What is a Cryptocurrency Wallet, and How Does it Work?
A cryptocurrency wallet is a digital wallet that stores private, public keys used to access and manage certain digital assets like cryptocurrencies, tokens, or NFTs.
Cryptocurrencies or crypto digital assets are NOT stored in cryptocurrency wallets but in a Blockchain. And your cryptocurrency wallet contains what you need to access and manage your cryptocurrencies or crypto assets.
Owning and using a cryptocurrency wallet is a bit similar to owning and using a debit card:
– With a debit card and the password, you can access and manage the fiat money you own in your bank account. Your money is not stored in your debit card but allows you to make payments, make transfers, and such.
– With a cryptocurrency wallet, you can access and manage your cryptocurrency digital assets in a Blockchain. Your cryptocurrency assets are not stored in your cryptocurrency wallet, but it allows you to make payments, transfer your assets, and such.
Please consider this explanation as an illustration only because the technology behind a cryptocurrency wallet differs from that of a debit card.
But we hope you have the idea that a cryptocurrency wallet is an application that allows you to access and manage the crypto digital assets you own, which are stored in a Blockchain, not in the wallet.
Creating and using a cryptocurrency wallet is fairly simple. The cryptocurrency wallet manages most of the complicated stuff, so buying, selling, swapping, or transferring crypto or crypto assets is fairly simple.
But you need to understand how a cryptocurrency wallet works to prevent falling for hacks, scams, or accidents and losing your cryptocurrency assets.
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How Does a Cryptocurrency Wallet Work?
Using a cryptocurrency wallet to send and receive cryptocurrencies is quite simple:
– If you want to receive cryptocurrencies, share your public address and wait until the crypto is deposited into your account.
– If you want to send cryptocurrencies, you request the public address from the receiver, and with just a few clicks, you can send cryptocurrencies to the public address.
But, apart from sending or receiving crypto, with a cryptocurrency wallet, you can also buy or swap cryptocurrencies:
– A few cryptocurrency wallets offer the option to buy cryptocurrencies using fiat (e.g., USD, EUR, GBP) deposited directly to the wallet or through a third-party application like Coinbase Pay or Binance Connect.
– Most cryptocurrency wallets offer the option to swap cryptocurrencies, from a cryptocurrency like ETH to a crypto token like PRE. But be aware that there are some limitations, like cross-chain swaps may not be possible.
Additionally, a cryptocurrency wallet can be used for other operations like buying, receiving, or transferring NFTs or signing smart contracts:
– Most, but most all, cryptocurrency wallets can also support NTFs related operations like minting, selling, buying, or transferring NFTs
– Most, but not all, cryptocurrency wallets can be used to sign smart contracts even though the hot web browser-based wallets are the most convenient and used for this kind of operation.
While using most cryptocurrency wallets is relatively straightforward, and most operations can be performed with a few clicks, there are some fundamental concepts that everybody should understand to use a cryptocurrency wallet safely.
First of all, and most importantly, you should know and understand what a seed phrase is and why it is paramount to take note of it and keep it safe.
Cryptocurrency Wallet Seed Phrase
In addition to the seed phrase, a cryptocurrency wallet private key is extremely important and must be kept safe from hacks and scams.
Cryptocurrency Wallet Private Key
While public keys also have a very important role, most wallets do not display them to the users and are of limited value to hackers and scammers. Still, you should learn about public keys if you value your anonymity.
Cryptocurrency Wallet Public Key
The humble public address has a discrete but essential role because they are used to receive crypto assets transfers.
Cryptocurrency Wallet Public Address
How to Create a Cryptocurrency Wallet?
There are several types of crypto wallets, and before creating your first crypto wallet, you should at least have a general knowledge of each type.
Which is the safest crypto wallet?
Custodial Hot Wallets
While custodial wallets are not ideal because a third party owns the private keys to the wallet, a custodial wallet is one of the few ways to buy your first crypto with Fiat money like USD, GBP, or EUR.
Coinbase or Binance are some of the most popular crypto exchanges where it is possible to deposit Fiat and use it to buy crypto.
Coinbase crypto wallet
Binance crypto wallet
Just note that most, if not all, of the reputable crypto exchanges require KYC (Know Your Customer) identification. So, to open an account, you will need to provide some personal details.
If you want to learn about crypto and aren’t comfortable yet providing personal details, you better create a non-custodial wallet.
Non-Custodial Hot Wallets
Anyone can open a cryptocurrency non-custodial wallet with just a few clicks.
If you are new to crypto, they are your best way to start using and learning about cryptocurrency wallets.
The downside would be that you may not have any cryptocurrency or crypto assets unless someone you know sends it to you or you open a custodial wallet with an exchange to buy crypto using Fiat money.
Metamask is one of the most popular and used crypto hot wallets that you can install as an extension to your browser or download as an app to your smartphone.
Metamask crypto wallet
Trust wallet or Exodus wallet is also a very popular and well-rated wallet that you can download as an app to your smartphone and create a cryptocurrency wallet in no time.
And, if your change your mind, you can delete the app from your mobile phone and forget about them.
No need to download or install any files to your PC.
How to Earn some Crypto?
If you create a wallet but don’t have the funds to spend some fiat money to buy cryptocurrencies, some ways to earn some little crypto may help you.
Coinbase Learning Rewards.
You can earn some small amounts of crypto with the Coinbase Learning Rewards program. Which is quite simple and straightforward:
– You must have a Coinbase account.
– You choose one of the programs and browse through the presentations.
– You complete the final quiz, and the rewards are automatically added to your account.
If you want, you can send those rewards to another wallet or swap the rewards for another cryptocurrency or token, …
While the rewards amounts are very small, this is a good way to ramp up into crypto and start learning about cryptocurrencies, tokens, and how to use a wallet.
Binance Earn Free Crypto Through Learning
Binance also has a program to earn crypto through learning:
– You must have a Binance account.
– Look for ongoing learning activities and complete the tasks.
– If you are eligible, the rewards will be credited to your account.
This is another handy program to learn about crypto and earn rewards.
Publish0X Earn Cryptocurrencies by Reading or Writting.
Publish0x is a platform where you can register and earn small amounts of crypto by reading articles and tipping the creators.
Alternatively, you can write your own content, publish it and receive rewards from those people who read your content and tip you.
If you become a popular content creator, you can make some significant gains.
Eventually, you can transfer those earnings to another wallet or a crypto exchange, swap them for other cryptocurrencies, or even sell them for fiat money.
Cryptocurrency Wallet Frequently Asked Questions (FAQ)
We can also learn about cryptocurrency wallets from the questions of other people. Because some of the questions may raise topics, we haven’t thought about yet.
Is it safe to store my cryptocurrency assets in a wallet?
As long as the seed phrase and private keys are kept secure, it is generally considered safe to store cryptocurrency assets in a wallet. However, choosing a reputable wallet provider is important and following best practices for securing the seed phrase and private keys is even more important.
Can I use a cryptocurrency wallet for multiple types of digital assets?
Some wallets are designed to support multiple digital assets, while others may only support specific types. It is important to check the supported assets before choosing a wallet.
Are there different types of cryptocurrency wallets?
Yes, there are several types of cryptocurrency wallets, including software wallets, hardware wallets, and paper wallets. Each type has its own advantages and disadvantages, and it is important to choose the one that best suits your needs.
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