In the previous post, I talked about public and private keys, and showed how a transaction was executed to send money from one wallet to another.
If you paid attention to that post(especially the animation), you will realise that wallets are in charge of using public and private keys to communicate over the network, meaning to send the message about a transaction to be executed. Therefore, the wallet is a software that knows how to read the keys in order to use them, and also knows how to communicate with the network in which it operates.
Network in which operates? Well, yes, just as there is the network of Visa, Mastercard, etc... In Blockchain there are several networks, each with proposals and targets to solve problems, but we can leave that for later. For now, stay with the idea that Blockchain wallets are software that access these Cryptocurrency networks and interact with them.
Wallets can be divided into 2 groups:
- Hot: they digitally store the keys, and use them when needed. These wallets can be implemented on websites, PC and mobile software.
- Cold: they contain the keys in some physical media. In this case, they always need a software that knows how to read the keys from the physical media, in order to activate them and operate on the network. These wallets can be a printed paper with the keys or a special memory that stores the keys.
In the following chart you can see the different types of wallets that exist, as well as their ease of use and security.
Developing the graph further, we have the following wallets:
- Online: these are wallets that are on a website. Normally the exchange houses, for example, wirex, nexo, coinbase, revolut, etc..., offer these wallets for convenience and simplicity to deposit the coins you buy, in the same way, they manage to lower their fees. The biggest problem they present is security, you are not the owner or responsible for the keys, therefore, they could control your funds, if they close the page they would keep your coins (like when a bank goes bankrupt), and they could even be hacked and your keys could fall into unwanted hands.
- Applications: these are wallets that are installed on your computer or mobile phone, either as an application (electrum, exodus, algowallet, etc.) or as an extension of your web browser (MetaMask). Their security is moderate, as you have full control of the keys, but you should avoid computer viruses. Additionally, these software can offer investment services, and in the case of "MetaMask", which is a browser extension, it is used to connect to the so-called web3, which are nothing more than web applications that offer investment services.
- Physical media: they are usually USB sticks (ledger and trezor are the most popular), which you must connect to the computer to be able to interact with the web3, or some application to make a transfer. You can also have paper wallets that have the keys printed on them, bearing in mind that if someone has access to them, they can manipulate your funds.
The following image is a paper wallet, which I have generated at bitaddress:
I think this is more than enough for today, in the next post I will show you how to use some of the wallets I already use, such as MetaMask or Exodus.
