![]() ![]() The lucrative, unregulated nature of cryptocurrencies makes them a lightning rod for hackers and scammers. Purchasing cryptocurrency and storing it in a wallet doesn’t necessarily mean your assets are completely safe. Much like a private key, if another party manages to get hold of your seed phrase, they can duplicate your wallet onto any other device and drain your funds. Seed phrases must be generated before devices are compromised, and stored offline somewhere safe (more on that below). In the event the device where a crypto wallet is downloaded is lost, stolen or damaged, a backup code, usually referred to as a “seed phrase,” can be used to recover it onto a new device. This means that if a crypto wallet owner loses or forgets their private key, they can permanently lose access to their funds. Only a homeowner should have access to their front door key, otherwise anyone could enter their home and steal the items inside. If the public key is like a home address, the private key should be thought of as a front door key. If you are interested in learning more about these concepts, you can check out our article How do cryptocurrencies use cryptography?Ī private key is the part that proves ownership of the funds and should never be shared with anyone, wihile the public key is ok to share. ![]() This turns the public key into a fixed-length alphanumeric code that is made available for anyone to see and can be used to receive inbound transactions in the same way a home address can be freely shared to receive inbound packages. The public key is run through a cryptographic hashing algorithm to generate a public wallet address. These two keys are used to prove ownership over assets held in a corresponding crypto wallet when sending those assets to other people. When a crypto wallet is generated, two mathematically-linked digital codes are created: How crypto wallets workīefore outlining the different types of wallets available to store cryptoassets and their pros and cons, it’s important to first understand how cryptocurrencies are actually secured. These are usually software applications or physical devices akin to USB drives that are used to secure information regarding a user's funds. Instead, access to any cryptocurrency you own is stored in digital wallets. Since all cryptocurrency tokens are purely digital assets, there are no physical coins to stash in bank vaults or safety deposit boxes.
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