What is a cryptocurrency wallet?
A cryptocurrency wallet is a software program or a hardware device that stores public and private keys and interacts with various blockchains to enable users to send and receive digital currency and monitor their balance. A cryptocurrency wallet is a secure digital/physical wallet that is just like a bank account. To use cryptocurrency, you’ll need to use a cryptocurrency wallet. Most wallets are compatible with more than one coin; however, some are built for a single coin.
How Does it work?
Every wallet consists of public and private keys. Private and Public keys are the foundation of every blockchain network. The Public key is your wallet address (just like a bank account number) since it gives other users a point of access to send tokens to your wallet. In other words, the public addresses are like cryptocurrency-specific account numbers that can be used to receive a specific type of cryptocurrency (for example, to receive Bitcoin, you need to have a Bitcoin address) and can be shared publicly. On the other hand, the private key is for private use and should not be shared with anyone, just like a bank account password or pin. Generally speaking, A private key is a secret number that allows the private key owner to spend the cryptos stored in that specific wallet. Thus, the private address is the “key” that allows anyone who has access to it to spend the crypto asset assigned to that particular private key. The private key has to be stored safely that only the owner has access to it.
How transactions are done?
When a sender transfer bitcoin or any other coins to a receiver, the sender is essentially signing off the ownership of the coins to the receiver wallet’s address. In order for the receiver to be able to spend those coins and unlock the funds, the private key stored in the receiver’s wallet should match the public address the currency is signed off to. Once the public and private keys match, the balance of the receiver’s wallet will increase, and the senders will decrease accordingly.
All the transactions are then recorded and stored in the blocks. These blocks are stored in a public ledger called the blockchain.
In the next following topic, we are going to cover crypto wallet types in details.