What is a Crypto Wallet? How Does it Work?
A crypto wallet functions like a regular physical wallet that helps us hold cash and cards. A crypto wallet holds a user’s digital assets by protecting the private keys and providing the public keys needed to receive cryptocurrency from a third party.
- A crypto wallet is a software program that helps to hold a user’s digital assets and safely store them on the blockchain
- A crypto wallet helps store a user’s private keys, which secure the wallet while providing public keys for receiving cryptocurrencies
- There are different types of crypto wallets that users can use to store their digital assets.
Storing and Securing Digital Assets
This is regarded as the most important function of a crypto wallet. Like the physical wallet that helps store your money and debit/credit card, a crypto wallet helps you store your digital assets, be it cryptocurrencies or non-fungible tokens.
Crypto wallets operate by providing two access points to a user. The first is the public keys and the second is the private keys. The public keys are used to receive digital assets from other users. These public keys are what are known as wallet addresses and they are generated for individual tokens that the wallet supports.
The private key serves as a means to safeguard the digital assets that are contained in a crypto wallet. Essentially, the private key should only be known to the wallet owner. If a third party has access to the private keys by any means, they will be able to access the wallet and move funds without restrictions.
Overall, the crypto wallet provides a single user interface where a user can store all of their digital assets, conduct transactions, and interact with the blockchain.
Types of Crypto Wallets
Storing digital assets in a crypto wallet can be done through different options. A user only needs to define what they want to make a decision on the most appropriate way to store and secure their digital assets. There are two categories of crypto wallets, namely, hot wallets and cold wallets.
Hot wallets are crypto wallets that are accessible online. These wallets are always online, and they can be provided by centralized exchanges or accessed as browser extensions. However, a hot wallet provided by an exchange does not always come with private keys. The exchange holds private keys for all users. However, a browser extension hot wallet grants a user full custody of their wallet.
Cold wallets are crypto wallets that help users store their digital assets offline. Examples include hardware wallets and paper wallets. Cold wallets are considered more secure as they are less prone to cyber hacks.
Crypto wallets play a vital role in making blockchain technology accessible to many people today. The ease of use and the ability to operate without technical foreknowledge makes them essential to the rapid adoption of cryptocurrencies on a global scale.