Definition:
A wallet, or digital wallet, is a software or hardware application that stores private keys and allows users to interact with the blockchain. Cryptocurrency wallets are classified into two main categories: hot wallets, and cold wallets. Wallets can be used to send and receive coins, as well as review balances.
Explanation:
Despite their name, cryptocurrency wallets do not store coins or tokens like the physical wallets in our back pockets. Instead, they store private keys, allowing users to interact with the blockchain to perform various tasks.
The actual coins and tokens are stored or recorded on the blockchain and maintained by a global and decentralized network of computers. This means that, even if a wallet application is lost or deleted, funds can be retrieved once the private keys are backed up and kept safe. Wallets can come in the form of:
- Hot wallets – Private keys are stored in online servers
- Cold wallets – Private keys are stored or printed on offline media
Regardless of the type of wallet used, users should take necessary precautions to keep their private keys secure from loss or theft.
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