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.

The world of cryptocurrencies

If you want to enter the world of cryptocurrencies, you will need two things:

  • A cryptocurrency wallet

This 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.

Engaging in cryptocurrency also requires understanding the associated fees, which can vary widely between different wallets and exchanges, affecting the overall cost of transactions.

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.

Cryptocurrency wallet - definition and example
According to BlockGeeks.com: “When a person sends you bitcoins, they are essentially signing off ownership of the coins to your wallet’s address. To be able to spend those coins and unlock the funds, the private key stored in your wallet must match the public address the currency is assigned to.”

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.

To enhance the security of your cryptocurrency holdings, it’s advisable to use hardware wallets, which are physical devices that store your keys offline, providing an extra layer of protection against online threats.

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 – What is a Cryptocurrency Wallet?

This interesting video, from our sister channel in YouTube – Marketing Business Network, explains what a ‘Cryptocurrency Wallet’ is using simple and easy-to-understand language and examples.