A cryptocurrency wallet is a device, physical medium, program or a service which stores the public and/or private keys for cryptocurrency transactions. In addition to this basic function of storing the keys, a cryptocurrency wallet more often also offers the functionality of encrypting and/or signing information. Signing can for example result in executing a smart contract, a cryptocurrency transaction (see “bitcoin transaction” image), identification or legally signing a ‘document’ (see “application form” image).
Private and public key generation
A crypto currency wallet works by a theoretical or random number being generated and used with a length depending on the algorithm size of the cryptocurrency’s technology requirements. The number is then converted to a private key using the specific requirements of the cryptocurrency cryptography algorithm requirement. A public key is then generated from the private key using whichever cryptographic algorithm requirements are required. The private key is utilised by the owner to access and send cryptocurrency and is private to the owner, whereas the public key is to be shared to any third party to receive cryptocurrency.
Up to this stage no computer or electronic device is required and all (key pair) can be mathematically derived and written down by hand. The private key and public key pair (known as address) are not known by the blockchain or anyone else. The blockchain will only record the transaction of the public address when cryptocurrency is sent to it, thus recording in the blockchain ledger the transaction of the public address.
Duplicate private key
Collision prevention of having 2 or more wallets with the same private key is a possibility (as key’s can be generated without transactions sent to them thus being offline until recorded in the blockchain ledger) negated by the theoretical possibility of such a combination of 2 or more private key’s being similar is theoretically difficult to achieve due to the amount of possible wallets in a certain cryptocurrency cryptography being equated to briefly less than atoms in the universe, a high enough number to be incomprehensible to duplicate and difficult to hack.
In modern convention a seed phrase is now utilised which is a 12 to 24 word and greater word phrase that is an unencrypted form of the private key in dictionary word format which is simpler to remember then a encrypted cryptographic key in another string format. When online, exchange and hardware wallets are generated using random numbers a seed phrase is asked to be recorded by the user, so that when access to the wallet becomes misplaced, damaged or compromised, the seed phrase can be used to re-access the wallet and associated keys and cryptocurrency.
A number of technologies known as wallets exist that store the key value pair of private and public key known as wallets. A wallet hosts the details of the key pair making transacting cryptocurrency possible. There exists multiple methods of storing keys or seed in a wallet from using paper wallets which are traditional public, private or seed keys written on paper to using hardware wallets which are dedicated hardware to securely store your wallet information, using an digital wallet which is a computer with a software hosting your wallet information, hosting your wallet using an exchange where cryptocurrency is traded. or by storing your wallet information on a digital medium such as plaintext.
Source : Wikipedia