What are cryptocurrency wallets and how do they work?

If you are looking to learn about the basics of cryptocurrencies and blockchain technology, you cannot do it without getting familiar with the concept of a cryptocurrency wallet.

This article will cover all the information you need to know about crypto wallets in a simpler way. By the end of it, you will have all the information you need!

It will include how a crypto wallet works and the different types of cryptocurrency wallets.

So, what are you waiting for? Let’s get started with a basic understanding of what a crypto wallet is.

What Is a Cryptocurrency Wallet?

A crypto wallet is a software programme or application that enables users to store and access their digital currencies (such as bitcoin) and other virtual assets. So just as we store our physical cash in a bank account, for cryptocurrencies we have a digital wallet on our mobile phone or desktop. In theory, this stands true, but practically, cryptocurrencies are not stored anywhere! Every individual can access their crypto coins from the wallet using a private key, or a classified number that corresponds to a public key–specific wallet address.

Learn more >> What is Cryptocurrency? 

How Do Cryptocurrency Transactions and Wallets Work?

In the above section, we mentioned cryptocurrencies do not have a physical existence. So, the question is, how are they stored in a wallet? Coins are not stored in a physical wallet. Instead, the blockchain connected to the cryptocurrency wallet records the transactional details, where a private and a public key have control over the funds.

To make sure you fully understand cryptocurrency wallets, let’s first explain the role of the three main components of a wallet that includes a wallet address, private key, and public key.

A wallet address is somewhat similar to a bank account number. If someone wants to send you digital coins, you simply give them your wallet address. A wallet address is a combination of numbers and letters, using both upper and lower case. Because the blockchain technology is transparent, anyone can check how much money a certain crypto wallet has, and how many transactions the owner has made previously. However, blockchain technology is referred to as “pseudonyms”, which means a crypto wallet address does not reveal the identity of its owner. Just like bank account numbers, no two wallet addresses can ever be the same. This means it is not possible that someone else could access your funds.

How Do Private and Public Keys Relate to a Wallet Address?

Now you understand what a wallet address is, the next thing to know is how you get control of the funds. People often confuse that a public key is the same as a public wallet, but it is not.

Each individual crypto wallet address has a unique private and public key (remember, no two wallet addresses can be the same). The private key enables users to have access to the funds that are related to a wallet address, and no other person has access to that key. While the public key is mathematically linked to a wallet address. However, it is a “hashed version” – that allows a sequence of letters and/or numbers (input) to be encrypted in a new sequence of letters and/or numbers (output). This acts as an extra security layer and ensures that your crypto wallet cannot be hacked.

Here is an example of both the keys:

Private Key:


Public Key:


Now you are probably thinking that these two keys are entirely different. To the human eye, yes, but the software technology knows that both the keys are specifically linked to each other. This explains that you are the owner of the crypto coins, and you are eligible to transfer funds whenever you want.

What Are the Different Types of Cryptocurrency Wallets?

Source: Grundigit

  1. Desktop Wallets

As the name suggests, desktop wallets can be downloaded to a specific computer or laptop.  These wallets are good for providing security and convenience to the users, but if a hacker gets access to the device, there is a possibility that you may lose your crypto wallet.

  1. Mobile Wallets

Mobile wallets can be accessed by downloading a wallet application, this also allows users to spend coins in a physical store by scanning a QR code.

  1. Web Wallets

This type of wallet provides the highest level of convenience when transferring coins to another person, but they are the least secure. It’s because the wallet provider has full control over it.

  1. Hardware Wallets

It is a physical device that stores your private and public keys. the device is only connected to the internet when you make a transfer, otherwise, it is not. However, you need to enter your private pin directly on the device, making it impossible for a hacker to get access to the keys.

  1. Paper Wallet

A paper wallet is the most underrated crypto wallet in the market. You can print your private and public keys on a piece of paper, this way your funds are secure. The keys are not connected to any server and the only way to have access to the wallet is to get the physical paper. Users can transfer money by entering the keys into a web wallet or by just scanning the printed QR code.


Today cryptocurrency wallets go beyond stacking your digital coins. The ecosystem is gaining momentum and financial institutions like MasterCard are capitalizing on the rampant growth of cryptocurrencies to introduce their own crypto wallets. We live in a digital era, so the possibility that cryptocurrencies are here to stay is a fact that we cannot deny.

Further reading >> What is Blockchain? And How it works?


T&H Consulting uses powerful algorithms to sort, group, and, where possible, identify addresses. We provide information of cryptocurrency transaction flows after a thorough investigation from multiple legal entities including cryptocurrency exchanges, or felonious platforms like darknet markets, collect all the necessary evidence to make sure that law enforcement will have the most detailed and accurate evidence in their hands to bring cybercriminals to justice.

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