How Do Cryptocurrency Wallets Work?

A cryptocurrency wallet is basically a tool that you use to access the blockchain network. There are 3 different types of cryptocurrency wallets.

  • Software wallet.
  • Hardware wallet.
  • Paper wallet.

Cryptocurrency wallets do not eventually store cryptocurrencies, they just provide the tools required to access your funds which are on the blockchain network. With these tools you can easily send and receive cryptocurrencies from anywhere in the world, Public and Private keys are the main tools required to have full access to your cryptocurrency wallet.
The public key is your cryptocurrency wallet address which you can share to others to receive cryptocurrencies.
The private key is a key that you use to access your cryptocurrency wallet, your private keys shouldn’t be shared to anyone, if anyone has access to your private keys, they can easily wipe out all your cryptocurrencies stored in your wallet. You should always create multiple backups of your private keys and store it in a secure place, if you lose your private keys, you won’t be able to access your cryptocurrency wallet again.

Software wallets
There are different types of software wallets. Software wallets are connected to Internet.
Software wallets are used by most of the cyptocurrency exchanges like binance.
Software wallets are user friendly.
Software wallets are not the safest place to store cryptocurrencies.

Hardware wallets
Hardware wallets are an electronic device used to access your cryptocurrency wallets.
Hardware wallets are usually in the form of flash drives; for example ledger and trezor wallets. Hardware wallets use a random number generator to generate public and private keys and stores them in the device itself.
Hardware wallets are termed as the most secure way to store your digital assets however it is not very user-friendly.

Paper wallets
A paper wallet is a piece of paper on which a public address and its private key are physically printed out in the form of QR codes. These codes can then be scanned to execute cryptocurrency transactions.
When you send funds from a paper wallet, you have to include the whole amount which is in your paper wallet, you cannot send them partially.
For example, if you are sending someone 0.5 BTC, but balance in your paper wallet is 1 BTC, you would have to send your whole balance to another wallet like software or hardware, and from there you would need to send 0.5 BTC to that person.
Paper wallets are not secure to store your cryptocurrencies and it isn’t recommended to be used.

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