How Crypto Wallets Work: Key Things To Know

A cryptocurrency wallet helps you store cryptocurrency.
A cryptocurrency wallet helps you store cryptocurrency.

With all the chatter around cryptocurrency, more people are venturing into the world of digital currency and crypto coins.  However, before you do so, it is important to understand how the components of the cryptocurrency ecosystem function. One of the first things that a user requires while handling cryptocurrency is a crypto wallet. And it serves the purpose of the traditional wallet with other crypto-specific functionalities. At the basal level, a cryptocurrency wallet has several similarities with the regular wallet as it helps you store cryptocurrency. In addition to this, it also allows users to send and receive digital currencies. 

For a user to trade cryptocurrencies, it is essential to have a wallet address to facilitate the transactions. A cryptocurrency wallet is a software program that contains public and private keys that are unique to the owner of the particular wallet. The wallets allow you to interact with blockchains, enabling you to not only make purchases and transactions but also monitor balance. 

While the public key can be compared to a username, a private key can be compared to a password. It is, therefore, essential that users never reveal their private keys. When one user sends another cryptocurrency, the receiver must be able to match the private key with the public key to unlock the funds and spend the coins. While there is no exchange of coins or currency, the transaction made is reflected on the transaction record on the blockchain. This, in turn, will result in a change in the balance of the sender and receiver's cryptocurrency wallet.

There are various types of wallets such as desktop wallets and mobile wallets and web wallets, based on the platform and device you are using them on. Depending on the type of cryptocurrency, wallet and transaction type, there may be a transaction fee attached, whose value is variable.