how blockchain wallet works

Blockchain wallets, using cryptography, generate private keys that grant access to crypto funds and public keys for receiving and verifying transactions on the decentralized ledger.

Oct 11, 2024 at 09:29 pm

How Blockchain Wallets Work

1. Generating a Private Key:

   • A blockchain wallet uses cryptography to create a unique private key, which is a randomly generated string of letters and numbers.
   • Private keys grant access to the funds stored in the crypto wallet. It remains encrypted and never shared with anyone.

2. Generating a Public Key:

   • The private key is used to generate a public key using mathematical algorithms.
   • Public keys are not confidential and can be shared with others. They are used to receive and verify transactions on the blockchain.

3. Creating an Address:

   • A blockchain address is a string of characters derived from the public key.
   • It identifies the wallet where cryptocurrencies can be sent and received.

4. Transferring Cryptocurrencies:

   • When a transaction is initiated, the sender's wallet creates a transaction record containing the recipient's address, amount, and a digital signature.
   • The digital signature is generated using the sender's private key and proves that the sender authorized the transaction.

5. Verifying Transactions:

   • Transactions are broadcast to nodes on the blockchain network for verification.
   • Nodes use the sender's public key to verify the digital signature and confirm the transaction's validity.

6. Adding Transactions to Blocks:

   • Validated transactions are grouped into blocks, which are added to the blockchain.
   • Blocks are linked together cryptographically, creating an immutable and secure ledger.

7. Updating Wallet Balances:

   • As blocks are added to the blockchain, the balance in the sender's and recipient's wallets is updated accordingly based on the transaction record.

Types of Blockchain Wallets:

1. Hot Wallets:

   • Connected to the internet for easy access and convenience.
   • Higher risk of hacking than cold wallets.

2. Cold Wallets:

   • Stored offline on a hardware device or piece of paper.
   • Extremely secure but less convenient to access.

Features of Blockchain Wallets:

• Security: Protected by advanced cryptography and blockchain technology.
• Transparency: Transactions are recorded on a public ledger, ensuring transparency.
• Decentralization: Not controlled by any central authority, reducing the risk of censorship or fraud.
• Self-custody: Users have full control over their funds, unlike with centralized exchanges.