What is it?
A cryptocurrency wallet is an application that functions to keep your cryptocurrency both safe and accessible. There are different ways to understand a cryptocurrency wallet including:
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The kind of technology used (paper vs. hardware vs. software)
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Its connection to the internet (hot vs. cold)
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Who controls access to the wallet (custodial vs. non-custodial)
What can it do?
The “crypto” in cryptocurrency means “cryptographic.” Cryptography is the science of securing communication despite the presence of bad actors. It ensures that only the sender and the intended recipient can access information that is transmitted over the internet. Not the government; not the big banks; and not the boogeyman.
In terms of cryptocurrency, your assets are protected by a pair of keys. A public key encrypts your digital assets. A private key decrypts your asset. This form of asymmetric cryptography means that the public key can only encrypt and never decrypt. This public-key-private-key pairing is useful because you can give anyone your public key. Give almost no one your private key (more on that later).
Think of it as a slotted mailbox. Anyone can put a letter in the box where it is safe and secure. But only you have the private key to open the mailbox and access the contents.
Why should you care?
There is a saying in these crypto streets: Not Your Keys, Not Your Crypto.
Most people will accumulate cryptocurrency by exchanging their US dollars for their favorite cryptocurrency on an exchange application, like CashApp or Coinbase or Robinhood. These are custodial wallets; so they can only offer fiat assurance that they will give you back what you deserve when you demand it. They are not insured. They control the priviate keys to the crypto you’ve purchased. Custodial wallets can also be called hot wallets.
It is strongly recommended that you move your crypto assets off of an exchange and into a non-custodial wallet where you control the private keys. As a result, you can be confident when your crypto is in a colder storage device. The colder your storage, the more securely your assets are held.
What’s next?
This article series will offer more details on:
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Wallet Temperature
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Wallet Security
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Wallet Custody
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Wallet Recovery
By the end of this series, you will be more confident and informed about cryptocurrency wallets, their features, and their applications.