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In the process of learning how to invest in Bitcoin or how to trade altcoins, you will encounter the term “cryptocurrency wallet.” Although you cannot physically hold digital currencies in the same way as you hold traditional money, you will still need to have any of the following: paper, mobile, web, or desktop wallet for altcoins and Bitcoin so that you can adequately secure, manage, and keep your digital assets.
What are crypto wallets?
Cryptocurrency wallets are mere tools that you can use so that you can access your digital assets through a blockchain network. Through crypto wallets, users are enabled to receive and send cryptocurrencies, monitor their balances, and keep digital assets. The majority of crypto wallets are based on software, while some are of the hardware or paper types.
So how does a crypto wallet work?
For most people, the term wallet conveys a simple thought: that it stores a valuable item. However, this may not be true for cryptocurrency wallets.
Even if you have the best bitcoin wallet or a popular cryptocurrency wallet app, still that won’t physically store your digital assets. But why would you still need crypto wallets if they don’t store cryptos?
If you plan to hold cryptocurrencies for a long time or desire to engage in daily crypto trading activities to earn Bitcoin, you will need a crypto wallet to have a record of your crypto transactions which is stored in the blockchain.
Your crypto wallet stores only your public and private keys that would allow you to interact with the corresponding blockchain so that you can hold, send, or receive, or spend crypto as you wish.
(To refresh your mind about what is cryptocurrency, you can read our blog article describing what are cryptocurrencies.)
Why do we need public and private keys in crypto wallets?
Both public and private keys are essential in crypto transactions basically because digital currencies depend on cryptography. The information regarding your assets can only be opened or read with the right key that would decrypt them. Public keys, as the term suggests, are publicly known and are essential for identification. In contrast, private keys shall be kept secret and are only used for authentication and encryption.
Your public and private keys determine your Altcoin or Bitcoin wallet address. A crypto wallet address is an alphanumeric identifier that identifies the specific location on the blockchain. It is associated with the crypto wallet balance and is used for sending and receiving funds.
If someone wants to send Bitcoins or altcoins to you, you can share the address with them. The address is a shorter representative form of the public key. This would allow you to receive cryptocurrency in your wallet address from anyone who sends coins through that address.
Remember to never share your private key with anyone - no matter what the circumstances are. Even when your computer crashes down or when your smartphone gets compromised, it is wise to keep your private key solely to yourself because this will keep the integrity and security of your assets. For as long as you have the private key or seed phrase, you will still be able to access your funds using a different device. This is possible because of the very nature of cryptocurrencies - it never leaves the blockchain.
Transactions only allow coins to be transferred from one address to another.
In the next article, we will discuss the different types of crypto wallets - software wallet, paper wallet, hardware wallet, and mobile wallet for cryptocurrencies.
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