- A crypto wallet is not a physical item but software that holds a private key.
- These wallets contain a private key for security and the key corresponds to the address of the wallet.
- There are five types of crypto wallets, including desktop, mobile, web, hardware, and paper.
- They are essential tools that you use to interact with a blockchain network.
- Crypto wallets can be categorized as hot or cold based on the way they operate.
Crypto wallets are essentially wallets that allow you to store the private keys that you use to access your cryptocurrency.
This is due to the fact that technically speaking, cryptocurrencies are never stored anywhere, but for every individual who has a balance on any blockchain, there is a private key known as a secret number that corresponds to the address of that cryptocurrency.
These wallets facilitate the sending and receiving of the specific type of cryptocurrency they are connected with and will give ownership of that cryptocurrency to an owner.
A crypto wallet can come in a total of five forms.
- Desktop wallet
- Mobile wallet
- Web wallet
- Hardware wallet
- Paper wallet
Now when it comes to the majority of these wallets, most of them are software based, meaning that they are centralized somewhere on the cloud, which also in-turn makes them the least secure way to store cryptocurrency.
However, hardware offline wallets known as cold storage devices tend to be the most secure alternatives.
Paper wallets are literally a wallet or a code that is printed out on a piece of paper, however, their use is somewhat obsolete at this point and extremely unreliable.
Crypto Wallets Back-End
When you think about a wallet of any kind, the first thing that pops into your mind will typically be a device, be it physical or virtual, where money is stored, right?
Well, in the case of cryptocurrency wallets, they provide the tools that are required to interact with the blockchain, they are a link, a bridge of sorts. Their main job is to essentially generate the required information in order to send and receive cryptocurrency through blockchain transactions.
A large amount of this information consists of a single, or of pairs of public and private keys.
The wallet also has an address, which is an alphanumeric identifier that is generated based on the public and private keys stored within it. This is known as a specific location on the blockchain where the coins can be sent to.
This means that you can share this address with other parties in order to be able to receive the funds. However, when it comes to the private key, you and only you should know it.
This is due to the fact that the private key essentially opens your door to your cryptocurrencies. This is regardless of whatever wallet you end up using.
This means that, let’s assume you get your phone lost and hacked, or maybe your laptop manipulated in some way, you can still access your funds from another device as long as you still know that private key. The idea behind all of this is that the coins or tokens, never truly leave the blockchain, but instead just go from one location to another.
So, to sum it up, coins are not actually stored in a physical wallet, and cryptocurrencies do not exist in a physical form. The blockchain consists of transactional records that details which private and public key has control over a specific amount of the funds available there.
A wallet address is very similar to a bank account number, this is then shown to people so they know where they need to transfer your funds. Imagine this in a very similar way as the bank account number your employer knows so he can send your salary each month.