What is a crypto wallets and how is it working?

I will sum most of the information listed in the past blogs and brief this idea here. I will then explain in brief about the crypto wallets and how to use them. Beginning with first things first, about cryptocurrencies and how they work. Cryptocurrency is a digital or virtual currency that uses cryptography for security.…

mfahmy

January 21, 2025

blockchain, crypto, cryptocurrency, wallets

Cryptocurrency is a digital or virtual currency that uses cryptography for security. Cryptography is a method of securing communication by using codes.

Digital: means cryptocurrencies exist only electronically.
Secured: means cryptography makes transactions very difficult to counterfeit or reverse.
Decentralized: Most cryptocurrencies operate independently of central banks or governments.

How was Cryptocurrency Created?

Bitcoin (2009): The first cryptocurrency was Bitcoin, created by an unknown person or group using the pseudonym Satoshi Nakamoto.⁶
Blockchain Technology: Bitcoin introduced blockchain, a revolutionary technology that records transactions on a distributed ledger.⁷ This makes it transparent and secure.

Key Concepts of the cryptocurrency:

Mining: The process of creating new cryptocurrency units. I will come to this later on this blog.
Wallets: Digital wallets store and manage cryptocurrencies.⁹
Smart Contracts: Self-executing contracts with the terms directly written into lines of code.¹⁰

Examples of Cryptocurrencies

Bitcoin (BTC)¹¹
Ethereum (ETH)¹²
Tether (USDT)
Binance Coin (BNB)¹³
Dogecoin (DOGE)¹⁴

Let me know if you’d like to delve deeper into any specific aspect of cryptocurrency!

Mining the cryptocurrency for new one

I will be short and brief about this subject here and list a few important points to look for when handling cryptocurrency, I will detail more about in a future blog. Cryptocurrency mining is the process of verifying and adding transactions to a blockchain.¹ Here’s a simplified breakdown:

Solving a Mathematical Puzzle:
- Miners use powerful computers to solve complex mathematical problems.²
- These problems are designed to be computationally intensive.³
Adding a Block to the Blockchain:
- The first miner to solve the puzzle adds a new “block” of transactions to the blockchain.⁴
- This block contains a record of recent transactions.⁵
Reward:
- For successfully adding a block, the miner receives a reward:⁶
  - Newly created cryptocurrency: A portion of newly minted coins are awarded to the successful miner.⁷
  - Transaction Fees: Miners also earn fees paid by users for including their transactions in the block.⁸

Key Concepts

Proof-of-Work (PoW): This is the most common mining method. It relies on miners expending significant computational power to solve the puzzle.⁹
Specialized Hardware: Miners often use specialized hardware like ASICs (Application-Specific Integrated Circuits) designed specifically for cryptocurrency mining.¹⁰ These machines are much more efficient than regular computers.

In essence, mining is crucial for:

Securing the blockchain: By requiring computational effort, mining helps prevent fraudulent transactions and ensures the integrity of the network.¹¹
Creating new cryptocurrency: Mining is how new coins are introduced into circulation.¹²

Important Note: Cryptocurrency mining is an energy-intensive process.¹³ The environmental impact of mining is a significant concern.

Cryptocurrency exchanges and how they differ from crypto wallets

Here’s a breakdown of cryptocurrency exchanges and how they differ from wallets:

Cryptocurrency Exchanges:

Function: Platforms where you can:
- Buy and sell cryptocurrencies (like Bitcoin, Ethereum, etc.)¹
- Trade cryptocurrencies for other cryptocurrencies²
- Exchange crypto for fiat currency (e.g., USD, EUR)³
Key Features:
- Order books: Show current buy and sell orders for each cryptocurrency⁴
- Trading charts: Visualize price movements⁵
- Trading tools: Limit orders, market orders, stop-loss orders⁶
Examples: Binance, Coinbase, Kraken⁷

Cryptocurrency Wallets:

Function: Securely store and manage your cryptocurrencies⁸
Key Features:
- Private Keys: You control the private keys, giving you full ownership of your crypto⁹
- Sending and Receiving: Send and receive crypto to other wallet addresses¹⁰
- Types:
  - Hot Wallets: Connected to the internet (e.g., software wallets, web wallets)¹¹
  - Cold Wallets: Offline storage (e.g., hardware wallets, paper wallets) for maximum security¹²
Examples: MetaMask, Ledger Nano S/X, Electrum¹³

Key Differences:

Feature	Cryptocurrency Exchange	Cryptocurrency Wallet
Primary Function	Trading, buying, selling	Storing, managing
Control of Funds	Exchange holds your funds	You control your funds (private keys)
Security	Vulnerable to hacks, theft	More secure, especially cold wallets
Convenience	Easy to use for trading	May require more technical knowledge

In Summary:

Exchanges: Great for trading, but your funds are held by the exchange.¹⁴
Wallets: Prioritize security and give you full control over your crypto.¹⁵

Best use case for each: Use an exchange for trading and transfer your crypto to a secure wallet for long-term storage.

Hot (soft) crypto wallets for cryptocurrency: best one and advantages

Hot soft wallets are cryptocurrency wallets that are connected to the internet. This allows for easy access and quick transactions, but also increases the risk of security breaches.

Types:
- Mobile Wallets: Apps on your smartphone (e.g., MetaMask Mobile, Trust Wallet)
- Desktop Wallets: Software installed on your computer (e.g., Exodus, Electrum)
- Web Wallets: Accessed through a web browser (e.g., MetaMask Browser Extension)

Choosing the Best Hot Soft Wallet in 2025

Security:
- Strong Authentication: Look for wallets with two-factor authentication (2FA), biometric logins, and other security measures.
- Regular Updates: Choose wallets with active development teams that regularly release security patches.
- Reputation: Select wallets with a strong track record and a good reputation in the crypto community.
Features:
- Supported Cryptocurrencies: Ensure the wallet supports the cryptocurrencies you plan to hold.
- User Interface: Choose a wallet with a user-friendly interface that is easy to navigate.
- Additional Features: Consider features like staking, decentralized applications (dApps) integration, and exchange capabilities.
Compatibility:
- Devices: Choose a wallet compatible with your devices (mobile, desktop, browser).
- Operating Systems: Ensure compatibility with your operating system (iOS, Android, Windows, macOS).

Top Contenders in 2025 (Note: This is not financial advice):

MetaMask: Popular and versatile, with strong dApp integration.
Trust Wallet: Supports a wide range of cryptocurrencies and NFTs.
Exodus: User-friendly interface with a focus on ease of use.
Coinbase Wallet: Integrated with the Coinbase exchange, offering a seamless experience.

Important Considerations:

Never share your seed phrase (recovery phrase) with anyone. This phrase allows access to your funds.
Be cautious of phishing scams. Only download wallets from official sources.
Consider using a cold wallet for long-term storage of larger amounts of cryptocurrency.

Cold (hard) crypto wallets for cryptocurrency and best to get

Hard Cold Wallets: Explained

Definition: Hard cold wallets, also known as hardware wallets, are physical devices that store your cryptocurrency private keys offline. This makes them one of the most secure ways to store your crypto.

How they work:

Offline Storage: Your private keys are generated and stored securely within the device itself, not on a computer or the internet.
Secure Transactions: When you want to make a transaction, you connect the device to your computer or phone. The transaction is signed on the device, ensuring your private keys never leave the hardware wallet.

Choosing the Best Hard Cold Wallet in 2025

Security:
- Physical Security: Look for devices with robust physical security features (e.g., tamper-proof casing).
- Chipset Security: Ensure the device uses a secure microcontroller to protect your private keys.
- Open-Source Software: Choose wallets with open-source firmware for better security auditing.
Features:
- Supported Cryptocurrencies: Ensure the wallet supports the cryptocurrencies you plan to hold.
- Ease of Use: Consider user-friendliness, especially if you are new to cryptocurrency.
- Additional Features: Look for features like Bluetooth connectivity, mobile app support, and multi-signature capabilities.
Reputation:
- Brand Reputation: Choose a reputable brand with a strong track record in the cryptocurrency industry.
- Customer Support: Select a wallet with good customer support in case you encounter any issues.

Top Contenders in 2025 (Note: This is not financial advice):

Ledger Nano X/S Plus: Popular and widely supported, with a strong reputation for security.
Trezor Model T/One: Another industry leader with a focus on security and open-source software.
SafePal S1: Offers a good balance of security and affordability.

Important Considerations:

Never share your seed phrase (recovery phrase) with anyone. This phrase allows access to your funds.
Be cautious of phishing scams. Only purchase hardware wallets from official sources.
Store your seed phrase securely offline (e.g., in a fireproof safe).

Additional mint definition

Minting cryptocurrency is like creating new coins. Instead of a government mint making physical coins, it’s done through a process called “Proof-of-Stake” on a computer network.

Imagine you have a special club. To join, you need to “stake” some of your existing cryptocurrency in the club’s treasury. The club randomly selects members: Based on how much cryptocurrency you staked, you have a chance to be chosen to “mint” new coins. Minting rewards you, means If you’re selected, you get rewarded with newly created cryptocurrency.

Think of it like this: The more cryptocurrency you “stake” in the club, the higher your chances of winning and getting rewarded with newly minted coins.

Disclaimer: I am an AI chatbot and a blogger editing my words and cannot provide financial advice. Do your own research before investing in cryptocurrencies. I hope this helps! Let me know if you have any other questions. The nature of algorithms and mathematical equations involved in the creation of most cryptocurrencies are still fuzzy till now(decrypting data for one example), but I can say that many are arrested for this kind of activity around the world and you can search on that.