What is a Cryptocurrency wallet, and how it works?
In the previous part, we used a real-world example to explain crypto wallets. But the world of digital currencies and blockchain technology are slightly different. In this world, cryptocurrencies cannot be stored in physical wallets, because they themselves do not exist physically. Instead, Blackchain holds a trading history that accurately indicates which public and private keys control capital and financial resources.
To make sure you understand this mechanism, we explain the followings separately: the wallet addresses, public keys and private keys.
1. Wallet address
A wallet address is the same as a bank account number. As you know, there is no harm in giving your bank account number to other people. They need it to send you money.
Similarly, in the world of cryptocurrencies, if anyone wants to send you money, they must have your address.
Just like in the real world, there are no two wallets with same addresses, so there will be no chance of sending money to anyone else other than you. You can Also have as many addresses as you want and there are no restrictions.
Bitcoin wallet address
Take a look at the following wallet address to see what the address of a cryptocurrency like Bitcoin looks like. They say that this address belongs to, Satoshi Nakamoto, the creator of Bitcoin!
1A1zP1eP5QGefi2DMPTfTL5SLmv7DivfNa
As you can see, this address has both uppercase and lowercase letters. Since blockchain is transparent, you can easily access it. Find out how much money is held in it or what transactions have been made with it before.
It should be noted, however, that the address of the wallet does not disclose the real name of the owner and its original identity. This is why Blackchain is referred to as “ pseudonymous” .
How do public and private keys relate to wallet address?
Now that you have seen the similarity between an address of a wallet and a bank account number, let’s look at how a person can control their own money and account. Usually people think that the public key of a wallet is its address, while it is not!
let’s start with the private key.
1. Private Key
Basically Every wallet has a public key and a private key. The private key allows the owner to take control of their money and accounts. remember that wallet addresses are unique and no two different wallets have the same addresses
For example, in the real world, you need to use your personal password to transfer money from your bank account to another account. No one else knows this password, even the bank where you keep your money in. Obviously, if anyone knows this password they can transfer the money from your account to their accounts!
2. Public key
A public key also has a similar function and specifically belongs to a unique wallet address. But what is the use of a public key? A public key relates to a wallet address through a mathematical formula (one-way function). This key is a “hash version” as described below.
A hash function is a function that receives a sequence or series of numbers and letters (called input) and delivers a new sequence or series of numbers and letters (called output). In this way, there is a Public key for each wallet address which will turn into the wallet address by the hash function.
This function is one-way, meaning that it has no inverse function and we cannot convert the address to its public key. Doing so secures your wallets and assures you that your wallet can’t be hacked. Below is a simple example.
The key point here is that you don’t need to know about any of the descriptions and technical explanations above. The software itself does all this.
Published at Wed, 01 Jan 2020 11:22:18 +0000
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