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What is a crypto wallet and why do you need one?
To own bitcoin (or other cryptocurrencies) you must have a crypto wallet that securely stores the public addresses of all your bitcoins along with the private key that enables you to spend them.
“In bitcoin, we use public key cryptography to create a key pair that controls access to bitcoin. The key pair consists of a private key and—derived from it—a unique public key. The public key is used to receive funds, and the private key is used to sign transactions to spend the funds.”
Bitcoin Blockchain in Review
Before we continue learning about bitcoin wallets and understanding what Andreas means in the above quote, let’s review some basics about the Bitcoin Blockchain.
Bitcoin is a bi-product of its blockchain. Bitcoin, the cryptocurrency, is a crypto representation of value. It is often spelled with a little “b”, bitcoin. Bitcoin, the blockchain, often spelled with a big “B”, is a technology for processing and distributing transactions across a network that are between individuals and without the need of a centralized authority. Trust is coded into the software.
At the core of the bitcoin blockchain lies a transaction processing engine, called the Bitcoin Protocol. The Bitcoin Protocol is a set of rules that determines how transactions are sent over the network. It also determines how to validate and seal blocks of transactions, preserving them in chronological order in the ledger called the Blockchain. To ensure prior transactions are secure and immutable (unchanged) the Blockchain is copied to many computers on the network.
The transactions processed by the Bitcoin Protocol all originate from a Wallet. The bitcoin wallet is a software application that stores the crypto keys, addresses, and signatures required to send or receive bitcoin. It can be a wallet that you own and control or a wallet that someone else owns but gives you control of.
For example, when you purchase bitcoin from Coinbase, the wallet used to initiate and track your purchase is owned by Coinbase. But you the owner of the bitcoin have control over what to do with the bitcoin in that wallet. However, since Coinbase owns your bitcoin wallet they could at any time decide to revoke your control over it. And this has happened to some people.