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Blockchain Wallet Tutorial and its Working

This tutorial explains what a blockchain wallet is, what types there are, and how they work. You will also discover how to generate a Blockchain Wallet Address.

A blockchain enables distributed users in a blockchain network to not only communicate directly with one another but also to exchange value. All of this occurs without the use of a middleman or a single point of failure and in a secure manner thanks to the benefits of cryptography.

When the need for trust through human verification is eliminated or minimized, the benefits of peer-to-peer transactions and communications such as low cost and high speed occur.

To avoid a single point of failure, if you sent a transaction to the other person via a bank, you would have to wait for that transaction to be manually or automatically verified. When a banking service is unavailable due to internal or external factors, you are unable to transact and must wait.

A distributed network for blockchains ensures that many peers are available to accept and approve a transaction, whether that transaction is saving or processing a file in a decentralized platform or sending crypto to your other peer. You do not have to wait for transaction verification even if some verifiers are unavailable on the network.

A blockchain wallet enables users to send, receive, store, and exchange value on a blockchain, as well as monitor and manage the value of their blockchain assets.

This tutorial will explain in detail what a blockchain wallet is, how it works, and how to use one. As technology advances and new innovations emerge, wallets improve as well, as we will see in the section titled types of blockchain wallets.

Finally, we will go over the advantages of using a blockchain wallet and provide some pointers for maximizing those advantages and avoiding problems when using blockchain wallets.

What Exactly Is a Blockchain Wallet?

Blockchain wallets include numerous features such as transaction tracking, charts, and social features.

Blockchain Wallet Tutorial and its Working

A blockchain wallet is a piece of digital software that runs on a blockchain and stores private and public keys as well as monitors and records all transactions involving those keys on the blockchain. A blockchain wallet, in theory, does not store cryptocurrency; rather, all records relating to these keys are stored on the blockchain on which the wallet is hosted.

That is, the wallet provides an ID that allows all transactions associated with that ID to be tracked.

The blockchain ID is the blockchain wallet address that is linked to the public and private keys.

Blockchain wallets enable users to store, send, receive, and manage their digital assets on the blockchain. It is capable of storing, sending, receiving, and managing a single or multiple types of blockchain assets such as Bitcoin, Ethereum, Litecoin, and others.

Blockchain wallets are similar to cash wallets.

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The following are some basic facts about blockchain wallets:

  1. The wallet should include all of the features required for interacting with other wallets on the same or different blockchains, as well as the features required to securely store and manage the assets.
  2. To ensure security, all transactions in a wallet are cryptographically assigned.
  3. Blockchain wallets can be used on computers, smartphones, and other devices, as well as browser plugins and extensions.
  4. Wallets are personal, even though users can download and install the software on their devices. After downloading, the user must create a personal wallet with a unique identifier, password, and other security features. Only after gaining access to the wallet and proving ownership can the user transact from or with it. You can, however, send crypto or other digital assets to someone using only their wallet ID, just as you can send money to someone using only their bank account.
  5. Modern crypto wallets include APIs that allow them to pull data from other platforms. Others can pull data to allow charting and crypto market analysis, allowing a user to make profitable cryptocurrency trading decisions; social features such as emailing and chatting with other users online or posting status updates, as well as following and copying their trading practices; and transaction tracking such as reading history and prices for various cryptos.

Blockchain Wallet Address

An example of wallet address: 16KRo4Zfp7f5tGwdoKCAnLJXj1PVSbOnDl

  1. A personal blockchain wallet is defined by a randomly generated 32 alphanumeric characters called the wallet address, similar to how a bank account is defined by a bank account number.
  2. A blockchain wallet allows for the creation of these addresses, as well as the creation of multiple addresses.
  3. To protect the privacy of wallet transactions, most wallets will generate a new address for each new transaction. A user, on the other hand, can receive or send assets to previously used addresses, and the assets will still end up in the same wallet.
  4. Wallets keep track of all transactions for each address and make the process more transparent by allowing you to track all transactions in all addresses you’ve ever used.

Creating a Blockchain Wallet Address

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It is simple to generate a public wallet address with a wallet, but it is a mathematical process to link it to the public key.

A public key is used to generate a wallet address. For example, every Bitcoin wallet can generate a P2PKH address, which is an abbreviation for Pay To Public Key Hash.

While it was possible to send or pay Bitcoins directly to an Internet IP address, it became clear that such payments would be vulnerable to man-in-the-middle attacks, so this option was disabled.

A Bitcoin wallet can now find as many P2PKH addresses as possible, which is ideally the result of a combination of several non-exceptional cryptographic operations. The ECDSA cryptographic algorithm is used by Bitcoin.

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The wallet address in the blockchain is ideally the result of hashing the public key using cryptographic algorithms and other conversions.

The wallet address represents the public key in a more readable manner, and it also includes a checksum to protect users from typos.

Creating a wallet address should ideally begin with a public key and a cryptographic algorithm.

In different blockchains, hashing produces different results. P2PKH addresses, for example, have a “1” at the beginning and four checksum bytes at the end due to hashing through the RIPEMD-160 algorithm. The four checksum bytes are the result of twice hashing the result with the SHA256 algorithm and taking the first four bytes.

The checksum assists users in avoiding typos when sending money in cryptocurrency. For example, when a user intends to send crypto and pastes the address into the address entry, the system should perform the necessary checks. It examines the prefix, computes the checksum, and confirms that it matches the address pasted into the entry. If they do not match, the system rejects the pasted address, making it impossible to send funds to the incorrect address when a typo is made.

While Bitcoin wallets may support P2PKH addresses, other blockchain wallets use other types of addresses to allow other flexible payment methods to verify transactions sent through these blockchain networks using a generated private key.

A blockchain wallet can support multiple types of wallet addresses in order to expand the wallet’s functionality. P2SH addresses, in addition to P2PKH addresses, are supported in Bitcoin wallets. Pay to Script Hash is abbreviated as P2SH. This feature allows you to send payments to a hash of a script rather than a hash of a public key. Of course, P2PKH addresses are still supported; the P2SH address is new. In the case of P2SH, the sender must sign a transaction with a script, and the receiver must verify that the sent script matches the hash to the script.

P2PKH address support enables the use of methods such as multi-signature addresses in blockchains.

Two or more parties have private keys and must sign a transaction for it to be accepted as valid with multi-signature addresses. A group or organization’s funds, for example, are secured with the signatures of two parties or two witnesses required to spend funds. When using multi-signature addresses, two parties provide information that summarizes the required script. For example, in Bitcoin, these addresses use the prefix 05, which is why they begin with a “3.”

A blockchain network can use a different RIPEMD-160 algorithm prefix to generate a unique character at the beginning of its wallet addresses. For example, instead of beginning with the prefix “1,” altcoins such as Dash, Litecoin, and Dogecoin use a different prefix of the RIPEMD-160 to begin their addresses with a different character. Again, different blockchain networks can generate their private and public keys, as well as wallet addresses, using different cryptographic algorithms.

What Are the Differences Between a Wallet and a Blockchain?

Blockchain Wallet
All transaction records for the entire network are tracked. Transactions involving specific addresses or private and public keys are tracked.
Acts like the currency system of the network Acts like the bank account
Does not contain any keys Holds the private keys required to unlock cryptocurrencies associated with a specific wallet address.
Contains information blocks that are cryptographically linked together. Contains private and public keys that are cryptographically linked.


Blockchain Wallet’s Working

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Cryptography is used to secure blockchain wallets, and the basics of this include generating a pair of keys – the public and private keys. These are used to mathematically secure the crypto.

When you give someone your wallet address, they assign the cryptocurrency to your public address whenever they send you coins or cryptocurrencies. The public address is a hashed format of your wallet address, not your wallet address. A hash function is used to encrypt input into a given output that is not visible to the public but is associated with the public address, your wallet address.

Because your private key is linked to the public key and thus the wallet address, it is the only one that can be used to decrypt the information encrypted by the coin sender and thus unlock the contents. This is how you gain access to your cryptocurrencies.

To send cryptocurrency, the wallet’s owner will sign a transaction with their private key before sending it to the blockchain network. Once the transaction is broadcast to the public, network verifiers, or nodes, will use the publicly available public key, which is associated with the private key used to sign the transaction, to verify that it is authentic and valid before allowing it through.

The image below depicts signing a transaction on a blockchain wallet when sending money:

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Remember that each transaction generated by the private keys has a unique digital signature that makes it difficult to copy or be similar to the others, even when the same private key is used to generate multiple signatures. Of course, in order to maintain privacy and increase transaction security, users should only use each address once.

The recipient is also authenticated by the fact that the crypto sent is assigned by the sender to their public key, which is linked to their wallet address. The amount and the amount reflected in the wallet are unlocked using the recipient’s private key. That is, the user with the private key associated with the public address to which the crypto was assigned has the authority and right to spend the crypto.

Crypto exchanges and other platforms use this concept to facilitate cryptocurrency trading. When a person uses a wallet to send messages, the message is also signed with their private key.

Blockchain Wallet Types

Wallets are classified into two types: hardware wallets and software wallets. Another important distinction is between online and offline wallets.

Online wallets, also known as hot wallets, are used when you are online or connected to the Internet. Web wallets are among them. Offline wallets are used to store private keys and sign transactions without requiring an internet connection. They include both hardware and paper wallets.

Another distinction is between deterministic and non-deterministic wallets, which are distinguished by the existence or absence of a relationship between the public and private keys.

Wallets, on the other hand, can be classified according to the platform on which they can be stored and used. We also have different kinds of blockchain wallets depending on the technology they use.

  1. Non-deterministic Wallets

These are the types in which the private keys generated by the wallet are unrelated. Although the wallet allows for the creation of more than one private key, the keys are unrelated to one another, for example, by sharing a common recovery phrase or seed, which causes some management issues. Backing up each key is critical, which causes problems for management as more keys are created.

  1. Deterministic Wallets

These are the private keys generated by the wallet that are all linked back to a recovery seed (24-words long recovery phrase). All a user has to do is backup the wallet with the seed, and the seed can be used to recover all private keys. The vast majority of modern wallets are deterministic.

To generate all the private keys, deterministic wallets use a single hash function on the seed. The seed is used to recover the wallet and all of its addresses and thus private keys.

Hierarchical Deterministic wallets contain sub-wallets that are linked by a child-grandchild relationship. These wallets support the BIP-32 format to enable this type of relationship between wallets and sub-wallets.

This type of HD wallet can be useful in an organizational setting where a company wants to assign keys to its various departments and branches in order to track expenses.

  1. Hardware Wallets

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These are hardware devices that are used to store, manage, and sign private keys and public addresses.

The majority of hardware wallets are USB-like devices with an OLED screen that are used to monitor activity. Side buttons are used to sign transactions and navigate the interface, such as scrolling through and selecting features to run.

These devices are the size of a finger and connect to computers and other portable devices via USB. They include native desktop apps for various cryptocurrencies. They communicate with these apps.

Hardware wallets cost around $70-$150, but they are considered the safest types of crypto wallets at that price. This is due to the fact that they keep the keys offline. Trezor and Ledger, for example, allow you to store more than 22 cryptocurrencies, including Bitcoin, as well as over 500 ERC-20 tokens.

Hardware wallets are best suited for large organizations that hold or handle a large amount of cryptocurrency value.

  1. Paper Wallets

Crypto owners must keep their private keys secure. Printing the keys on a piece of paper, which can then be stored in a safe place and referred to later when spending your cryptocurrencies, is another option.

Although a paper can easily spoil or be accessed by a third party if not properly secured, these are some of the safest methods of securing cryptocurrencies. Not all cryptocurrencies support paper wallets.

When storing Bitcoins or other cryptocurrencies for an extended period of time, it is best to use a paper wallet.

The procedure for creating a paper wallet varies according to the cryptocurrency in question. They can be built offline. To make a Bitcoin paper wallet, for example, simply download and save bitaddress.org, open the webpage while disconnected from the Internet, and hover the mouse over the page to generate a 100 percent degree of randomness. By selecting the paper wallet option on this page, you can generate a paper wallet containing one or more wallet addresses and their private keys. Print this file and store the main portion safely and securely. You can then use these addresses to store Bitcoin while knowing that their private keys are secure and safe with you.

A paper wallet can have an additional layer of security by being secured with a passcode to unlock it.

  1. Desktop Wallets

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Desktop wallets are pieces of software that are installed and used on major PC operating systems like Windows, Mac, and Linux. Almost every other cryptocurrency will begin with the installation of a desktop wallet. Web browser extensions and plugins are also installed on desktop wallets.

MetaMask Ether wallet and Jaxx’s Chrome Extension are two examples.

They are not the most secure options because your desktop or laptop will connect to the Internet, and their security can be jeopardized online if stringent internet security measures are not followed. These precautions include using up-to-date antivirus software, anti-malware software, and strong firewall procedures.

Overall, software that connects to the internet will necessitate additional security and protection measures.

Exodus, Bitcoin Core, and Electrum are examples of desktop wallets.

  1. Mobile Wallets

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Mobile wallets are installed as phone apps on Android, iOS, and other mobile devices. To some extent, browser extensions and plugin wallets can be classified as mobile as long as they work with these devices.

They allow crypto to be used on the go, but they are not the most secure wallets because the devices are constantly connected to the internet. Some devices allow users to save private keys offline.

Mycelium, Coinomi, and Electrum are examples of mobile wallet software.

  1. Web Wallets

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Web wallets are hot wallets that are always connected to the Internet. These are the applications that run on browsers when a user visits a website wallet address and logs in to the Internet. As a result, they are accessible through Google Chrome, Firefox, and Internet Explorer.

Private keys are stored on the Internet in servers where these apps run, mostly in the cloud, though some allow users to store keys offline. Non-hosted wallets, such as MyEtherWallet and MetaMask, do not store keys on servers and instead allow users to download and store them locally. Coinbase and CEX.io are two examples of hosted wallets.

  1. Single or Multi-currency Wallets

A single cryptocurrency is stored in a single currency wallet, whereas multiple cryptocurrencies are stored in a multi-currency wallet. Multicurrency wallets make it easier for anyone dealing with multiple crypto types because they eliminate the need to install a wallet for each. These can be hardware wallets, web wallets, mobile wallets, or extensions/plugins.

How do you make and use a blockchain wallet to send, store, receive, or buy with cryptocurrency?


For multi-signature addresses, blockchain wallet addresses can be generated in a wallet or offline on websites.

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Creating a wallet for most cryptocurrencies begins with downloading the cryptocurrency’s native wallet software and generating a wallet address. Some require the user to sign up and create an account, while others do not. Hosted wallets on centralized exchanges will require you to sign up with your email and name, as well as complete verifications and KYC before you can access your wallet and send cryptocurrency there.

The majority of wallet users will allow you to download and save your private key as a Keystore file on your device after downloading the software and generating a wallet address. These are used to recover your wallet if your device is lost. After that, you can proceed to create the wallet account.

The majority of wallets support additional security features such as passwords and AUTHY authentication methods. Simply download AUTHY, Google, or other authentication apps on your mobile device, then access the wallet’s security feature and add the wallet authenticator account to the mobile app. Every time you try to log into the wallet, the app will prompt you for an access code.

Other extra features include one-time links that are sent to your email every time you try to sign in to the wallet and must be clicked on in order to sign in. Other security features include mobile-based login codes that are sent to your device via text messages or phone calls every time you attempt to log in to the wallet.

To send cryptocurrencies into a wallet, simply login to the wallet, obtain the wallet address or generate one, and then send crypto to that wallet address. Sending from the wallet entails spending the balance by sending it or a portion of it to an external wallet address, which must be compatible with the cryptocurrency you want to send in order to be usable. Otherwise, you risk losing the cryptocurrency if it is sent to the incorrect address.

The Advantages and Difficulties of Using a Blockchain Wallet


  1. Facilitating borderless transactions – across geographies without conversion difficulties or foreign exchange costs.
  2. There are no middlemen in transactions.
  3. Very low transaction costs, especially when dealing with large sums of money.
  4. Because of cryptography, transactions are more secure and private.
  5. Transactions are completed faster than with traditional banking methods.
  6. The advantages of using cryptocurrency grow.
  7. Signups are simple in comparison to obtaining a mobile vault or bank account, which requires legal and complicated procedures and verification.
  8. Simple to manage and create. Low entry barriers.


  1. Globally, acceptance and application are low.
  2. Legacy and network support are limited.
  3. The volatility of cryptocurrencies.
  4. Those who are under-banked or unbanked have limited access to devices.

Tips for Using a Blockchain Wallet:

  1. Choose one that allows you to manage private keys and save them locally and/or remotely.
  2. Choose one that includes a backup seed phrase as well as additional security features such as passwords.
  3. Choose one with an active development community for upkeep and improvement.
  4. Choose one that is simple to use.
  5. Choose one that is compatible with your operating system or, if possible, multiple operating systems.
  6. The HD wallet should generate addresses on its own rather than generating excessive baggage to back up each private key on its own.
  7. Work with one that does not require KYC.
  8. Choose one that meets your needs, such as day trading, holding, long-term and short-term savings, and so on.


In this tutorial, we looked at the fundamental concept of blockchain wallets. We also learned that blockchain wallets are used to store private keys and that these keys will sign transactions and unlock data sent over by others using a compatible public key that is publicly available. When there are many addresses, non-deterministic wallets generate unrelated keys, posing a management challenge.

Private keys in deterministic or HD wallets, on the other hand, are linked by a passphrase and are simple to manage. They can be recovered with a single passphrase.

We also investigated the use of wallets within a blockchain. The best use for blockchain wallets is in blockchain cryptocurrencies. They are used to store, send, and receive crypto in this case. They aid in the tracking of transactions involving the specific addresses and public keys they generate.

In this blockchain tutorial, we also discovered that wallets can be software or hardware. Finally, we learned about the advantages and disadvantages of using wallets, including the fact that the technology is not widely used and that there are some technical challenges associated with it, such as access to devices.

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