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How Bitcoin Wallets Work ?

How do wallets work?

Seem to use the cryptocurrency you need a wallet to store your virtual coins, and just like a bank account it has a unique address, it looks something like this depending on the cryptocurrency it seems like a randomly generated string of letters and numbers, but in reality, there's a bit more going on the first thing, we need to know is how these are created.

Anyone can create a new wallet by generating a key, pair with a certain algorithm in the case of Bitcoin or aetherium, that is via an elliptical curve digital signature algorithm and that's quite a mouthful but the takeaway, here is that the algorithm will spit out a private key and a public key these keys are mathematically linked to each other which means you can take the private key and derive the public key from it but you cannot take the public key and turn it into the private one. 

The public key will become your wallets address kind of like your bank account number and the private key is your way of proving that you are the owner of the wallet and does that you can spend the coins inside of it, so in summary public keys can be shared with everyone while private keys should be kept to yourself unless you want other people to decide what to do with your money, so far so good but this system has a few interesting side effects that I want to mention.

For starters everyone can generate an unlimited amount of wallets right, on their own computers it's only limited by how fast your computer can generate these key pairs, however nobody will know about your newly created wallet until it receives some coins, see a cryptocurrency only keeps track of transactions between wallets, it doesn't have a list of all wallets in existence so if your newly created wallet hasn't been involved in any transaction it simply doesn't exist for the outside world, think of it this way the blockchain is just a giant spreadsheet with transactions between wallets but the blockchain itself doesn't really care about if these wallets exists or not it's only when you want to spend coins in a wallet that you have to prove that you were the owner and you can only do that with the private key that is associated with the wallets address another side effect is that you can transfer coins to a wallet address that doesn't exist again a blockchain doesn't have a list of valid addresses so it cannot check if you're transferring coins to an existing one in case you've transferred coins to an invalid address then those are lost forever unless someone can generate the private key for that particular wallet address which right now isn't really possible because of how the algorithm works.

Fun fact this is often referred to as corn burning and it's sometimes done by cryptocurrency projects to reduce their total supply and increase their value or it's done to get rid of coins that weren't distributed during their initial corn offering the last cool side effect that, I want to mention is that you can create a wallet while being offline you can give that address to someone else and they will be able to send coins to it and later when you get back online you can use your private key to spend those coins, cool huh so if you want to store some coins in the safest possible way you can generate a wallet while being offline print out the public and private key destroy the keys on your computer and then send some points to it this is called a paper wallet and it's the most radical but most secure way of storing your coins so this was a quick overview of how wallets work in a cryptocurrency.