What is a cryptocurrency wallet? How does it work?
A cryptocurrency wallet is a virtual wallet or digital wallet, i.e., a software program. It stores public and private keys. These keys interact with blockchains to enable the user to receive and send cryptocurrencies. If you have a cryptocurrency wallet, you can also monitor your balance.
If you want to enter the world of cryptocurrencies, you will need two things:
- A cryptocurrency wallet. It is a type digital wallet, i.e., a wallet that only exists electronically. You will need one to purchase, sell, and store cryptocurrencies. We can also say it is a type of e-wallet.
- A cryptocurrency exchange. You will need to use one to buy or sell cryptocurrencies. These exchanges will sell you cryptocurrencies for other cryptocurrency units or fiat currencies. Dollars, euros, pounds, rupees, or yuan, for example, are fiat currencies., i.e., the government declares them as legal tender.
Cryptocurrency wallet – a secure digital wallet
Put simply; a cryptocurrency wallet is a secure digital wallet. We use it to send and receive cryptocurrencies. We also use it to store our currency. For example, if I buy Bitcoins or Litecoins, I will store them in my digital wallet.
Bitcoin is the world’s most common and oldest cryptocurrency. It has been around since 2009.
Most cryptocurrencies have their own official wallet. For example, Bitcoin calls its digital wallet the Bitcoin Core Wallet.
Ethereum (Ether) calls its wallet MyEther Wallet. Litecoin, another cryptocurrency, has the Litecoin Core Wallet. Ethereum is the second-most popular cryptocurrency. Litecoin uses a similar system to Bitcoin. However, Litecoin is considerably faster.
Some wallets are good for multiple coins. Coinomi, for example, can store many different cryptocurrencies. However, there are some coins that Coinomi cannot store.
Some cryptocurrencies recommend third-party digital wallets.
If you want to buy, sell, and store cryptocurrencies, you must have a cryptocurrency wallet. It is impossible to carry out transactions without one.
Cryptocurrency wallet – how it works
We keep our credit cards, ID, loyalty cards, and fiat money inside a physical wallet.
A cryptocurrency wallet does not work in the same way as a physical wallet. It does not actually ‘store’ anything. Instead, there is a secure digital code. We call this code a key. Only you and your wallet know what this code is.
The key shows ownership of a public key. A public key is a public digital code that gives the owner access to a specific amount of money.
Your wallet, therefore, stores the owner’s private and public keys. This allows the owner to send and receive cryptocurrency coins. The wallet also keeps a record of transactions. In other words, it acts as a personal ledger.
Regarding your cryptocurrency wallet, CryptoCurrency Fact says:
“Your wallet stores your private and public keys, allows you to send and receive coins, and also acts as a personal ledger of transactions.”
Video – Cryptocurrency wallet basics
This Hoosier Hardware video explains what cryptocurrency wallets are. The speaker shows us a regular physical wallet and points out that the digital online one is completely different.