Unlocking the Mystery: A Comprehensive Guide to Understanding How Cryptocurrency Wallets Work : Not your keys, not your crypto - why?
How Cryptocurrency Wallets Work
To be able to you start your cryptocurrency and NFT investing journey, you will need to generate a cryptocurrency address through the creation of a cryptocurrency wallet. Every cryptocurrency consists of two components, a public key, and a private key.
A Public key is used to generate publicly viewable cryptocurrency wallet addresses, these are the mix of numbers and letters that you use to receive cryptocurrency deposits. Think of this as you bank account, you and anyone who knows your bank account are able deposit money to your account.
A private key is NOT publicly viewable. Think of this as your PIN code, anyone who has access to your PIN code can withdraw funds from your account. Whoever has the private key has the power to withdraw or send cryptocurrencies and NFTs out of any cryptocurrency wallet created by the associated public key. Hence the saying " Not your keys, not your crypto "
So it's best to take custody of your own private keys, and protect them from hackers. Never make digital copies of your private key, just write them down and store your personal copies in safe locations.
- How to keep your private keys safe?
- Who holds your wallet's private key?
- What's the safest self custodial wallet?
A private key in raw format is a string 256 alphanumeric characters. Imagine writing that down or trying to type those digits correctly each time you transact! In its raw format a private key is a recipe for human error, and human error on the blockchain will almost always lead to you losing funds.
So to make storing and protecting private keys easier, it usually comes in the form of a seed phrase consisting of 12 or 24 words, ( Also called recovery phrase or mnemonic phrase ) or more specifically your seed phrase is derived from your private key.
LEARNINGS: KEEP YOUR KEYS
You will only truly own your cryptocurrency and NFT investments once take custody of your wallet's private keys. The convenience of leaving your private keys in exchanges or hot wallets is really tempting, ( we know it's a lot easier ) but doing this exposes your funds to hacks, withdrawal suspensions, and even exchange shutdowns.
Keeping your keys is the way, but that doesn't mean it's all sunshine and rainbows after. You'll have to know how to keep your seed phrase safe, and what are the most common tactics scammers and hackers do, to get you to expose your private keys.