How Do Crypto Wallets Work?

Bryan Healey26 Jun 2022

If you get into cryptocurrency, you'll have to create a crypto wallet before deciding which cryptocurrencies to invest in. This is where you'll keep track of your cryptocurrency holdings. Every wallet has a secret key that only you could use to access the wallet's contents. However, creating a wallet is more than just storing any Bitcoin or Ethereum you purchase on an exchange. It also enables you to send and receive these and many other cryptocurrencies safely.

What is a Crypto Wallet?

A crypto wallet keeps your private keys. These are passwords that allow you to access your cryptocurrencies safely and easily, enabling you to send and receive cryptocurrencies like bitcoin and ether. These wallets exist in a variety of formats, ranging from hardware wallets like Ledger resembling a USB stick, to mobile applications like Coinbase Wallet. Cryptocurrency is as simple as shopping online using a credit card.

Unlike a traditional wallet, that could carry actual cash, crypto wallets do not keep your cryptocurrency. Your assets are stored on the blockchain but can only be retrieved with a private key. Your keys validate the possession of your digital currency and enable you to conduct transactions. You lose access to your money if you lose your private keys. That's why it's essential to keep your hardware wallet secure or to utilize a reputable wallet service like Coinbase.

How To Get a Crypto Wallet

Crypto wallets would be unnecessary for those who purchase cryptocurrencies only for the purpose of holding them as speculative investments. Exchanges and online brokerages which convert dollars to cryptocurrency would keep all of your digital cash in a bank account for you. However, crypto wallets, which were known since the early days of Bitcoin, provide a variety of functions other than simply storing money at no cost.

Coinbase

Coinbase is the most well-known bitcoin exchange in the United States. The startup makes it simple to trade popular cryptocurrencies such as bitcoin and dogecoin and has its own Visa-backed debit card that works with Apple Pay and Google Pay. The Coinbase Wallet is a wonderful place to start if you're a newbie to cryptocurrencies. It is available as an app for iPhone and Android, the interface is simple, and the wallet is completely connected with the company's exchange, making it simple to execute transactions, including the purchase of coins and tokens using traditional cash.

Nano X Ledger

The Ledger Nano X is the company's second-generation cold storage wallet. More than 1,800 currencies and cryptocurrencies, including bitcoin, ether, and XRP, are supported via the integrated Ledger Live platform, which is simple to understand and use. The wallet could be connected to your computer through a USB cable and to Android and iOS mobile devices through Bluetooth. The device is well-made and has a compact LED screen. To begin, create a PIN, followed by a 24-word seed phrase. The seed phrase serves as the private key for your wallet. You won't be losing your crypto assets if you keep the private key secure.

Trezor

The Trezor One is a device that handles over 1,500 digital currencies and incorporates multi-factor authentication. The Model T, which is more costly, supports more coins and has a nicer screen and interface, as well as a few other handy features. The Trezor hardware wallet is a gadget for storing digital currency offline. It connects to your computer or smartphone through USB. You could manage your secure connection via the device's little screen. Just keep in mind that if you lose your Trezor or your recovery information, your Bitcoins might be lost forever.

How To Set Up a Crypto Wallet

All wallets have some features in common. A wallet has a private key, a public key, and an interface to see your available money, transaction history, and security settings.  Furthermore, the term "wallet" is a bit misleading because your coins are not physically housed in the wallet, as fiat cash may be. A wallet is just a means of interacting with the blockchain. Physical coins are not exchanged.

Exchange Wallets

When you initially bought cryptocurrency, you had to utilize an exchange like Coinbase or Gemini to convert money for cryptocurrency. When you completed the purchase, the exchange instantly created a wallet for you without you needing to do anything.

Hardware Wallets

The ideal standard in security is a hardware wallet. It's a physical gadget that you must acquire, such as a Ledger Nano S, that is intended to allow you to interact directly with your currencies from a device that is solely yours.

The following are the steps of using a hardware wallet:

  • Get a hardware wallet.
  • Connect your hardware wallet to a web computer using the USB cord and follow the on-screen instructions.
  • You could then create a new wallet or import an existing one.
  • Select a PIN code.
  • Save your recovery phrase. A recovery phrase is a 24-word mnemonic phrase that you may use to retrieve your device if you forget your PIN. Keep your recovery sheet in a secure location.
  • Install the application on your computer to access your wallet and use your smartphone. There are Chrome addons that make this a piece of cake.
  • Voila. You could now send and receive crypto via a hardware device while also storing it in the most secure way possible. Keep the gadget in a safe for further security.

Desktop Wallets

A desktop wallet is accessible using coin-specific software. It is customary for a currency development team to construct a special wallet for their coin. This solution provides the maximum level of protection for soft wallets, but it is still less safe than a hardware wallet since hackers could target your desktop wallet with malware and keyloggers. To use a desktop wallet, follow these steps:

  • Check to verify if the coin you wish to keep in a desktop wallet supports this.
  • Download the desktop wallet software.
  • Install the program and launch it. 
  • All desktop wallets are different, but you should be able to create a wallet and access it, and once opened, you should be able to see funds available and transaction history.

  With all of the buzz surrounding cryptocurrency, many are exploring the realm of digital currency and crypto coins. A crypto wallet is among the first things that a user needs when dealing with cryptocurrency. It combines the functionality of a standard wallet with crypto-specific features. A cryptocurrency wallet, at its most basic, is comparable to a conventional wallet in that it allows you to store bitcoin. Moreover, it enables users to send and receive digital money.

Bryan Healey

Bryan Healey

Bryan, known by his friends as 'blockchain bryan' has been playing with crypto since 2014, early in it's inception. He wants to share what he's learnt over these years, and hopes you'll get some value out of it.

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