A ‘wallet’ is a software program that stores public and private keys and interacts with blockchains, so that users of cryptocurrencies can send and receive funds or store them for longer durations. Digital wallets are the only way to store cryptocurrencies, so if you’re interested in investing in crypto then you’re going to have to become familiar with the concept of digital wallets.
Although we refer to them as ‘wallets’, they don’t really store your currency within them in the same way that traditional wallets do. Unlike many traditional forms of exchange, which for the most part exist in physical form and are stored in particular places (like bank vaults or wallets), in the case of cryptocurrencies all that exists are records of various transactions, stored on the blockchain.
Your wallet will generate ‘public keys’, which are analogous to your bank account number and BSB. When someone sends crypto-coins to this public address, they are signing off ownership of the currency. To be able to access these funds you must have the ‘private key’ that matches the public one, which is similar to your secret login details for your bank accounts. If your private key matches the public key, then balance in your wallet will increase accordingly. Thus, in place of a physical transaction of currency or gold, the transaction is simply recorded on the blockchain and the balance in your wallet increases or decreases.
Only you should know what your private key is or where it is stored; anyone who has access to your private key can access your wallet and send your crypto to other public addresses. It is also very important that you never lose your private keys, as it will be impossible to retrieve your money. For this reason you should store your private keys in different forms and different places, while also being very careful not to misplace any of them. Some people have even gone to the effort of memorizing their private keys, which is about as secure as it gets.
Most altcoins have one or several of their own wallets for their tokens, and some for coins like Bitcoin, Etherium and Litecoin there are many options to choose from.
Although there are several different types of wallets available, they are all considered either ‘hot wallets’ or ‘cold wallets’.