How Crypto Wallets Work: 5 Key Things You Should Know
Are you planning to plunge into the world of cryptocurrency but you don’t know where to start? Check out this article to open your own account on ownrwallet.com and start your exploration right now.
What Is a Crypto Wallet?
The forms of crypto wallets are diverse, but often they are either physical devices or software. They are needed so that investors can safely manage their cryptocurrency: store it, send it, and receive it.
Public and Private Keys
The two fundamental parts of any crypto wallet are public and private keys. Difficulties are often caused by the latter. The main feature is that only the owner of a public key has full access to the wallet. Constant comparison to a bank account is fundamentally wrong as here you are the one that gets all the control.
The public key, unlike the private one, acts as an address, with the help of which cryptocurrency is sent to the wallet. Brian Nibley explains: “Your crypto wallet can have multiple public keys, i.e., multiple public addresses, but they will all be tied to the same private key.” Therefore, from all these addresses, the cryptocurrency will end up in the same wallet.
Receiving and Sending Funds with Your Crypto Wallet
Despite the uniqueness of every wallet, there’s something that unites them all, namely, the mechanism for sending and receiving funds (cryptocurrencies, tokens, or NFTs) with the use of a crypto wallet.
To receive funds, you have to obtain an address (a public key) from your wallet. In your wallet, use the “Generate address” function. It makes it possible to create a unique address from letters and numbers or a unique QR code. Further, you simply send it to the person who will transfer the cryptocurrency to you.
There’s a reverse mechanism for sending funds. You’re the person who needs the address of the receiving wallet. Find the “Submit” function. After clicking it, you enter the desired wallet address and the amount of funds you want to send. In the end, you should see a “Confirm” button. Once again, carefully check all the data and only then click.
Try sending a test amount. Also, keep in mind that every cryptocurrency transaction is subject to a fee to miners in exchange for processing the transaction.
Software and Hardware Crypto Wallets
You also need to decide on the type of wallet as it has to suit your requirements. The most common types are hardware and software wallets.
The first is a physical device, the main task of which is to simplify functions such as sending, receiving, and storing cryptocurrency. These devices can be connected to a computer. What’s more, such wallets are known as cold since they work without an internet connection.
As for software wallets, unlike hardware wallets, they do not physically exist; that’s why they are called “hot.” Wallets like these are usually desktop programs or browser extensions. Their functions are similar to hardware wallets. Simply put, software wallet data funds are stored on the network.
Such wallets can be subdivided into Desktop Wallets (the Electrum wallet), Web Wallets, which facilitate the interaction with Defi protocols (MetaMask), and Mobile Wallets, the ones that manage your cryptocurrency and transactions.
Besides, software wallets are unique for each cryptocurrency, while hardware wallets can support several currencies at once.
Nothing to Do with Real Wallets
Many people mistakenly believe that crypto wallets store your cryptocurrency in the same way that a wallet stores banknotes and bank cards, but they really don’t.
In fact, they store the digital credentials that the user needs to access tokens. In essence, this data is indicative of your ownership of the coin. Another feature of such wallets is their ability to send and receive cryptocurrency. Obviously, a physical wallet doesn’t have this function.
Your crypto assets exist on the blockchain. It keeps track of transactions and balances for each address and monitors who controls those balances. The functions of a crypto wallet also include interaction with the blockchain and transferring funds to other wallets. Note that anyone can view not only the transaction but also the balance of any such address.
You Are in Charge of Your Assets
As mentioned earlier, crypto wallets are distinguished by their independence from third parties, for example, from a bank. So here, you are solely responsible for all activities related to cryptocurrencies and all associated risks.
Cryptocurrency transactions cannot be canceled in any case. So, you need to check the wallet address for reliability.
Wrapping it Up
Well, let’s finish with crypto wallets for today. All key takeaways were listed. Keep in mind that the ability to use a crypto wallet is the basis for all your future cryptocurrency investments.
