What exactly is a cryptocurrency wallet?
The word “wallet” when used in bitcoin or crypto wallets can be a misnomer.
Our traditional sense of thought when thinking about a wallet is what we know of as wallets used in the fiat economy and since the early days of physical currencies. A pocket-sized, flat, folding holder for physical cash 💵 or physical coins 🪙.
This traditional sense of wallets are used in almost everyday life. We hold the money in the wallet for ease, we take it out to pay others, and place more in when we receive money. Simple. If you hold physical money in the wallet, you own it. Wallets have also been used in a versatile manner allowing us to hold credit cards, loyalty cards, driver’s licenses, precious pictures, and more. But the basis of these wallets is to hold our physical medium of exchange currencies.
Bitcoin and/or crypto wallets are slightly different.
They do not directly hold “bitcoins” or “crypto” but rather they hold the private keys🗝️ that are associated with the crypto you own on the respective network’s ledger. All the bitcoins and crypto are kept and recorded on the network’s ledger and never leave it. And where is the network’s ledger?
It’s decentralized, distributed, and owned by whoever wants to run a node of the network. If you run a node for a network, you also own the ledger.
Only the private keys that you hold (or “in your wallet”) has access to those associated bitcoins/crypto that are recorded on the network’s ledger. The private key is the “key” to unlock 🔓 your bitcoins/crypto and change ownership on the ledger. Only the person carrying the private key has the ability to send its bitcoin/crypto to another owner. So think of it this way, you indirectly own the cryptographically encrypted bitcoin/crypto by directly owning the private key, which can cryptographically decrypt them.
A modern day wallet device also has the software to initiate transactions. And transactions are essentially messages that you write and sign (with your private key), and then finally broadcast 📨 it to the networks’ ledgers.
So think of a wallet as consisting of your secret personal pen 🖋️ and notepad 🗒️ to write messages. These messages are drafted with the intent of what you want to do with your bitcoin/crypto, who you want to send it to, the amount that is being targeted, and some other metadata.
This message is then signed📝 (to express authenticity) and encrypted with your secret personal pen (the private key) that only YOU have access to. When the message is finalized, the message is then sent 📬 to all of the ledgers on the network for confirmation and processing.
Thanks to some advancements in private key technology, such as BIP44 and BIP32, some wallets carry a master private key which then can derive multiple child private keys and child public keys. This allows users to generate multiple public addresses so that they can avoid reusage of a single public address. In a way, you could think of this as holding a keychain of multiple keys. But to keep things simple we’ll end it right here.
In conclusion, a wallet is merely a method to store your private key (“secret personal pen”) and outfitted to write up cryptographic messages (a notepad).
So it is important to keep your private keys (“secret personal pen”) in a safe manner. Preferably offline. Or else you risk the chances of someone else writing unwanted messages for you.
Ballet is a U.S. company that provides simple and secure cryptocurrency storage solutions for the global mainstream market. Ballet is the team behind the world’s first multi-currency, non-electronic, physical crypto wallet. The company was founded in 2019 by Bobby Lee and an international team of cryptocurrency industry veterans. Ballet is headquartered in Las Vegas, Nevada in the United States, and has an office in Shanghai, China.
For more on our products please check us out at: https://www.ballet.com/
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