Blockchain Vocabulary - Wallets (30/30)

A private key is like a password to your digital vault with digital assets. A wallet is used to hold and use your private keys.

• Hot wallet (checking account): connected to the internet, transactions can be approved without human involvement, improving user experience but also opening it up to security vulnerabilities
• Warm wallet (savings account): offers the user experience of an internet-connected wallet but requires human involvement for approvals
• Cold wallet (safety deposit box): not connected to the internet, requires human involvement, improving security while sacrificing user experience

Anyone with access to your private keys has full control over your vault. If your assets are stored on an exchange, then they actually fully control your assets, and you just hold a receipt for what they owe you. That is why people often say: “not your keys, not your crypto”.

Holding your private keys to your digital vault is like having a safety deposit box, but you are your own bank. This level of autonomy is a double-edged sword - you have ultimate freedom and responsibility at the same time.

Private keys can be used in interesting ways, such as creating a “brain wallet”. If you can memorize the mnemonic phrase representing your private key, then you can store an unlimited amount of digital assets in your head.