so cryptocurrency has a concept of wallets.
and obviously this name comes from like a physical wallet you might have or you store money in.
but it's important to know wallets don't hold any cryptocurrency, your wallet doesn't have anything.
really what your wallet is, is public and private keys.
in public key cryptography, the concept of public and private keys is incredibly important.
but really a wallet is the two together, but more importantly, the private key.
the private key is what you can use to sign transactions that you put on the blockchain.
so if someone has your private key, they can fake being you, i want to transfer this money that i have.
and that would be it.
so keeping your private key safe is the most important thing when it comes to a wallet.
now wallets can be online or offline, right?
hot or cold wallets.
and we'll talk about the differences of those.
but wallets are again, used to initiate the transactions and sign transactions.
remember in an earlier video where we talked about how miners go across every block and validate the actual transaction amounts to make sure you have it, right?
that's how they know if you have bitcoin or not.
it's not because, it's not because it's actually stored in your wallet and you're actually transferring it.
they just check the history on the blockchain to make sure that your wallet has that based on the origination of that crypto and did it get to you.
so let's talk about some differences between hot and cold wallets.
hot wallets are really software and tools that are connected to the internet and accessible from the internet.
so coinbase, for example, their wallets are considered hot wallets.
they really kind of own those wallets.
so if you have all your crypto on coinbase, you should be very careful with that because they are hosting your private key somewhere and they have to keep that safe.
if they don't keep that safe, you would lose your crypto.
so it's important to understand that those keys aren't with you.
on the other hand, a cold wallet though, stores the public and private keys on an actual hardware device.
now you can have a warm wallet like electrum, which is stored on your computer, but it can connect to the internet.
so that's considered in the middle there, a warm wallet.
but cold wallets like a usb device that actually store the keys on the device and you have to unlock the device to get access to the keys, and then that's how you actually go about transferring or signing transactions.
so cold wallets are much more secure because you have it, it's with you, it's not hosted anywhere else.
it's a lot safer.
so which one you want to use depends on what you're doing.
hot wallets are really good for quick transfers, easy transactions.
cold wallets are really good for long- term storage or keeping something very safe if you want to ensure you're meeting that maximum level of security and privacy.