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Unlike the physical wallet in your back pocket, a cryptocurrency wallet doesn’t actually store currency but the keys to a wallet address. It’s essentially a software that allows you to send and receive cryptocurrencies that are controlled by private and public keys interacting on a blockchain. Cryptocurrencies aren’t stored in one location; there are just records of transactions that are stored on the blockchain.
Digital keys are just codes that allow us access to our cryptocurrency. When someone sends you bitcoin or any other type of cryptocurrency, they are authorising the ownership of the coins from their wallet to yours. The private key acts as your private password and is used to sign off on transactions and prove ownership of the related public key. To receive coins, you need to provide your public key. This public key does not reveal the identity of the owner, and that’s why we consider the blockchain to be ‘pseudonymous’. In order for a transaction of coins to happen, your wallets private key must match the public key of the currency.
Security varies with each type of wallet; storing your keys online is always a more high-risk option than offline because of the potential for hacking or catching a virus. Ways to increase the security of your wallet include backing up your wallet, keeping the software updated and adding extra security keys. Regardless of which type of wallet you use, if you lose your private keys; you lose access to your money.
Please read our extensive guide on the most popular crypto wallets in 2020 to help you decide the best option for you!