Eli5: how do crypto wallets work and how can you keep them safe?


Eli5: how do crypto wallets work and how can you keep them safe?

In: 1

So, to understand this you need to understand public/private key encryption. As a high level, these are special math equations where you can put an input into the equation and get an output, but you _can’t_ reverse the process – having the equation and the output _can’t_ give you the input. You have to have a second equation to do that; put the output in the second equation and you can get the input (but again, it doesn’t work in reverse).

How this works is way beyond an ELI5 – it gets into modals – so just trust that what I have said above is true.

Each bit of ownership on the blockchain is secured with one of these two equations – the ‘public’ part of public/private key. The owner of that bit of crypto has the other equation that they keep secret – the ‘private’ part of public/private key. This second equation is what you actually have in your wallet.

So, when you want to spend or transfer your bit of crypto, you tell the network that you own a particular coin and then encode a bit of data using your private key, giving them the data itself (the input) and the result of your equation (the output). The network is then able to look at the public key stored on the blockchain and put the given output into that equation – if it matches the input like it is supposed to, then you have just proven that you _do_ own that bit of coin and have the rights to transact it.

So, whomever controls the private key has the power to transact the coin associated with it. To keep those equations – your wallet – safe, it is recommended that you keep it offline and in a secure place. Hardware wallets exist for this reason.

This is one long topic.

But I can recommend 2 Academies (websites) to learn about the Fundamentals of crypto. There’s article for Beginners (super understandable), Intermediate and Advanced. Just choose a Level in which you’re comfortable with and go and read.

1. [Guarda Wallet’s Academy](https://guarda.com/academy/?utm_source=reddit&utm_medium=social&utm_campaign=explainitlikeimfive-comment-ji) (Guarda Wallet is a very good non-custodial wallet. Subreddit: r/GuardaWallet)

2. [Horizen Academy](https://academy.horizen.io/?utm_source=twitter&utm_medium=social&utm_campaign=jvsephii) (Horizen is a cryptocurrency. Ticker: $ZEN)