Cryptocurrency wallets store user's public and private keys, while providing an easy-to-use interface to manage crypto balances. They also support cryptocurrency transfers through the blockchain. Some wallets even allow users to perform certain actions with their crypto assets, such as buying and selling or interacting with decentralised applications (dapps).

It is important to remember that cryptocurrency transactions do not represent a sending of crypto tokens from a person's mobile phone to someone elses mobile phone. When sending tokens, a user's private key signs the transaction and broadcasts it to the blockchain network. The network then includes the transaction to reflect the updated balance in both the sender's and recipient's address.

So, the term wallet is somewhat of a misnomer, as crypto wallets don't actually store cryptocurrency in the same way physical wallets hold cash. Instead, they read the public ledger to show the balances in a user's addresses, as well as hold the private keys that enable the user to make transactions.

Why a Crypto Wallet Is Needed

A user's cryptocurrency is only as safe as the method they use to store it. While crypto can technically be stored directly on an exchange, it is not advisable to do so unless in small amounts or with the intention of trading frequently.

For larger amounts, it's recommended that a user withdraws the majority to a crypto wallet, whether that be a hot wallet or a cold one. This way, they retain ownership of their private keys and have full power and control over their own finances.

How Do Cryptocurrency Wallets Work?

As mentioned earlier, a wallet doesn't technically hold a user's coins. Instead, it holds the key to their coins, which are stored on public blockchain networks.

In order to perform various transactions, a user needs to verify their address via a private key that comes in a set of specific codes. The speed and security often depend on the kind of wallet a user has.

Different Types of Crypto Wallets

There are two main types of crypto wallets: software-based hot wallets and physical cold wallets. Read on to learn about the different types of cryptocurrency wallets, and which may be a best fit. 1.Hot Wallets 2.Cold Wallets