What are crypto wallets?

Crypto wallets stores your private key (sort of like the password to your cryptocurrency), which are used to validate transactions made with your cryptocurrency and “sign” them.

Your keys prove your ownership of your cryptocurrency and allow you to make transactions.

How do they work?

Crypto wallets store your private keys securely, and generate the public keys & addresses for you.

Private Keys vs Public Keys

Cryptocurrencies are stored using private keys. Your keys prove your ownership of your cryptocurrency and allow you to make transactions. As the saying goes, “not your keys, not your coins”.

Private keys then generate public keys using a one-to-one mathematical function. This means that all your public keys are linked to your private key. But just like how you would expect the (very complex) function to work, it is almost impossible to derive the private key from the public keys.

ECDSA is the cryptographic algorithm in the core of Bitcoin addresses. It is an asymmetric signature algorithm, which means that you can sign messages with the PRIVATE KEY and verify the signature with the PUBLIC KEY.

Public Addresses

public address is a hash of a public key. Because the public key is made up of an extremely long string of numbers (around 65 characters), it is compressed and shortened to form the public address.

Using the P2PKH standard format, public addresses are the strings of alpha-numerical digits that you can send cryptocurrencies to e.g. 1GEZawUkVPqBzwsDXmdCURY9nEHtua9ncy.

Bitcoin address is a 160-bit hash of the public portion of a public/private ECDSA keypair.

Types of Wallets

Cold Wallet

Cold wallets store the private keys inside a safe and secure place that isn't connected to the internet. This ensures maximum security as hackers won't be able to view it on your computer itself. However, this makes it less convenient to trade or transfer your crypto.

Cold wallets include paper wallets and hardware wallets.


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