This the second of my Crypto Jargon blog series. In this article I’m breaking down the following terms:
- Crypto Wallets
- Public Key
- Private Key
If you’ve seen the other posts on this blog, you’ve probably heard me use Addy or Wallet more than a few times…
Well, Addy is, in fact, short for Wallet Address, for example: “Send me your addy and I’ll wire you the amount.” – meaning, “give me your crypto wallet address and I will send you the money”.
So “wire” in this respect refers to online transacting, sending money digitally.
Which leads me to What is a wallet? and why address?
You see, in crypto, we use digital wallets to store our coins… well, figuratively speaking actually, because technically we don’t store the actual coins there, but more about that in a moment.
So, figuratively speaking, we use digital wallets in the same way we use physical wallets for the fiat money we still use in the physical world.
Many people still call these “real money” but I’m sure during the next few years it will become clear that our digital coins are just as real as the paper money. So a digital wallet is basically a piece of software that helps read information about the user’s digital coins.
In order to send and receive coins, you need to use a long string of alphanumeric characters (usually 26-35) which is known as your wallet address. It can also be represented as a scanable QR code. I explained the QR code in a previous post here.
There are a few types of cryptocurrency wallets:
- Software Wallets are apps/programs you download on a desktop or laptop computer. For instance Mobile Wallets (applications) for your smartphone or tablet.
- Web Wallets which are stored on third-party servers via cloud computing. These can be accessed by any computing device and are known as “hot storage“.
- Paper Wallets (known as cold storage) yes, you can even generate a digital wallet that can be printed out as a hard-copy for safekeeping in physical form. I have a tutorial about that too, check out the pop-up or I’ll also drop the link in the description box so you can see how this works.
- Hardware Wallets (also known as cold storage).
These are devices like these that store the private keys of the user and access all the information related to these private keys on the relevant blockchains.
Let’s explain what private and public keys are so you get the full picture. I mentioned earlier that you don’t actually store your coins in the wallet. So where do you store them then?
Technically you don’t store them or maybe I should say that “store” is not the most correct term to use because your coins exist only as of the sum of inputs and outputs which are recorded on the blockchain as a series of linked transactions.
So technically, your coins are re simply digital data recorded and stored on the blockchain, they’re not inside any wallet and what you do when you use your wallet client, is that you actually access that data with your private and public keys.
- A private key is a unique identifier code used as a digital signature that connects you – the user – to the data stored on the blockchain (in other words, the amount of cryptocurrency that is allocated to that code). It acts as a wallet identifier and is the most important piece of code you need, so it has to be kept in complete secrecy. Anyone who has access to that private key technically has access to the data/ coins that it protects.
- A public key is derived from the private key and is, in fact, the wallet address you provide to others in order to receive cryptocurrency. The public key is a way to identify someone making a transaction, even though their actual name or personal information is not embedded in the key itself. This is basically your Addy.
Also, note that for your own protection (depending on what wallet client you use) that wallet address might change after every transaction. That shouldn’t worry you, because all these public wallet addresses are derived from your private key so they will all work. I have a video explaining that too, a link will be dropped in the description below.
Ok, so to wrap this up, your crypto wallet consists of two main pieces of code called private and public keys. These are connecting you to the blockchain where the information about your digital coins is recorded and this is how you “store” your cryptocurrencies. And this is why it is very important to use wallets that give you ownership of your private keys.
The most secure wallets are paper and hardware wallets because they give you full ownership while most of the cloud services (aka Hot Wallets) are custodial of your private keys and they can censor you and lock you out of your wallet. These are services like Coinbase.com and pretty much all the exchanges for instance, which are government-regulated and must comply with AML requirements and are known to freeze or close users’ accounts when there’s any suspicious activity.
Also, they can get hacked and that happens a lot in the online space, so really, to keep your cryptocurrencies safe in the long run, I recommend using hardware wallets.
If you want to know what hardware wallets I use, see this post.
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