The crypto ecosystem may be busy, but it’s far from disorganized. Developers and cryptographers create protocols that ensure coins get where they need to go, whether you’re sending or receiving assets.
Wallet addresses are tools that allow for the transferring cryptocurrencies. They allow traders to swap funds with other crypto holders and connect to digital currency exchanges (DCEs).
New to crypto? Read on to learn more about what a wallet address is and how to transfer your digital assets anywhere within Web3.
What is a Wallet Address?
A wallet address, or “blockchain address,” is a unique, randomly generated series of letters and numbers that corresponds to a type of cryptocurrency stored in a blockchain wallet. Similar to a phone number or email associated with etransfer in traditional finance, crypto wallet addresses provide just enough information to direct funds into a holder’s account without compromising the wallet’s security.
These addresses are meant to be shared with friends, family, and exchanges whenever you want to receive a crypto transfer. You can find your wallet addresses by clicking "Recieve" or "Deposit" next to each type of cryptocurrency in your wallet. A screen will open with a sequence of characters and a QR code representing the coin’s address.
There's no single address that captures every crypto asset on a digital wallet—each coin requires its own address. Virtual currencies such as Bitcoin, Litecoin (LTC), and Ethereum (ETH) exist on separate networks known as "blockchains." Because each blockchain has unique protocols, they use their own systems to generate wallet addresses. This is because one currency isn’t compatible with another’s blockchain. Before transferring crypto to another wallet, confirm the blockchain address corresponds to the asset you want to send (such as a Bitcoin address for BTC). Any cryptocurrency sent to the wrong address will disappear forever.
Example Wallet Addresses
Wallet addresses may appear completely random at first glance, but there are distinguishing features, called “tags,” which identify the different blockchains. Tags help you check that a transfer is on the correct network to avoid mishaps.
For instance, Ethereum wallet addresses always have "0x" at the start. Ethereum-compatible chains (such as BNB Smart Chain) and "layer 2" blockchains built on top of Ethereum (such as Polygon) also use the "0x" standard. Here's an example of an ETH wallet address:
On the other hand, Bitcoin addresses begin with “1,” “3,” or “bc1.” For example, the following BTC address is known for being tied to the wallet holding the most Bitcoin:
How Does a Wallet Address Work?
Understanding how wallet addresses work means learning what “cryptography” is. Cryptography is a branch of computer science that focuses on creating secure and private communication systems. In cryptocurrency, cryptographers use encryption technologies to create payment networks without central authorities.
The main cryptographic tools that secure wallets are the "public keys" and "private keys." Public keys are safe to share with others when transferring crypto, while private keys give holders privileged access to their cryptocurrencies. Put another way, public keys are similar to a home address, while private keys are like the physical key to the home. You would give an acquaintance your address to visit, but you wouldn’t provide them with a key and unlimited access to your home. Although public and private keys are connected, encryption technology makes it extremely difficult to decode one from the other.
Wallet addresses are shortened versions of each wallet's public keys. Anyone can use public keys to receive crypto, but these keys are very long and inconvenient to share. To simplify crypto transfers, wallets use a process called "hashing" to make the public keys short and readable. Digital wallets automatically take care of hashing functions when generating each crypto address.
How Do Traders Use Cryptocurrency Wallet Addresses?
Wallet addresses allow crypto holders to transfer assets into their accounts. Whether they want to take tokens off an exchange, shift funds between wallets, use a crypto payment service, or accept coins from friends, traders must use wallet addresses to complete their transactions.
For example, say Person A wants to send 0.5 ETH from a Coinbase account to their friend, Person B, who has a MetaMask wallet. To do this, Person B must copy the ETH wallet address from their MetaMask and send it to Person A. With this info, Person A can click "Withdraw" next to the ETH icon in Coinbase and paste Person B’s ETH address. After confirming this transaction, the 0.5 ETH will appear in Person B’s MetaMask account.
Do Crypto Exchanges Have Wallet Addresses?
When holders sign up for a centralized crypto exchange (CEX), they gain access to dozens of crypto wallet addresses in an “exchange wallet.” The difference between an exchange wallet and a "self-custodial wallet" is the former doesn't share private keys with users. Only self-custodial wallets (such as MetaMask, Trust Wallet, and Exodus) give traders access to their private keys, granting them greater control and responsibility over cryptocurrencies stored in these wallets.
Exchange wallets on CEXs are "custodial" services. In other words, the CEX holds the private keys for all crypto on its platform. For instance, a CEX like Coinbase retains full control and custody over the crypto on its exchange until an account holder transfers digital funds off the site. While CEXs let customers freely withdraw crypto, there's always a third-party risk when using exchange wallets.
How to Get a Wallet Address
There are three ways to get a wallet address, each with its pros and cons. You can review the features of these methods and decide which is best for you.
Register on a Centralized Crypto Exchange
When crypto traders join a CEX, they receive access to wallet addresses on their trading accounts. Exchange wallets may appeal to beginners due to their relatively simple user interface (UI) and numerous fiat-to-crypto payment options. CEXs such as Coinbase, Gemini, and Kraken offer ways to link bank accounts and use funding options like ACH and wire transfers. CEXs also have the highest trading volume in the crypto market, making it easier to connect buyers with sellers at reasonable exchange rates.
On the downside, account holders only have partial control over the crypto in their exchange wallets. Because CEXs hold the private keys to the crypto on their trading platforms, they could freeze a customer's crypto without warning.
Download a Self-Custodial Hot Wallet
“Hot wallets” are software applications that store and transfer cryptocurrencies. If a hot wallet is self-custodial, users can access their private keys. Today, dozens of free hot wallet apps are compatible with mobile and desktop. For instance, customers can find several hot wallets for Android and iOS devices on sites like Google Play and the App Store.
Self-custodial hot wallets give crypto holders more control over their digital assets than exchange wallets. Many also link to decentralized applications (dApps) on blockchains, such as Ethereum and Solana. Those interested in exploring decentralized finance (DeFi), NFTs (non-fungible tokens), and play-to-earn games can use hot wallets to interact with dozens of exciting Web3 sites.
The biggest drawback of hot wallets is the risk of cyberattacks. Because hot wallets are always online, skilled hackers could break into them. Therefore, while hot wallets are affordable and easy to use, there are more secure options for storing cryptocurrencies.
Buy a Hardware Wallet
“Hardware wallets” are physical devices (often USB drives) that keep a user's private keys offline. When traders want to use their hardware wallet, they must link it to a PC to confirm crypto transactions, adding an extra layer of protection against cyberattacks.
The primary appeal of hardware wallets is their superior security. Long-term crypto traders prefer these devices because hackers can’t break into hardware wallets remotely. However, people have to pay a premium for quality “cold storage” devices (e.g., hardware wallets) and using a hardware device isn't as intuitive as downloading a hot wallet or joining a CEX.
Explore Decentralized Crypto Trading on dYdX
Self-custodial wallets link to many DeFi services, including decentralized trading on dYdX. Any eligible user with a compatible crypto wallet can take advantage of dYdX's products and services, including fee-free crypto perpetuals.
Check out our blog and YouTube channel to learn more about dYdX and our product. You can also browse our academy to improve your understanding of crypto and trading strategies. Head to our main page to start trading on dYdX today!
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