How Does A Cryptocurrency Wallet Work?

Cryptocurrency Wallet And How To Use Them
Cryptocurrency Wallet And How To Use Them

Cryptocurrency Wallet And How To Use Them?

Before I begin, I want you to think about how you keep your own money on hand. It’s not like you just do it, is it? You probably kept your in a pocket, wallet, maybe a moneybox, or in simple words a piggy bank. It is smart to keep your money in a secure location in either case. These basics are followed by a cryptocurrency wallet. However, you will be able to transfer and receive Bitcoin and other cryptocurrencies by getting a crypto wallet.

Now that you know what a cryptocurrency wallet is used for in general, in this article we will discuss and learn more detail about how a cryptocurrency wallet works.

The Digital World of Cryptocurrency

The Digital World of Cryptocurrency
The Digital World of Cryptocurrency

Since a wallet holds your cash, I used one as an example above. Things are a little bit different in the digital world of cryptocurrency and blockchain technology.

Coins are not held in a wallet since cryptocurrencies do not exist in physical form. On the other side, the blockchain is made of transactional records that detail which private and public keys control the money.

Here, we will talk about the functions of a wallet address, a private key, and a public key because they are all connected to make sure you fully grasp them.

Understanding a Wallet Address

An account number is similar to a wallet address. Giving your bank account number to someone else is safe because they will need it to transfer money to you. Such can be necessary so that your employer can pay your salary, a client can pay your invoice, or your loved ones can give you a birthday gift. Providing someone with your wallet address that’s all it takes in the world of digital currencies for them to transfer your coins. No two wallet addresses are ever the same, just like in the actual world, so there is no possibility of others getting your money. Additionally, there is no restriction on how many wallets addresses you can create.

I’m going to assume that you already know what a bank account number looks like, but the majority of us still have no idea what a wallet address looks like.

It makes use of both upper- and lower-case numbers and letters, together. Due to the transparency of most blockchains

for example, it looks like


It is simple to learn how much money is in a specific bitcoin wallet and what prior transactions its owner has made. The blockchain is referred to be “pseudonymous” because a bitcoin wallet address hides the true identity of its owner.

Here is an example of Various Cryptocurrency Wallet Types

  • Mobile Wallet

  • Desktop Wallet

  • Paper Wallet

  • Online Wallet

  • Hardware Wallet

Relation Between Wallet Address, Public Keys, and Private Keys

Relation Between Wallet Address, Public Keys, and Private Keys
Relation Between Wallet Address, Public Keys, and Private Keys

Now that you are aware of the similarity between a wallet address and a bank account number, let me explain how the money is made available to you. A common misconception is that a public key and a public wallet address are interchangeable.

In short, every bitcoin wallet address has a different private key and public key (remember, no two addresses can be the same). You can access the funds linked to the crypto wallet address using the private key.

We’ll use an example to try to make this clear: You might need to input your private bank account password each time you wish to transfer money from your bank account. Also, the bank is unable to discover this password. Otherwise, if someone knew what it was, they might take money out of your bank account!

A crypto wallet address‘s private key is its secret password. Undoubtedly, you’re curious to learn what a public key is. The wallet address is associated with a public key! However, it is a “hashed version,” as will be explained later.

A hash function enables the encryption of a set of letters and/or numbers (referred to as “input”) into another set of those same characters and/or numbers (called an “output”). This increases security and makes sure that your wallet cannot be compromised. Here is a brief illustration to help make things clear.

Private Key: 01ha3236g20199155h78989eat878c102fu71n3d2h8c789su2b6c7edecf74eda

Public Key


Wait, Bitcoin and others aren’t real currencies?

Remember when I said that the coins aren’t kept physically in the wallet? 

Do you want to know how? Since cryptocurrencies like Bitcoin and others aren’t real currency, they are digitally stored on the blockchain. Every transaction that has ever taken place in the system is stored on the blockchain, together with the total account balances of all public addresses. Blockchain functions like a massive accounting ledger.

The cryptocurrency wallet’s software is directly connected to the blockchain, enabling you to add transactions to the ledger. But, the technology that creates your public and private keys is the crypto wallet. You wouldn’t be able to access your money in the real world without it.

Cryptocurrency Wallets: Safety First

Cryptocurrency Wallets_ Safety First
Cryptocurrency Wallets_ Safety First

Anybody who gets your private key will often be able to access your money, whatever type of wallet you use. The important question is, however, what mechanisms are in place to prevent it.

Every bitcoin wallet that is connected to the internet, including desktop, mobile, and web wallets, is constantly at risk. Dangerous hackers are bad people, despite how smart they are. They are constantly coming up with new ways to access other people’s data, therefore you must take all necessary security precautions to safeguard your private key.

Several actions can be taken to protect yourself from the threats mentioned above.

  • Always make sure that the most recent software is installed on your device. Because hackers are constantly coming up with new hacking methods, updating your software ensures that you always have the highest level of security.
  • It makes sense to add more protection levels. Many cryptocurrency wallets allow you to create two-factor authentication, which needs that you confirm a code sent to your mobile device to access it.
  • Using a multi-signature wallet is yet another smart choice. Before sending money, a multi-signature wallet effectively needs the user to confirm the transaction using two or more different devices. In this way, even if one of your devices were lost, stolen, or hacked, the criminal would still need the other device to access your bitcoin.
  • Also, you should frequently back up your wallet. You can use this to store a backup password that will allow you to log in even if your wallet is lost or stolen.

If you make sure to follow all of the following security tips, your bitcoin wallet will be safe from hackers.


My in-depth discussion of cryptocurrency wallets may have sparked your interest.  Assuming you followed the entire article from beginning to end. If you have, You should now have a thorough knowledge of Cryptocurrency Wallet and how it works. Now, I’m assuming that You also have a good understanding of the various wallet types offered in the market. 

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