- To participate in a blockchain network,
whether it's for cryptocurrencies or crypto tokens,
requires the use of the cryptographic system
of public and private keys.
This key pair is the way transactions stored in a blockchain
are associated with and accessible by you.
The public key, a long series of letters and numbers,
is your address for receiving transactions.
The actual address is typically a shorter version
of the public key.
In addition, it adds another layer of security
by disguising the original key.
The public key is also used to encrypt transactions
so that they can only be accessed by your private key.
The public key, as the name suggests, is public.
The creation of a public key is derived
from your private key.
Your private key, also a long series of letters and numbers,
is for digitally signing transactions and a way
to prove ownership or unlock your transactions.
It's the equivalent of a password and gives you access
to spend your cryptocurrency.
Unlike a public key, your private key is secret
and must always remain that way.
Private keys can be generated by blockchains, wallets,
exchanges, and independent systems.
Keys are stored in something called a crypto wallet
or just a wallet.
It may seem somewhat unintuitive
but wallets don't actually store crypto.
The data related to what crypto you own
is recorded in a blockchain.
And it's your keys that get you access to it.
Wallets also enable you to check how much you own
of each currency, whether you have one or more,
and to pay with your crypto too.
Since private and public keys are just a long series
of letters and numbers, you could choose
to just write them down on a piece of paper.
This is called a paper wallet.
However, I think you'd agree that this approach
wouldn't be efficient.
It would also be highly risky for your private key
if you lost the piece of paper or the ink faded.
You would lose access to your crypto.
And if someone else found the paper,
they could easily access your crypto.
Both of these situations have occurred far too often.
That said, if you wanted to make it convenient
for someone to pay you with crypto,
you could put your public key, for example,
on a business card.
It's more likely that your wallet
will take some electronic form.
Many people choose hardware wallets.
These are physical devices that are typically portable.
They take many forms with a thumb drive-type
form factor being popular.
Access to the device can be protected
by encryption and passcodes.
For some devices, if they're lost, the vendor can generate
a recovery for you.
Another popular wallet option is a software wallet.
As the name suggests, this solution will run
on various devices, such as your smartphone or computer,
as well as in the cloud.
There are a lot of free options available
you can find with a simple search.
Software wallets can provide a convenient way
to access systems using your key pairs
that makes a login name and password unnecessary.
Effectively, your keys become your authentication method.
This type of wallet also makes buying things
with crypto really seamless.
If you decide to use a software wallet,
take precautions such as backups and security
so that you don't lose your private keys.
Finally, increasing numbers of crypto users
are relying on cryptocurrency exchanges
to handle creation and storage of keys.
An exchange is a business that provides customers
with the tools to buy and sell cryptos
and other crypto assets.
They're popular because they remove a lot of the complexity
of managing cryptos and tokens and they enable access
to a marketplace of alt coins.
There's certainly a high degree of convenience
but the trade-off is a risk that your keys
might get stolen or lost in a hack
or other cyber-crime committed against the exchange.
Managing your keys in a wallet,
regardless of the form factor and location,
is an essential component of the cryptocurrency ecosystem.
Understanding what they do and how they work can help you
with making the best wallet choice for your needs.