Crypto wallets are essential tools for those who actively use Bitcoin on a daily basis. They store your private keys, keeping your cryptocurrencies safe and accessible, and allow you to send, receive and spend cryptocurrencies such as Bitcoin and Ethereum. Blockchain is a public ledger that stores data in blocks, which are records of all transactions, balances held at a given address and who holds the key to those balances. Cryptocurrencies are not stored in a wallet, but rather on a blockchain, and the wallet software allows you to interact with balances held on that blockchain.
Setting up a crypto wallet is an essential step to be able to send, receive and store cryptocurrencies. These digital wallets contain the key pairs that give you access to the blockchain, where your cryptographic and cryptographic transactions actually live. With non-custodial crypto wallets, your assets are backed by something called a private key. This works like a password for your crypto wallet.
You must hide it in secret and never tell anyone. If you lose your private key, you can use something called a secret phrase or seed phrase. They are strings of 12 or 24 words that work as a backup password. It is important to hide them in a place of trust, ideally keeping parts of the phrase in different places.
No company or individual should ever ask for your opening phrase; the ones that do are almost always scams that seek to steal your funds. Crypto wallets work by allowing you to move funds across these blockchain networks while also giving you the opportunity to view your account details. You will need to keep your private key safe and secure that allows you to unlock your crypto wallet to trade or spend your cryptocurrency. For cryptocurrency traders who hold a lot of cryptocurrency assets, a combination of hot wallets for quick trading or buying and cold wallets is recommended to secure most of their cryptocurrency resources. Just like a regular wallet stores physical currency when you're not using it, a cryptocurrency wallet is a place to store your digital currency. A public key is derived from the private key and serves as the address used to send cryptocurrencies to the wallet.
Many cryptocurrency exchanges allow you to store your cryptocurrency inside a wallet on the exchange, and some people leave it that way. Unless you are running a large company with so many cryptocurrencies that you need the watchful eye of a specialized custodian, a third party who takes care of your cryptocurrencies for you, you are looking for a non-custodial wallet. To understand why you need a crypto wallet, it might be useful to compare crypto transactions with more traditional financial transactions using a fiat currency (e.g., US dollars). Keep reading to learn about the different types of wallets and how to use them to optimize both the trading and security of your cryptocurrencies. So what is the point of a Bitcoin wallet? Instead of storing physical money, the wallet stores the cryptographic information needed to access Bitcoin addresses and send transactions.