If there’s one thing that every cryptocurrency owner has, it’s a wallet. You can’t own cryptocurrency without owning a wallet, and these services are especially important for currencies that only exist on the internet.
Below, we’ll look into how a cryptocurrency wallet works and some of the details you might need to know when you get one.
What is a Crypto Wallet Really?
To understand a crypto wallet, think of the traditional wallet you probably have. These wallets make it easy for you to keep and store your money, and you can always crack open your wallet if you want to give money to someone.
Crypto wallets do the same thing. They help you store your coins, and you will need them when you want to conduct transactions. But, there are a few differences you want to consider - for one, cryptocurrencies don’t have physical forms - neither do crypto wallets. Everything operates on the digital scale, with coins and wallets only being computer programs.
Your crypto wallet is actually connected to the cryptocurrency’s blockchain at all times. This connection helps the wallet to always keep its current balance. So, when a transaction involving your wallet is made, and the transaction has been added to the blockchain, your wallet is updated and can show you the correct balance.
How Crypto Wallets Work
As we pointed out, a crypto wallet has two primary functions - allowing you to view your balance and helping you to process transactions. To do this, the wallet needs to be connected to the cryptocurrency’s blockchain.
There are two important things you should know when it comes to crypto wallets:
A public key is the wallet’s address itself. It is a long combination of letters and numbers that you use to send and receive money. Think of it as your bank account number. When someone wants to send you money, you send your bank account number to them, and the transaction is processed.
In crypto, this public key is what you send over. You don’t have to fear that someone can hack into your wallet if they have your public key.
But, the private key is what you want to be careful with—the private key functions like your PIN. When you open your mobile banking app, you need to enter a PIN before sending money. Without the PIN, you won’t have access to the funds. The private key works like this - you need to keep it safe and protect it as it is what will help in processing transactions.
For transactions to be able to go through, the public key must match the private key. Both are stored in the wallet, and their sync triggers a transaction to go through. The transaction is added to a block of other transactions, and miners will validate it and add it to the blockchain. Just like that, your coins have been sent.
Crypto Wallet Types
Cryptocurrency wallets come in different types. These include:
These wallets are downloaded and installed on your computer. Some of them come as browser extensions as well. A desktop wallet can only be accessed from the computer it was downloaded on.
They are highly secure, although you could be vulnerable if the computer gets hacked or infected with a virus.
These wallets are operated fully on a cloud storage platform. You can connect to them via any location.
Online wallets are pretty convenient, but there are also risks. These wallets store private keys online, and they can be hacked. The fact that they are stored by a third party also makes them susceptible to security threats.
A mobile wallet runs on a phone or app. These wallets make it much easier for you to spend your coins as they are convenient and seamless.
Mobile wallets operate via a much simpler interface.
A hardware wallet stores your coins on a physical device - most likely a USB drive. They make transactions online, but they store your coins offline. So, they aren’t quite as susceptible to hacks as their online counterparts.
Hardware wallets also work with different web interfaces, and they support different coins. All you have to do is choose one. They make it easy to process transactions as you can plug them into any device, enter your PIN, and send your coins.
In general, hardware wallets make it easy to transact, and they’re pretty secure.
Paper wallets are also famous for their ease of use and high-security levels. This is like a physical printout of your public and private keys. All you have to do is keep the paper safe, and you’re more than fine.
At the same time, a paper wallet can also mean a piece of software that generates private and public keys. These keys are printed, and you can use them to make transactions.
Paper wallets are fairly easy to use. Just transfer the coins from anywhere to the public address shown on the paper wallet. Also, if you want to make a withdrawal, you simply need to transfer the funds from your apple wallet to our destination. This process can be done by entering the private keys or scanning the wallet’s QR code.