A cryptocurrency wallet knows your balance by interacting directly with the blockchain, which serves as the system of record for all transactions. Here\’s how it works:
- Public and Private Keys: Your wallet generates and stores pairs of cryptographic keys. The public key is used to receive funds, while the private key is used to access and send funds. These keys are essential for managing your cryptocurrency securely.
- Blockchain Interaction: The wallet connects to the blockchain, a distributed ledger that records all transactions. It uses your public key to find all transactions associated with your address.
- Balance Calculation: To determine your balance, the wallet scans the blockchain for all incoming and outgoing transactions linked to your public address. It sums up all the amounts received and subtracts all the amounts sent, providing the current balance.
- Verification: This process is facilitated by the decentralized and transparent nature of the blockchain. Since all nodes in the network have a copy of the ledger, your wallet can verify transactions independently, ensuring accuracy and integrity.
- Transaction History: The wallet also maintains a transaction history, which helps track your balance changes over time by recording all incoming and outgoing transactions.
In essence, your cryptocurrency wallet continuously checks the blockchain to provide an accurate and up-to-date balance by leveraging the public ledger and your cryptographic keys.
