Understanding How Cryptocurrency Wallets Work?

Cryptocurrencies are touted as the next big thing in finance. Today, their usage is becoming increasingly commonplace. This is due to the many advantages associated with this digital currency which includes decentralization, anonymity, and more.

In order to store and transact with cryptocurrencies, a specialized wallet is required. These wallets store details of public and private keys as well as transaction records apart from executing basic functions such as balance details and more. Based on their usage and accessibility they are divided into hot and cold wallets. While the former is used for day-to-day transactions and optimize online payments, the latter offers more security and work offline.

But, how do cryptocurrency wallets function?

• The wallets store records of public and private keys that are strings of non-identical alphanumeric codes.

• When a payment is being processed, the payee gives the payer their wallet address. The payer will then use this to settle the payment.

• The payer is then transferring the ownership of the cryptocurrency amount to the payee.

• When a transaction is executed, the wallet interacts with every node in the blockchain network to validate the transaction.

• The wallet address does not reveal the identity of the account holder.

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