It is reasonable to think of your crypto wallet as a safe that holds your cryptocurrency funds. As a practical matter, there’s nothing wrong with envisioning it that way.
The underlying reality is quite different, however. A crypto wallet is really a user interface that allows you to query your cryptocurrency’s underlying blockchain for information, receive funds from other users, and send funds to others by writing transactions to the blockchain. Your crypto wallet doesn’t actually hold any funds.
Bitcoin wallets and other crypto wallets are based on public-key cryptography. The essential elements of a wallet are a public key, a private key, and an address.
It all starts with the private key, a 256-bit binary number that is generally represented as 64 numbers and letters like so: D88C 5E31 8005 A994 C378D 9021 66E9 04E2 69CA 3860 8DBB E274 884F 3010 F004 C08C. The private key is essentially the password you use to gain access to your data and resources on the blockchain.
You can think of the public key as your account number. It, too, is a long series of numbers and letters. It is used to encrypt information that is intended for you before the information is posted on the blockchain. Only your private key can decrypt information that is encrypted with your public key.
The address is a shorter series of numbers and letters that is derived from your public key. It specifies the location of your crypto wallet on the blockchain.
Anyone who has your wallet’s address can send crypto funds to you. You can access those funds with your private key. You can send funds to others as long as you know their addresses.
Anyone who can log in to your cryptocurrency wallet has full access to your funds. Crypto transactions are irreversible and untraceable, so if the babysitter hacks your laptop, logs in to your wallet, and transfers all your Bitcoins to herself, there is no way to reverse the transaction, even with the best Bitcoin wallet on the market.
That’s why crypto wallets compete on the basis of security. Security is one of the main ways crypto wallets are distinguished from one another.
Among the common types of crypto wallets are web wallets, mobile wallets, desktop wallets, hardware wallets, metal wallets, and paper wallets. Which is the best crypto wallet for you? That depends. Each type has a unique ease-of-use and security profile. But in every case, the wallet’s functions are the same: to serve as an address where others can send funds, to let you check your balance, and to allow you to send funds to others.
The text is informative in nature and does not count as an investment recommendation. It does not express the personal opinion of the author or service. Any investment or trading is risky, past returns are not a guarantee for future returns – risk only those assets that you are willing to lose.