What is a Blockchain Wallet?
A crypto wallet is a software program or physical device that allows you to store your crypto and allow for the sending and receiving of crypto transactions. Rather than letting a custodian, such as a crypto exchange or financial institution, hold your crypto for you, crypto wallets promote self-custody and decentralization by putting the keys to your wealth in your own hands.
A crypto wallet consists of two key pairs: private keys and public keys. A public key is derived from the private key and serves as the address used to send crypto to the wallet.
Wallets have many public keys. This means that you can give out multiple different public addresses and use them to receive crypto to the same wallet.
The important part of a wallet — and the part where new users often find themselves getting into trouble — is the private key. A private key is like the key to a safe deposit box. Anyone who has access to the private key of a wallet can take control of the balance held there.
But unlike a safe deposit box, crypto users who hold their own private keys and make transactions using non-custodial wallets (i.e. a wallet not hosted by an exchange or other third party) essentially become their own bank.
While the idea of crypto itself is still new to many people, crypto wallets themselves are designed to be user-friendly. Web wallets like MetaMask and desktop wallets like Electrum come with a graphical user interface (GUI) that is made to be as simple as possible.
Blockchain is a public ledger that stores data in what's known as 'blocks'. These are records of all transactions, the balances held at any given address, and who holds the key to those balances. Crypto isn't stored "in" a wallet, per se. The coins exist on a blockchain and the wallet software allows you to interact with the balances held on that blockchain. The wallet itself stores addresses and allows its owners to move coins elsewhere while also letting others see the balance held at any given address.
When sending a crypto transaction, always make sure you're sending to an address for a wallet of the same type of cryptocurrency. If you send bitcoin (BTC) to a Bitcoin Cash (BCH) address, for example, those funds will be lost forever.
'Most crypto wallets allow users to send, receive, and store crypto. Some have a feature to buy and spend cryptocurrencies,' says Utsav Dar, co-founder of Incub8 Finance. 'Certain crypto wallets have additional features like swapping between tokens, staking tokens for a fixed return paid out to users, as well as access to dApps (decentralized applications) built on various networks.'
While each wallet has its own specific nuances, here are the general steps involved in sending or receiving funds using a crypto wallet:
- To receive funds, you need to retrieve an address (also known as a public key) from your wallet. Locate the 'generate address' feature in your wallet, click it, then copy the alphanumeric address or QR code and share it with the person who wants to send you crypto.
- To send funds, you need the address of the receiving wallet. Locate the 'send' feature in your wallet and enter an address of the wallet you intend to send coins to. Select the amount of crypto you'd like to send, and click 'confirm'. Consider sending a small test transaction before sending large amounts of crypto. Sending coins requires a small fee that will be paid to miners in exchange for processing the transaction.
Sending money via QR codes or long strings of numbers and letters may seem strange at first. But after doing it a few times, the process becomes quite simple.