Crypto Wallet

What is a Cryptocurrency Wallet?

When we hear the word “wallet” we immediately think of the pocket or purse accessories that hold our cash, ID’s, credit and debit cards. However, unlike cash, digital currencies are not stored in a specific location and do exist in a physical form. Instead, cryptocurrencies, account balances, and transactions exist on a blockchain or similar technological foundation.

A cryptocurrency wallet has software that creates and stores your private and public keys, interacts with the blockchain, monitors your balances, and allows you to send and receive cryptocurrency. So, to send, receive, store, and monitor your cryptocurrency balances, you need to use cryptocurrency wallets.

Crypto Wallets as Keys to Access Funds

Instead of thinking of a wallet in the traditional sense, where cash is actually inside of your wallet or your credit cards actually being inside of your wallet. A better way to think about a cryptocurrency wallet, is as a key to access your funds.

Because your cryptocurrencies on the blockchain, which is a running ledger of transactions distributed all over the world, are basically just assigned to your private key, so your wallet gives you access to the funds assigned to your “account” of sorts.

How do Cryptocurrency Wallets Work?

A simplified way to understand how cryptocurrency wallets work, is to consider how your traditional online banking applications work. Imagine your bank is the blockchain, your bank account number is the public key, your crypto wallet is your online banking app, and your online banking app login credentials. So, your bank records and tracks all of the transactions going to and from your bank account, just like the blockchain records and tracks all of the transactions going to and from your public key.

Using your online banking app, you are able to check the balance of your bank account Online Banking Apps. Like Crypto Wallets send or receive transactions, just like a cryptocurrency wallet allows you to check your balances and send or receive crypto.

In order to login to your online banking app, you need to first type in your Bank App Login Credentials. Like Private Keys username and password, which is like using your private key to access your cryptocurrency.

Public Keys

A public key is similar to your bank account number, in that if you provide anyone with your bank account number, they can send you funds. Keep in mind that public keys are also commonly known as “wallet addresses”. However, having your bank account number alone would not allow someone to take funds from your account. This is also how a public key works - people can send you cryptocurrency using your public key or public wallet address, but they cannot take funds from you using your public key.

Private Key

This is similar to a private key - if you give someone your private key, they can access your cryptocurrency and send it somewhere else. Unlike traditional banking, if you give away your private key and your funds go missing, you will likely not be able to recover them. Keep Private Keys Private, this is why it is so important to keep your private key private.

Before sending and receiving cryptocurrency, you must first make sure you are sending the same type of currency to a wallet address or public key that supports that particular cryptocurrency. For example, you can only send bitcoin to bitcoin addresses and you can only receive ether from ether addresses.

If you have another person’s public key or address, you can easily send them some corresponding cryptocurrency and vice versa. When cryptocurrencies are sent or received, no actual physical or digital exchange occurs

Summary of Crypto Wallets

Cryptocurrency wallets interact with the blockchain and the blockchain is where all cryptocurrency transactions are logged and it’s also where balances are tracked. A cryptocurrency wallet has software that interacts with the blockchain, stores your public and private keys, monitors your cryptocurrency balances, and allows you to send and receive cryptocurrency.