Understanding Wallets, Private Keys, Addresses

The cryptoverse is full of confusing terms like private keys, wallets, addresses and recovery phrases. This article will shed light on the relationship between these concepts and highlight security practices that you need to be aware of to keep your cryptocurrencies safe. Let’s start with crypto wallets.

Crypto Wallet

Crypto wallets store your crypto addresses and private keys.

  • A wallet does not actually store your crypto. Instead, coins and tokens are stored directly on the blockchain
  • So what is the purpose of a crypto wallet? Crypto wallets store your private keys for each address within the wallet. 
  • You can generate as many addresses as you’d like. Each time an accompanying private key will be generated and stored within the wallet.
  • If you need to set up a web3 wallet, check out our guide on setting up MetaMask.

Crypto Address/Public Key

Public keys are used to send and receive crypto on the blockchain.  

  • A crypto address or public key is a string of characters that represents a wallet that can send and receive cryptocurrency. They could be thought of as accounts in a traditional banking system.
  • Once you have an address, you can request payments to be sent to it. 
  • When crypto is sent to or from the address, the quantity of crypto in that address is updated on the blockchain. 
  • You can think of your public key like your email address which you freely share around to allow others to find you. Just because someone knows your address, they cannot access what is inside. 
  • You can freely share your public key without risking losing your cryptocurrencies.

Private Key

Private keys are used to access crypto at an address.

  • Having the private key to an address gives the user control over the contents of that address
  • Private keys are usually a string of 256 alphanumeric characters that are stored within your crypto wallet.
  • You could think of a private key like an email password which lets you access what is inside your inbox and send things
  • It is very important to securely manage your private keys to protect your balance of cryptocurrencies. If someone has access to your private keys, they can drain your wallet at any time.

Recovery Phrase

Recovery phrases are used to recover a crypto wallet including all of the addresses and private keys.

  • Also known as seed phrases or mnemonic phrases.
  • A 12, 18 or 24 word pattern automatically generated when you create a new wallet.
  • Used to recover a wallet: all of the blockchain addresses and private keys associated with a wallet.
  • Could be thought of as the master key for all of your crypto accounts.

Security Considerations

If someone gets access to your recovery phrase, they will be able to access all of your crypto accounts. This means that they could drain your wallet at any time. You must also ensure you don’t lose your recovery phrase because if you lose your device, you will need to recover the wallet. If you lose your recovery phrase, you could lose access to all of your crypto. It is critical that you protect your recovery phrase using the following techniques:

  • Never share your recovery phrase with anyone.
  • Write down your recovery phrase on paper.
  • Keep your recovery phrase offline. If you store your phrase on a device, it could be exploited via a hack or malware.
  • Consider a steel backup method to keep your backup fire and waterproof.
  • Invest in a hardware wallet to protect your private keys. Look out for an upcoming article explaining the importance of hardware wallets.

Conclusion

You should now have a better understanding of how crypto wallets work and the importance of protecting your recovery phrase. Remember, if someone gets access to your recovery phrase, they will be able to restore and access your wallet including all of your private keys. If they have access to your keys, they have access to your crypto. It isn’t worth taking any shortcuts with your wallet security! Stay safe out there.

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