What is a crypto wallet?

A crypto wallet is like your bank account, but without the bank. You are the bank and you control everything in your account. A wallet is simply a piece of software that allows you to store, send, and receive cryptocurrency. Most wallets also allow you to view your transaction history, see the current balance of your account, and interact with dApps. Some wallets are better than others, but there are many different options out there.

There are many misconceptions and lack of understanding in how crypto wallets work. Technically, wallets don’t ‘hold’ cryptocurrencies.

Your coins do not physically exist and are not stored on any device, they only ever exist on their blockchain. The assets can move from one address to another or, more properly, the balance of the addresses can change, but it doesn’t actually go anywhere. Don’t forget that a blockchain, in simple terms, is an accounting system where balances are updated. When you own cryptocurrencies, what you actually own is a private key. Wallets safeguard this private key, which are your account credentials (seed, secret, passphrase) and use those credentials to sign/do transactions. When you create a new account on a crypto wallet, you get a private key and a public key.

The “private key” is usually random words or numbers that you must protect by all costs and not reveal to anyone.

Public and private keys are an integral component of cryptocurrencies and blockchain technology. Public and private keys are subsequently analogous to an email address and password, respectively. Your public key is your receiving address, which you can share with anyone to send you cryptocurrencies. Your private key (also called seed phrase, passphrase, recovery phrase or mnemonic) is your password, usually 12 or 24 random words, which unlocks the right to access your account and spend the associated cryptocurrencies. As it provides access to your cryptocurrencies, it should – as the name suggests – remain private and never shared with anyone. There is a cryptographic link between the public key and the private key and you can recover the public key and your account if you own the private key. However, it’s impossible to find or recover the private key using only the public key.

By owning and controlling the private keys, you take full control over your assets and you become your own bank, which is one of the main benefits that this technology offers. Self-custody is one of the defining features of blockchain technology.