Crypto Wallet Basics: Public Keys, Transactions, and Security Foundations
- Сергей Клещов
- 7 hours ago
- 3 min read
Understanding how crypto wallets function is essential for anyone managing digital assets or interacting with decentralized applications. This article explains how blockchain networks process transactions, how crypto wallets store and manage keys, and why secure key management is the foundation of crypto security.
How Blockchain Networks Store and Process Transactions
Blockchains such as Bitcoin, Avalanche, or Ethereum operate as distributed global databases. Each network stores its data across thousands of nodes worldwide. Anyone can participate—for example, by running a Bitcoin node and validating transactions.
When you send a transaction from your wallet, it is broadcast across the blockchain network and recorded permanently. A blockchain transaction is simply a structured entry in a shared database indicating that certain assets were transferred from one address to another. Because records cannot be altered, this process ensures immutability and transparency.
This structure underpins every Web3 transaction—whether transferring stablecoins, swapping tokens on a decentralized exchange, or interacting with smart contracts deployed on EVM networks.
Public Keys and Private Keys: The Foundations of Crypto Security
A crypto wallet—whether a browser extension or mobile application—generates two key components:
Public Key (Wallet Address)
Safe to share publicly.
Used by others to send assets to your address.
Comparable to sharing a bank account number.
Private Key
Must never be shared.
Used to sign transactions and authorize asset transfers.
Anyone who obtains it gains full control over the associated funds.
A wallet’s mnemonic (seed) phrase is the human-readable backup of your private keys. This phrase must be stored securely offline. Losing the seed phrase means losing access to your digital assets permanently.
Crypto Wallets Do Not Store Coins — The Blockchain Does
A widespread misconception is that cryptocurrency is stored “inside” the wallet application. In reality:
Wallets store only your keys.
The actual coins exist on the blockchain as records associated with your public address.
Wallets are simply interfaces that let you view balances and sign transactions.
Because the private key never leaves your device, non-custodial wallets provide a high level of crypto security and independence.
How a Wallet Sends a Blockchain Transaction
Sending cryptocurrency through any non-custodial wallet involves four technical steps:
The wallet creates the transaction (recipient address + amount + network fee).
The private key signs the transaction locally on your device.
The transaction is broadcast to the blockchain, where validators process it.
The transaction is added to the blockchain, updating balances for all network participants.
Funds never “move” between wallets—only the database entries on the blockchain change.
Custodial vs. Non-Custodial Wallets
Custodial Wallets
Provided by centralized exchanges.
Require email, phone number, and identity verification.
The platform controls private keys.
You request withdrawals; the platform signs the transaction.
Examples: major exchanges or custodial applications.
Non-Custodial Wallets
User controls the private keys.
No verification, no intermediaries, no permissions required.
Wallets only generate and manage keys locally.
Examples: MetaMask, Core Wallet, 1inch Wallet, Phantom (non-EVM), etc.
For blockchain development, decentralized applications, and Web3 engineering, non-custodial wallets are essential because they provide direct access to smart contracts and token management without intermediary restrictions.
Wallets as Interfaces: A Useful Analogy
A non-custodial wallet works much like image editing software:
Photoshop or Illustrator does not “store” images—they simply open and modify files saved on your computer.
Similarly, crypto wallets do not store coins—they interact with your private keys, which interact with the blockchain.
The security of your assets depends entirely on the security of your device and private keys.
Key Points for Secure Digital Asset Management
✔ Crypto wallets store keys, not coins.
✔ Public keys receive assets; private keys authorize spending.
✔ Non-custodial wallets provide full control over digital assets.
✔ Secure storage of the seed phrase = secure storage of funds.
✔ Blockchains update balances through irreversible on-chain records.
✔ Wallet security is fundamental for safe Web3 and DeFi usage.
In the next article, we will explore what a mnemonic phrase is, why different wallets offer different security models, and which vulnerabilities users must avoid when working with decentralized applications.
Useful links:
Bitcoin.org – How Bitcoin Works
Ethereum Documentation – Keys and Accounts
Avalanche Developer Docs – Wallets and Keys
MetaMask Documentation – Key Management
OWASP – Secure Key Storage Guidelines
These materials are created for information only and do not constitute financial advice.
Comments