Wallets & Keys
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It’s time to talk about the 2 missing pieces in the jigsaw of transacting in a decentralised world. Wallets and Keys. They will continue to live in your pockets but instead of a piece of leather holding paper and pair of keys, they’ll exist on your mobile phones. You can also access them through your computer.
In the previous post, we discussed the flow of transactions on the bitcoin blockchain. If you missed that, please do give it a read. It’ll help you understand today’s post better. You can find it here👇🏽
Wallets have 2 keys; a public key which also serves as your address and a private key. One simple analogy is to think of your public key as your email address and the private key as your password. You can receive an email from others if they have your email address but only you can access those emails in your inbox using your password. Similarly, people only need your public key to send you cryptocurrencies or other digital assets, your private key is something you need to access those funds and send them. Keeping that analogy in mind, it’s needless to say that you should not share your private keys.
Both the keys are linked to each other. In fact, your public key is generated with your private key. So if you every forget your public key, you can use your private key to regenerate it. However, someone who knows your public key can never find out your private key (unless you tell them). Think of your private key as a stamp on a transaction. Your friends use your public key to verify that the transaction was actually stamped by you.
A public key looks like this: 0xEFeA36Cc43918b1680f0C41744BA110157ecF35D (this is my public key for ETH, feel free to send some) and a private key looks like this: nice try! But it’s also an alphanumeric combination.
There are 3 types of wallets that you can use. The first one is a software wallet. These wallets are online based, exchanges like WazirX and Binance are good examples. The public and private keys are stored on their servers and they let you access them through your account. Technically, they can spend your crypto because your private key is stored on their servers. You also risk losing your tokens if the exchange’s system is hacked.
There’s another kind of software wallet. This wallet does not store your public and private keys. Instead, the keys are stored on your local machine like a computer or phone. Wallets like Metamask (native to the Ethereum blockchain) and Phantom (native to the Solana blockchain) are the most used ones. Think of them as offline software wallets. They are the most secure wallets and easiest to use. The only way someone can get in them is if you have a virus on your local machine or if you’ve downloaded a pirated version of the application. The best part is, these wallets are absolutely free to use.
The second type of wallet is a hardware wallet. They are USB sticks that store your pair of keys on them. Once you unplug them from your computer, no one has access to your keys. Wallets like Ledger and Trezor are the most recommended ones. They have an extremely secure process of getting into them for example, Ledger uses a 24 key phrases system. If you forget the phrases, there is no way to access your assets. On the other hand, this makes it almost impossible to hack.
The third type is the most secure. You don’t need an expensive piece of hardware or a server to maintain your keys. All you need is a pen and a piece of paper. These wallets are called Paper wallets. Basically you write down your public and private keys on a piece of paper and make sure you don’t lose it, intentionally or accidentally. Like I said, most secure but also least practical. You can use this method if you’re holding a large sum of money in crypto and you don’t want to access it often.
So to sum it up, we are going to divide these wallets into 2 classifications. A hot wallet and a cold wallet. A hot wallet is a wallet that’s connected to the internet whether it’s through a company or your own local machine and it can be accessed online or through an online application. A cold wallet on the other hand is one that needs to be connected to a device in order to access your keys. Hardware wallets and Paper wallets fall under this category.
A hot wallet will always be vulnerable to online attacks and hackers are always finding new ways to get into your systems. Once your private key is public, you can kiss your cryptocurrency goodbye (been there, done that 😟). You can use hot wallets if you don’t hold a large sum of money in crypto assets or you transact frequently on the blockchain. With a cold wallet, you risk forgetting the pass phrases or losing it. Having said that, you will be more careful if you’ve invested thousands of dollars in these digital tokens. In which case, a hardware wallet definitely makes more sense for you.
Now, visit the links that I’ve mentioned in this post and find the best wallets for your use case. Remember, always DYOR!
Happy reading y’all, I’ll see you on the next one. Don’t forget to drop a like if y’all learnt something valuable today. It takes less than a minute and it helps the substack algorithm to show this newsletter to more people! It also low-key (high-key) makes me feel good when y’all show some love. 😜