What is a Crypto Wallet & How Does It Work?
People are showing interest in cryptocurrency and even investing in it. It may take newcomers in the field of cryptocurrency some time to get used to how it works, But once someone gets a grasp of the concept of virtual money, the rest is easy.
To use cryptocurrency as a payment mode, invest in digital currency, or trade-in the cryptocurrency market, one needs to have a crypto wallet. So, let us know what is crypto wallet and how does transactions takes place on it?
What is Crypto Wallet?
Like currency notes need a bank to store them, cryptocurrencies also need to be stored somewhere. Hence, a platform (generally either an application or software) called a crypto wallet is used as a storage space to save cryptographic information and send and receive cryptocurrency quickly and safely. Exodus and Electrum are two of the popular crypto wallets. Apart from keeping track of encryption keys used to sign transactions digitally, the crypto wallet also stores the address on a blockchain where a particular asset resides. If the owner loses that address, they essentially lose control over their digital money or other assets.
It has private and public keys associated with it, similar to a password. The first-ever crypto wallet was developed by Satoshi Nakamoto, the creator of Bitcoin. It was very simple and allowed for the generation of new addresses and sending Bitcoin to other people.
When choosing a crypto wallet, you first want to determine if you wish to keep a hot or cold wallet. Hot wallets are those that are hosted on an internet-enabled device, making them easier to access and more susceptible to security risks. Cold wallets are wallets that are kept entirely offline. The only way to access them is to physically have control of the device, private keys, or master seed phrase.
Types of Crypto Wallets
Crypto wallets can come in different types, shapes, and sizes, depending on your chosen platform. Some wallets have more features than others, including the ability to store cryptocurrencies from various networks alongside more advanced security measures. Some of the most prominent crypto wallets available for Bitcoin and other popular cryptocurrencies are:
- Mobile Wallets
- Desktop Wallets
- Exchange Wallets
- Hardware Wallets
How to Put Money in a Crypto Wallet?
The easiest way to get coins in your crypto wallet is on the cryptocurrency exchange you used to buy your currency. But today, more mainstream companies have also added options to buy, sell and store crypto. Such companies include PayPal and Robinhood. One can also add money to a wallet by buying bitcoin or other cryptocurrencies with a credit card and spend it using crypto addresses or keys.
How Crypto Wallet Works
Public and private keys play a crucial role in how crypto wallets work. They allow access to your cryptocurrency. For example, when someone sends you cryptocurrency through a crypto wallet, they sign off the ownership of that currency and authorize the owner of the coins from their wallet to yours via their keys.
If you wish to unlock these funds or spend them for trading, the private key on your crypto wallet needs to match the public key assigned to the coins. A public key is like an account number that one needs to share to receive crypto coins. This public key does not reveal the owner’s identity, which is why blockchains are considered ‘pseudonymous.’
When these keys match, your wallet will display an increased balance with the added coins, and the seller’s coins will decrease accordingly. No currency is transferred physically anywhere in these transactions; only the balance changes as per your trading. Similarly, if you want to send someone cryptocurrency, all you need to do is open up your wallet, enter the recipient’s public address and choose your desired sum. That’s all.
If you bought your first bitcoins or any other cryptocurrency from a reliable crypto platform, then you should be able to add your wallet and receive the top-up quickly. Before buying cryptocurrency, be sure that your wallet supports it. Another thing to remember is that you should always keep your private keys private at all costs. These keys are not stored on a blockchain; instead, they are stored through an encrypted file, which can be saved anywhere and stored offline. They should be secured in the safest way and place possible.
If you are planning to invest in cryptocurrency, a safe, reliable crypto wallet is all you need. More developments will likely be made in both ease of use and security in the crypto investment and trading with time. But till then, take the necessary steps to be safe with your funds.
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