What is a cryptocurrency wallet?
A cryptocurrency wallet is an application that functions as an ‘interface’ for interacting with your crypto and other digital assets on the blockchain. Instead of what many people think, a wallet doesn’t actually contain your cryptocurrency. It only holds your “master private key”, a critical piece of information used to authorize outgoing transactions on the blockchain.
Important to know
Cryptocurrency networks use digital signatures to enable the transfer of digital assets and prove ownership of blockchain assets. A recipient provides their public key (address) to the sender, and the sender’s private key (password) signs a transaction assigning the asset to the recipient’s public key. It’s that easy. The system of public and private keys are one of the innovations that make digital money possible and secure.
Wallet walkthrough (simplified)
Before you can send or receive crypto assets, you have to create a cryptocurrency wallet. It’s important to get a general understanding of how this process works and create a solid security routine to keep your assets safe.
In a nutshell – As a user you have to select your preferred crypto wallet software. Once you have done that, you let the wallet randomly generate a new “master private key”. Also known as your secret seed phrase. Your wallet will then automatically create a set of “private keys” and its corresponding public keys. In which the user can now send or receive crypto assets. Now let’s break it down, step-by-step into a more digestible way.
Seed phrase – You can think of the “master private key” as the “seed phrase” that creates your wallet, it contains a list of 12-24 unique words. It’s important to have the highest level of security in keeping your words safe. If lost, stolen or forgotten, all your digital assets will be irremediably lost. Basically it’s your universal key to access or recover your wallet, please never share your seed phrase.
Moving on – With the help of almost any crypto wallet software, your “seed phrase” will automatically generate “accounts” known as your private and public keys. It will allow the user to send or receive crypto. You can generate billions of accounts just from one seed phrase!
Public key – Just like a bank account, in order to receive funds you’ll have to “share” an account number. In crypto we call these account numbers “public keys” or “wallet addresses”.
Private key – To access the funds on your “public wallet address” you’ll have to use a “private key”. It’s similar to your personal identification code for your bank account.
Wallet components (technical)
A seed phrase is a human-readable “master private key” in a sequence of 12-24 random words. It’s the piece of information that allows a crypto wallet to be formed or restored. It’s EXACTLY the same as your “master private key”, but formatted in a way that you can easily use it.
1.never 2.gonna 3.give 4.you 5.up 6.never 7.gonna 8.let 9.you 10.down 11.never 12.gonna 13.run 14.around 15.and 16.desert 17.you 18.never 19.gonna 20.make 21.you 22.cry 23.lmao 24.burned
Master private key
A randomly generated string of letters and numbers that allows you to create a fresh wallet or restore one. Like we said above, it has the EXACT same purpose as a seed phrase, only in this format it’s not human-readable:
A private key is a generated string of letters and numbers that authorizes your transaction. Don’t be confused with the term “master private key”. Although it seems like they are the same, it’s not. A “private key” is just one single key that gives you access to one specific address. Whereas a “master private key” can create “unlimited” private keys.
A public key is a generated string of letters and numbers that allows you to receive crypto. Via some complicated math, your public key is actually generated by your private key.
Public wallet address
Because a “public key” is extremely long, it is compressed and shortened to form a simplified “public address”. This is the “address” that you have to share to receive funds.