Another opportunity to learn something – don’t you just love it? 😃
What is a Cryptocurrency Wallet?
A cryptocurrency wallet is what stores your coins. It’s that simple. Some wallets work with physical devices, although wallet apps are more popular since they’re easier to run and cheaper to get.
- The crypto wallet is like a bank account. You store your money in both places, and they make it easy to spend money too.
- A wallet stores your private and public keys and interacts with different blockchains. This way, you can send and receive different cryptocurrencies conveniently.
How a Crypto Wallet Works
When someone wants to send you cryptocurrencies, you send your wallet address. That address works like your bank account number. How are they similar? Well, consider these:
- Someone with your wallet address alone can’t steal your money. Same with your account number.
- Like bank account numbers, no two wallet addresses are the same.
- There is also no limit to the number of wallet addresses that can be created.
One main difference is that wallet addresses are more transparent. You can log on to a blockchain and see how much money is in any wallet. You can also check the wallet’s transaction history. But, you can’t get information about the real identities of wallet owners easily.
The Importance of Private and Public Keys
Now that we understand what wallets are and how they are similar to account numbers. Let’s talk about the importance of public and private keys.
Essentially, every cryptocurrency wallet address has a unique private and public key. The private key is what gives you access to the funds that the wallet holds.
Let’s take things back to the real world. If you want to send money to a friend, you fire up your bank app. When you enter the right details, you put in your password to confirm the transfer ✅.
- Your private key does the same role.It is linked to your crypto wallet, and it is what confirms fund transfers
- Like the password, your private key is personal. Anyone who gets it will be able to steal your money.
As for the public key, it is mathematically linked to your wallet. However, it is a “hashed version.” Let’s explain that as well.
- In blockchain lingo, there’s something called a hash function. This function makes it possible for a set of numbers or letters (called the “input”) to be encrypted into another set of numbers and letters (called the “output”).
- Thanks to the hash function, your wallet has an additional layer of security 🔐.
Types of Cryptocurrency Wallets
Crypto wallets come in different types. Currently, we have the following:
Software wallets are usually connected to the Internet. Under this category, you have:
- Web wallets: These wallets give you access to blockchains via a browser. When you log on to a crypto exchange through a browser and you go to the wallet section, that’s a web wallet.
- Desktop wallets: You download these wallets and install them on your computer. These wallets give you full control over your funds.
- Mobile Wallets: They’re just like desktop wallets, but they work for your mobile phone. Many of these wallets come with barcodes so you can pay for things like coffee conveniently.
Hardware wallets are electronic, physical devices that you can carry around. When you create a wallet, the device uses something called a random number generator (RNG) to generate your private and public keys. Then, it stores the keys for you.
- A hardware wallet isn’t connected to the internet. So, it is more secure since hackers can’t just break into it.
- You can also set a PIN and a recovery phrase on your hardware wallet for extra security.
- But, hardware wallets are usually not so easy to use.
- It also takes a longer while to access funds with a hardware wallet.
In general, hardware wallets are great if you have a lot of cryptocurrencies and want to keep them for a long time.
Like the name suggests, a paper wallet is a piece of paper. On that piece, your private and public keys are printed out as a barcode. If you want to make a transaction, you can just scan the barcode and it will go through.
- Paper wallets are more secure since they’re hack-proof
- But, there is always the risk of losing the piece of paper – and your funds
- Also, paper wallets don’t allow you to send money partially. If you have 10 BTC in a paper wallet, you can’t send 2 BTC out. It’s got to be the whole thing,
So What Have We Been Saying?
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So to recap, we now understand the following:
- How a crypto wallet works.
- The roles of your public and private keys.
- Why you need to protect your private key always.
You can also keep these facts in mind:
- Cryptocurrencies don’t have any physical form, unlike fiat money
- The blockchain is what stores cryptocurrencies. It records all transactions made with an asset
- Anyone can check your crypto wallet to see how much you have. But, they won’t know who you are.
- Your crypto wallet is also what generates your public and private keys. Without it, accessing your funds will be impossible.
Now, you know how a cryptocurrency wallet works and what happens when you want to send or receive money.