What is a cryptocurrency wallet?
Wallets on blockchain are a common confusion. So do not worry if you find it confusing, people mix the meanings commonly. They can mean:
- A wallet/wallet address on the blockchain. Your coins/tokens are not on a device or application, but on the decentralized blockchain address. (often called the on-chain account or wallet).
- Also people refer to the Hardware, software application, browser extension or mobile application as the wallet. These only hold the public and private keys/seed phrase to access/approve transactions for the on-chain wallet/wallet address.
- At times your hardware wallet, browser extension or software application that connects to your on-chain account will not recognize a new coin/token, there is no need to worry, if it was a valid token it is likely there. And you can confirm on the blockchain explorer or other tools. For example on ethereum, EVM and L2s you can see them with tools like https://app.zerion.io/, https://de.fi/, https://debank.com/, or https://zapper.xyz/. And to see it on your local tool, you may just need to add the token to the account on your device/application.
How does a Cryptocurrency Wallet work?
- The Hardware Device/Software application or Browser extension – hold the account number, private keys and seed phrase, that can provide access to the blockchain account.
- The public keys allows you to see the holdings in the tokens in the account, how many tokens, transactions, and on chain you can look up the cost and gas fees for transactions.
- The private key allows you to enable transactions to approve a use of the token, okay a gas spending, for a swap or transfer of tokens.
- The private key or seed phrase also allows you to move the reference to the on-chain account to a different “wallet” hardware device, software application, phone app, or browser extension.
- The common steps in to use a wallet can vary, but basically the steps are:
- Connect – allow the connection to a website/application – this gives the site access to your public key, to see your wallet balances, and request approvals and request transactions.
- Approval – when you request to swap/transfer, there is the approval to spend a given coin for a given application/website, and how many coins. (there is a small fee for approval or revoke). On micro-cap coins you may need to increase the slippage (which just means the liquidity may be a bit low, and price can vary. Try with automatic setting first, then 5-7%.).