In the past, Ive made quite a few SimplyExplained videos on how blockchains and cryptocurrencies operate. And there are a few questions that keep coming, like: how do purses labor? You hear, to use a cryptocurrency, you needa wallet to place your virtual coppers. And just like a bank account, it has a uniqueaddress. It looks rather like this, depending onthe cryptocurrency. It seems like a fully haphazardly generatedstring of words and amounts but in reality, there is a bit more going on. The first thing we need to know is how theseare created. Anyone can create a brand-new wallet by generatinga public and private key pair with a certain algorithm. In the case of Bitcoin or Ethereum that isvia an elliptical curve digital signature algorithm.Thats quite a mouthful, but the take awayhere is that the algorithm will spit out a private key and an associated public key. These keys are mathematically linked to eachother. You can take the private key and derive thepublic key from it. But you cannot make the public key and turninto the private one. I made a video about this right here. Now, these two keys dish a different role. The populace key will become your walletsaddress, kind of like your bank account number. And the private key is your way of provingthat you are the owner of the pocketbook and thus that you can waste the money inside of it. So in summary: public keys can be shared witheveryone while private keys must be kept to yourself.Unless you require other people to decide whatto do with your money. So far so good. But this system has a few interesting sideeffects that I want to mention. For starters, everyone can generate an unlimitedamount of billfolds, right on their own computers. Its only limited by how fast your computercan produce key duos. However , nobody will know about the existenceof your billfold until it receives some silvers. See, a cryptocurrency merely retains trail oftransactions between pocketbooks. It does not have a list of all existing billfolds. So if your newly created wallet has not beeninvolved in any busines, it simply doesnt exist for the outside world. Think of it this direction: the blockchain is justa giant spreadsheet with business going from one pocketbook to another. The blockchain itself doesnt really careabout if these purses exist or not. Its only when you want to spend silvers ina wallet that you have to prove that youre the owner. And you are unable do that with the privatekey that is associated with the address of the pocketbook. Another side effect is that you can transfercoins to a purse address that doesnt exist.Again a Blockchain doesnt have a list ofvalid homes, so it cannot check if youre committing coppers to a legitimate one. In case you change silvers to an spurious addressthen they’re just lost unless someone can generate the private key for that particularaddress. Which, right now, isnt really possiblebecause of how the algorithm makes. Fun fact, this is referred to as coin burningand its sometimes done intentionally by cryptocurrency projects that want to reducethe total supply and therefore increase the value of their coin. Or they do it to be disposed of silvers that werentdistributed during the initial copper offering. The last cool side effects I want to mentionis that you can create a wallet while being offline, they are able to open that address tosomeone else and they will be able to transfer silvers to it.And last-minute when you get back online, you canuse the private key of that billfold to devote the coppers. Cool huh? So if you want to store some coins, in thesafest possible direction, you can generate a wallet while being offline, engrave out your publicand private key, destroy the key on your computer and transfer silvers to it. This is called a paper wallet and is the mostradical but super secure way of accumulating silvers. So that was a quick overview of how walletswork in a cryptocurrency. I hope you liked this video and if you did, consider subscribing, sounding the buzzer icon and liking this video. Thank you very much and told you on the nextSimply Explained episode !.