What is a Blockchain Wallet and How Does it Work?

Cryptocurrencies have been at the center of much excitement as their values continue to increase. Because of this, the interest and demand for Blockchain wallets has increased as well. With a reported 21 million users using these wallets for transactions of their digital currencies at the end of 2017, many people were and continue to be interested in how exactly these blockchain-backed wallets work, how secure they are, and how they store digital currencies. Let’s investigate.

Naturally, we first need to investigate what blockchain wallets are. In simple terms, a wallet is a software program which allows users to buy, sell, and monitor the balance of their digital currency or assets. If you’re involved in the exchange of Ethereum or another cryptocurrency, then you’re already using a blockchain wallet of some type. More on that in a bit.

Now, we’re all familiar with the concept of a wallet (obviously), but instead of simply “holding” cryptocurrencies, blockchain wallets also act as a receipt storage system: they keep a record of all transactions (such as selling, buying, and exchanging) related to the cryptocurrency and store them on the blockchain. 

How do they work? A blockchain wallet stores private and public keys for a transaction. The wallet interacts with multiple blockchains to validate transactions—these keys are non-identical pairs of numbers where one key can be shared with anyone (the public key) while the other is kept secret (the private key, which is almost like a PIN you may use at the ATM). 

These keys work like a lock-and-key. The private key is the lock and the public key is, well, the key. No matter how many people you’ve given your public key to, it’s only useful if it’s paired with the right private key: this is how a blockchain wallet helps protect your digital assets. 

There are three types of blockchain wallet available to store and reflect a transaction on a blockchain: software wallets, hardware wallets, and paper wallets. Let’s take a closer look at each of the three. 


Blockchain wallets make it possible to send and receive cryptocurrency at the touch of a button.

1. Software Wallets

These wallets are, naturally, software applications which may be downloaded on a device (either on a desktop or mobile device) or accessed online. Depending on the type of device they are meant for, software wallets are further characterized into the following:

a. Desktop: Wallets that can be downloaded onto a PC and can only be accessible from the system onto which they are installed. If you don’t need to access your cryptocurrency from wherever you go, then these are a good solution for you.

b. Online: Since blockchain wallets run on the Cloud, these specific types of software wallets allow you to access them from any device (computer, phone, or tablet) through a web browser—however, since private keys are stored online and controlled by a third party, this may be an unsafe option.

c. Mobile:Mobile wallets are available as a mobile phone, they are accessible anytime, anywhere. Along with this, the ability to scan QR codes makes for easier and faster funds transfer.

2. Hardware Wallets
Hardware wallets store private keys for users on a hardware device like a USB device. These wallets have compatibility with many web interfaces and offer support to multiple cryptocurrencies. To use these wallets, you have to connect them to any internet-enabled device, enter your PIN, and confirm. Since all currencies are stored offline, hardware wallets are a very secure option.

3. Paper Wallets
For paper wallets, the pair of private and public keys are generated using a software application and are printed to make transactions possible. Paper wallets generally work with software wallets for buying and selling funds.

Currencies are transferred from software wallets to the public address on paper. To unlock the funds, the currencies must be transferred from paper wallets to software wallets in a process calledsweeping, which involves scanning QR codes or adding the keys manually.