Choosing Between Public and Private Keys: A Guide to Crypto Wallets
Introduction
Owning cryptocurrency requires a wallet, which we will discuss today, touching on its technical aspects.
What is a crypto wallet?
A crypto wallet stores, sends, and receives cryptocurrency. Since cryptocurrency is intangible, the wallet is essentially an “account number” holding your funds in one or more currencies.
The concept of a crypto wallet involves two crucial components: keys. They are:
-
The private key, a “password” enabling you to manage the wallet’s funds. For Bitcoin, the most prominent currency, it’s a unique 256-bit number (a letter and number string) created through encryption. It cannot be cracked by brute force.
-
The public key, your wallet’s visible address, known to anyone. It’s like a bank card number for transferring or debiting funds. Generated from the private key, it’s impossible to reverse-engineer the private key from it. Multiple public keys can be derived from one private key.
Despite similarities to bank cards, cryptocurrency’s key difference is its irreversible operations - a blockchain foundation. Irreversibility is ensured by a mathematical digital signature for each transaction, derived from the private key. Although there’s only one private key, it can produce various signatures using cryptographic methods. The public key also contributes to the signature, verifying the account and “password” for the transfer.
Another cryptocurrency feature is wallet anonymity. Unlike bank accounts linked to personal data, crypto wallets aren’t tied to individuals. Thus, the person with both keys is deemed the funds’ rightful owner. Therefore, securing the private key is crucial, a problem addressed by using a crypto wallet.
Types of crypto wallets
The variety of wallets available is extensive, including:
-
Online wallets - websites for storing the private key, accessible from any device.
-
Mobile applications - similar to mobile banking apps.
-
Exchanges - akin to traditional forex and securities exchanges, but for cryptocurrency. They also facilitate the use of crypto wallets for transfers or conversions.
-
Computer programs (software wallets) - comparable to mobile apps, sometimes allowing offline operations like address creation.
-
Browser wallets - akin to software wallets but as browser extensions rather than standalone programs.
-
Hardware wallets - devices resembling USB flash drives with buttons and their software. They can be disconnected from computers, offering greater security against viruses or hackers, though they can be lost easily.
-
Paper wallets - storing both types of keys on paper. This method, while unconventional, offers added security against digital threats, as the paper can be stored securely offline.
Additionally, wallets are categorized into two types:
-
“Hot” wallets with online access.
-
”Cold” wallets without network access, including both hardware and software wallets that operate offline.
How to Create a Crypto Wallet
Choose the most suitable crypto wallet for your needs, including those compatible with specific currencies.
How to create a ‘hot’ wallet
Creating a ‘hot’ crypto wallet involves visiting one of many specialized websites and registering a wallet there. You’ll need to provide an email address and sometimes a phone number, along with creating a password for access. A similar process is followed in mobile applications.
Additionally, downloading a backup copy of the wallet during registration is advisable, as it can be useful for regaining access later.
How to create a ‘cold’ crypto wallet
The process here involves generating a pair of keys, which you can store in any convenient way, even by noting them in a notebook. However, to use this wallet, especially to check the balance, you will still need online services.
You can use one of the many wallet generator sites that provide random and unique addresses. These can be printed as alphanumeric strings or QR codes for easy storage and use.
