So, now that you know that a wallet address is very similar to a bank account number, I am now going to explain how you are given control of the funds.
People often think that a public key is the same as a public wallet address, however, this is not correct. Essentially, each individual cryptocurrency wallet address remember, no two addresses can be the same each have a unique private and public key. The private key allows you to access the funds that are related to the crypto wallet address. Nobody else has access to this password, not even the bank.
Otherwise, if somebody knew what it was, they would be able to send money from your bank account!
- Khadija Khartit is a strategy, investment and funding expert, and an educator of fintech and strategic finance in top universities.
- What is a Bitcoin wallet Bitwala After understanding how Bitcoin worksnaturally, the next questions revolve around cryptocurrency ownership.
- The stock exchange
- Introduction to the Bitcoin Wallet
A private key does the exact same job and it is linked specifically to the individual crypto wallet address. So what about a how does a bitcoin wallet work key? A public key is mathematically linked to your wallet address! This adds an extra layer of security and ensures that your wallet cannot be hacked. Here is a quick example to make things simple. Private Key: 03bfdab51e3eefe47f2d2e8cde4a9a7edecf74eda Public Key: 99b1ebcfc11a13dfabafed Now, I know what you are thinking: these two sets of keys are completely different?
To the human eye, yes, however, the software technology knows that the two keys are specifically linked to each other! That proves that you are the owner of the coins and it allows you to transfer funds whenever you want! The important thing to remember is that everything I have explained here is very technical.
However, when you use a cryptocurrency wallet, the software does everything for you. It's like using the internet to send an email!
What is a Cryptocurrency Wallet and How Does it Work?
You don't actually need to understand the technology that runs in the background, the likes of Gmail and Hotmail do everything for you regarding emails — just like a cryptocurrency wallet does regarding crypto transactions! If you have read my guide so far, you should now have a good understanding of what a cryptocurrency wallet is and how public and private keys are linked to a public wallet address.
Let me clear things up. As Bitcoin and other cryptocurrencies are not physical money, they are digitally stored on the blockchain. The blockchain is like a giant accounting ledger that stores every single transaction that has ever occurred in the system, as well as the total account balances of each public address.
The software within the cryptocurrency wallet is connected directly to the blockchain, so it allows you to submit transactions to the ledger. However, the crypto wallet is the protocol that generates your public and private keys. To get a better understanding of this relationship, think about walking into a store and paying for goods using a debit or credit card.
What is a Bitcoin wallet
There is no physical exchange of money between you and the store. However, by entering your private pin number, you verify that you own the funds and so they can move the funds from your account to the account of the store. This is the same as a cryptocurrency wallet. By entering your private key, you verify that you own the coins and then you can transfer them to someone else.
How does Bitcoin work?
That is the only way that the coins can move from person A to person B. There are lots of different wallet types available and the one you choose will depend on your personal needs.
Essentially, different wallets offer different things, such as extra security, user-friendliness or convenience. I will now list the most popular types of cryptocurrency wallets. Did you know? Generally speaking, they offer a good combination of security and convenience.
However, it is important to remember that if a hacker were able to remotely get hold of your device, they could gain access to your wallet. Mobile Wallet A mobile wallet is very similar to a desktop wallet as the wallet is downloaded directly to your device.
You normally access your cryptocurrency wallet by downloading a mobile app, which also allows you to spend your coins in a physical store by scanning a QR code. Web or Online Wallet A web wallet offers the greatest level of convenience when sending coins to another person, however, they are also the least secure. This is because the wallet provider usually has full control over it. An example of this would be storing coins in a cryptocurrency exchange.
Cryptocurrency Wallet: Understanding Its Purpose, Security, and Types
The exchange will store your coins on their central server, which means that if it hacked, the criminal could have access to how does a bitcoin wallet work of your funds. It is best advised to only keep a small number of coins in a web crypto wallets. Paper Wallet Paper wallets are one of the most underrated how does a bitcoin wallet work wallets available. All how does a bitcoin wallet work need to do is to print your private and public keys onto a piece of paper — and that's it, your funds are secure!
This is because the keys are not connected to any servers, meaning the only way somebody could access them is if they had the physical paper! When you need to transfer funds, you simply enter the keys into a software or web wallet, or even easier, just scan the QR code that you printed!
This is a physical device that has the sole purpose of storing your private and public crypto keys within the hardware.
The device is never connected to the internet unless you need to transfer funds. However, you enter your private pin directly on to the device, making it virtually impossible for a hacker to access your keys.
What Is A Bitcoin Wallet? - The Best Explanation EVER
Are Cryptocurrency Wallets Secure? So, now that you know the different wallet types, along with their levels of convenience, I am now going to talk about how secure they are.
Generally speaking, no matter which wallet you use, if somebody has access to your private key, then they have access to your funds. However, the key question is what safeguards are in place to prevent it from happening?