Crypto Wallets: the Basics
When first exploring crypto wallets, you may learn quickly that there are a lot of options, and it can be difficult initially to know which one is best for you.
The truth is - it really differs, depending on a number of factors.
So as an introduction, let’s go over some of the main concepts & dynamics of using a crypto wallet.
What is a Crypto Wallet?
A crypto wallet is typically a software-based application that allows users to store, send, and receive cryptocurrencies. When you set up your wallet, it generates a special secret code called a private key. Think of it like a super-secret password that only you know. This private key is very important, as it is what allows you to securely access and manage your digital money.
Now - when you want to send or receive digital money, your crypto wallet uses something called the blockchain to do it. The blockchain is like a big digital ledger that keeps track of all the transactions that have ever happened with a particular type of cryptocurrency. When you want to send someone a digital asset, your wallet uses your private key to create a digital signature that confirms you're the one making the transaction.
Then, the transaction gets broadcast to the entire blockchain network, and all the other computers on the network use their own copies of the blockchain to verify that the transaction is valid. If everything checks out, the transaction gets added to the blockchain, and the digital asset is sent!
Private Keys:
A private key is a secret code that is used to access and manage a user's digital assets in a crypto wallet. The private key is a long string of numbers and letters that is generated when the wallet is created. It is important to keep the private key safe and secure as anyone who has access to it can access and manage the user's digital assets.
"Not your keys, not your crypto" is a popular phrase in the Web3 world that emphasizes the importance of having full control over your digital assets.
In essence, the phrase suggests that if you don't own the private keys that control your cryptocurrency, then you don't really own the cryptocurrency itself. Instead, you are relying on a third party to manage your assets, which can lead to potential security risks, such as hacking, theft, fraud, & foul play.
When you hold cryptocurrency on an exchange or custodial wallet, that exchange or wallet provider is responsible for storing your private keys and managing your assets on your behalf. While this may be convenient, especially in the beginning- it also means that you are giving up control of your assets to a third party. If the exchange or wallet provider gets hacked or goes bankrupt, your assets could be lost forever.
To avoid this risk, many people choose to hold their cryptocurrency in a non-custodial wallet, which means that they control the private keys themselves. By holding the private keys, you can securely manage your assets and keep them safe from potential threats.
Overall, the "not your keys, not your crypto" mantra serves as a reminder to take control of your digital assets and to be responsible for their security. It's an important principle to keep in mind for anyone who is interested in investing or using cryptocurrency.
Accessing the Wallet:
To access a crypto wallet, a user needs to have the wallet address and the private key. The wallet address is a unique identifier that can be used to send and receive digital assets. The private key is used to access and manage the user's digital assets in the wallet. Users can access their wallets through a web-based interface or a mobile application.
Using the Wallet:
Once a user has access to their crypto wallet, they can use it to store, send, and receive digital assets peer-to-peer using their unique wallet addresses. Confirming the transaction within the wallet application using their private key and/or password. Also, through a variety of innovative integrations, crypto wallets give users the ability to connect their wallet/profile to decentralized apps (DAPPS) allowing for more engaging opportunities to use, trade, and benefit from your digital assets.