How cryptocurrency wallets work?

Published On September 7, 2021 | By Franco Joey | Finance


Surely you have already become familiar with the cryptocurrency wallet and how to operate with them. However, understanding how they work is something else. First of all, you must understand that cryptocurrencies are not fiat currency represented on paper and that you can physically save in a vault in your wallet along with your ID. You can aslo buy it in websites like D Coin Trade.

Cryptocurrencies are just a record of operations within the blockchain that is processed through all the nodes involved and interconnected. This process is what gives it value and establishes the security of operations. Therefore cryptos are only an entirely digital and not physical financial product.

With wallets, you can administer and manage your digital assets. These wallets can be digital and hosted in the cloud, as a physical device (hardware) that allows you to keep all your keys off the internet. Whether you choose one or the other, they both work in basically the same way. 

Choosing the best cryptocurrency wallet can make the difference between successful operations and running the risk of losing your assets overnight. First of all, you should check which cryptocurrencies can operate in each of the wallets, since not all of them work in such a general way. Some only support certain cryptocurrencies, while others focus on a specific one. Each wallet has its characteristics and operation. However, they all work under the same basic principle.

Hardware wallets

These wallets are a physical device that works in different ways. Some models are very similar and work like a USB stick, which you can connect to your computer and operate. Once you finish performing the operations, you can remove the device from the network. 

Others have another type of process, and it all depends on the model and company with which you contract. However, the central operation of these wallets is the same. Generate and manage public and private keys to perform operations.

All cryptocurrencies work with these keys. The system and shares generate the public key with your colleagues and clients to receive or send your cryptos. That is, it is the one that allows you to create the addresses to carry out the transactions. It works similarly to the bank account number, or at least a part of it; the other will be generated by the system randomly. 

This combination helps maintain the security of the account. Wallet addresses are codes that are divided into many, many mathematically interrelated parts that have infinite combinations. For this reason, operations are so secure that deciphering these codes requires extremely high computing power.

You need a private key that only you can generate from your physical device, and this key will not be shared with anyone else. Some of the hardware wallets offer you the option of randomly generating private keys for each transaction, increasing the complexity of the process and adding greater security layers to the system.

Discover more about online wallets at D Coin Trade site

Online wallets work under the same principle; the only difference is that the entire process is done directly on the company's servers. In short, the encryption process and the key and address generation process are the same, only the algorithm used and all the security elements that the company deems necessary change. Each of the companies may have different security tools and encryption mechanisms for each case. However, in essence, the process is still generating extremely long codes, algorithmically encoded and mathematically related to each other.