WHAT ARE CRYPTO WALLETS?
If you’re a beginner, then the crypto world can look confusing. Worry not; all your doubts and queries about crypto wallets will be clarified in this article.
Everybody is talking about bitcoin, Ethereum, and cryptocurrency, and you might have even heard the phrase “send me your wallet address.”
A cryptocurrency wallet is one of the essential components of cryptocurrency and the blockchain. Look at it as your bank account; you cannot send or receive money, pay bills, or link a credit card without a bank account. So in simple terms, a crypto wallet is the equivalent of your bank account in the crypto world.
So, now that you have a picture in mind, let’s get to the definition.
A cryptocurrency wallet is a software or hardware that uses blockchain technology to safely administer, transmit and manage cryptocurrencies. Unlike your typical purse or wallet, where you keep your fiat money (money issued by a central bank in physical bills), cryptocurrency wallets only hold digital assets — crypto assets and Non Fungible Tokens (NFTs).
For a detailed glossary of all the crypto and blockchain definitions and meanings, don’t forget to check out our article here.
Components of a Crypto Wallet
Most of the time, to transact fiat money, your local bank provides you an application where you sign up with an email address, a password, and some other bank details. If you don’t use an app, you need to physically go to the bank to sign off on transactions with your checkbook or a withdrawal slip. If you don’t sign off on any transaction, it will not be processed.
It’s pretty much the same with cryptocurrency. However, in the case of crypto wallets, your transactions are signed off with your private key. This private key isn’t like your email address or password that you choose yourself; it is autogenerated by your crypto wallet.
If your banking details are compromised, you may lose all your money. In the same vein, if anyone has access to your private key, they can steal your funds.
Public Key (Public Address)
A public key, otherwise called a public address, is also autogenerated by your crypto wallet. It’s more like your bank account number. Anyone who wants to send you money can have your account number without gaining access to your funds. Likewise, anyone who wants to send you crypto assets will do so by having your public address. So, when someone says, “send me your wallet address,” this is what they mean.
This public address is also your identifier on the blockchain. A blockchain is a public and decentralized ledger — a big “book” that cannot be tampered with; it contains information about every cryptocurrency transaction done. Hence, any transaction you do is registered on the blockchain with your public address.
For example, if you send money to your friend using your bank application, you can generate a receipt showing that you sent it. Likewise, a transaction hash is generated on the blockchain when you transact with cryptocurrency. This transaction hash contains details such as your public address, the recipient’s public address, the amount sent, and the timestamp of confirmation.
So, with a transaction hash, you don’t need to worry about the receipt’s authenticity because the blockchain cannot be tampered with.
Types of Wallets
Hot Wallets are always connected to the blockchain as long as there is an internet connection. Therefore, they are primarily created on a web browser, desktop, or mobile application. Because they are always connected to the blockchain, they are prone to hacks and theft.
Cold Wallets are not connected to the internet or blockchain at all times, making it very secure. They usually come in the form of a Hardware USB device or a paper wallet.
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