Hello friends, hope you are doing good and enjoying your life. Today, I am going to introduce you to the Ethereum wallets. I have given you an introduction to blockchain, its characteristics, and an introduction to accounts in my previous tutorials, so let’s get started with today’s tutorial on Ethereum wallets.
What is Ethereum Wallet???
In this section, I will introduce you to the Ethereum wallet and then we will move into its further details.
- A blockchain wallet is just like a real-life wallet but in software form. It is the digital form of a wallet.
- A wallet is application software that acts as a user interface to the Ethereum network.
- The wallet is a system to manage and store the keys.
- This digital wallet allows transferring cryptocurrencies from one account to another.
- The functions that can be performed by using a wallet are:
- Access to your money
- Access to accounts
- Management of keys
- Management of addresses
- Management of cryptocurrencies such as bitcoin or ether
- Tracking and viewing the user’s balance in different accounts
- Initiating transactions
- Signing transactions
- Interacting with contract accounts
This was some basic idea of wallet technology. Let’s move towards an important feature of wallets i.e., key management in the next section.
Key Management in Ethereum Wallet
- The actual function of a wallet is managing keys.
- If you think that your wallet will contain money then it is not true. You can view your balance via your wallet but this balance is actually residing on the Ethereum blockchain.
- Your wallet contains keys (both private and public) and by using these keys, you can sign transactions on Ethereum.
- To transfer ether or any cryptocurrency to other accounts, you need keys stored in your wallet.
- In centralized systems such as banks, your money is saved under your account. You can check the account balance and perform transactions with the involvement of banks. While in the blockchain you can control your money with your wallet yourself.
Ethereum Wallet Design
- While designing or choosing a wallet, two factors are considered that are convenience and privacy.
- There is always a trade-off between the two.
- With more convenience comes privacy issues and with strict privacy, convenience is compromised.
Types of Wallet
The wallets are classified into two main types depending upon the relationship between the keys they hold. These types are given below:
- Deterministic Wallet
- Non-deterministic Wallet
Now, I will explain these types a little bit. The first one is the deterministic wallet.
1. Deterministic Wallet
- In this kind of wallet, all wallet keys are generated from a single key.
- This single key is called the master key and it is derived from a seed.
- All of the keys are related to each other. Here, the original seed value is very important.
- These keys can be generated again with the use of seed value.
- Commonly, these keys are linked in the form of a tree structure where the root is the seed value.
2. Non-deterministic Wallet
- The second type of wallet is a non-deterministic wallet. In this kind, the keys are not related to each other.
- Each key of such a wallet is generated independently from different seed values.
- This wallet is also termed a random wallet and it is better than a deterministic wallet in terms of security.
- There is a concern about security in deterministic wallets as all keys are related.
- If anyone gets a hold of the seed value, he can generate the master key and then all other keys of the wallet. It will give access to the balance.
For unfortunate data loss accidents, when a person loses his seed, the seed value is converted to mnemonic codewords. The mnemonic code words are a bunch of English words that the wallet holder has to keep safe. This word list can be saved in the form of a hard copy by writing that on a piece of paper and then storing it in a secure place.
This concludes the section here. I will now discuss different wallet applications available for you in the next part.
Different Forms of Wallet
There are different kinds of wallet applications for you to select from. The interesting thing about wallets is that you can switch from one type of application to the other. If you do not like the wallet that you are using, you can change your wallet easily and there is no loss in doing so. All the funds in your current wallet would be transferred to the new wallet. Your keys would be moved from the old wallet to the new one.
The wallet applications are classified into three types that are listed below.
- Mobile Wallet
- Desktop Wallet
- Online Wallet
- Hardware Wallet
- Paper Wallet
- A mobile wallet is simple a phone application.
- You install the wallet application on your mobile phone and then access your account.
- These wallets can be used anywhere and are safer than online wallets.
- The only problem arises when there is a phone breakdown when you can lose your money.
- A desktop wallet is also a safer option than online wallets.
- You can download a desktop wallet on your personal computer and access it anytime from the same device.
- The issue with this type of wallet arises when your desktop gets out of order, gets hacked, or is infected by a virus.
- An online wallet is a convenient option to use.
- It can be opened anywhere from any device having an internet connection.
- These wallets reside on the cloud. Online wallets have higher security issues and can be used wisely.
- In this kind of wallet, the keys are stored on some hardware device such as a flash drive.
- The hardware wallet remains offline mostly which provides security features.
- This wallet is a convenient and safe option although expensive among others.
- The last type of wallet is a paper wallet. This is the safest option among all options.
- The public and private keys are written or printed on a sheet of paper to make a physical copy and that copy is called a paper wallet.
- The transactions are done by entering private keys or you can also scan the QR code of your paper wallet.
These were the types of wallet applications and you can choose any of them depending on the features you prefer the most. So, guys, this was all about wallets. I hope you have learned something new from this article. That was all for today, Take care!