Self-custody is on the rise and with it, wallets are gaining a | Binance Research

Self-custody is on the rise and with it, wallets are gaining attention. There are many different crypto wallets out there, and it can be difficult to decide which one is right for you.

Here is the beginning of a three-part thread. For more insights visit
https://research.binance.com/en/analysis


An Introduction to Wallets

To understand how crypto wallets work, one must first understand public and private keys. Public and private keys are strings of numbers and letters that are generated by cryptographic algorithms, and can be used to encrypt and decrypt messages.

The public key serves as an “address” that can be publicly shared. The private key is used to create digital signatures, decrypt messages, and prove that the user of the key is the owner. To learn more, check out this article: (https://academy.binance.com/en/articles/what-is-public-key-cryptography)

In terms of the blockchain, public and private keys are used to maintain balances. The public key is used to generate the wallet address, and the private key is used to sign transactions and verify ownership.

So what are wallets used for? Crypto wallets can be thought of as “key-chains” rather than as conventional wallets. They are interfaces that help generate and store key pairs, as well as interact with different DApps that require signing of transactions.

You may have noticed that your wallet asks you to store a “seed-phrase” rather than a private key. First introduced in BIP-39, developers found an easier way to represent the private keys of an account - 12 to 24 dictionary words rather than a string of letters and numbers.

Seed phrases are also able to generate multiple keys from it and are not cryptocurrency specific, allowing multi-coin wallets like Trust Wallet to store entire portfolios at once. This allows users to only keep track of one seed phrase, while still creating multiple accounts.

All in all, crypto wallets serve as the interface that holds your public and private keys. They don’t actually contain the crypto in your account!

Stay tuned for the second part of our three-part thread: How to Keep your Funds #SAFU