CRYPTO WALLETS AND KEYS

Have you read somewhere that your keys are stored in your cryptocurrency wallets? And got perplexed that which keys they are talking about or what are crypto wallets? You might have searched it on google but didn’t get any clarity? This article will surely solve your queries

WHAT ARE CRYPTOCURRENCY WALLETS?

We all are aware of term ‘wallet’. In layman language wallets are where we store some cash, our credit cards, debit cards, identity proofs, etc. For crypto wallets functionality is same, but they store 2 addresses. 1 private address and 1 public address. Private address is your private key which is to be kept confidential and is used to sign transactions, decrypt messages, etc. Public address is like email address using which you can send and receive cryptocurrency. Cryptos are stored on their blockchain only.

TYPES OF CRYPTO WALLETS

HOT WALLETS – They work with internet connectivity and are unsecured. These wallets are prone to attacks by hackers and if hackers get access to your wallet, they can steal the private key and you can lose all your cryptos. Its further classified into SOFTWARE WALLETS which are further classified into:

· Web based wallet- These wallets can be accessed from any cryptocurrency website or exchange. They are also known as custodial wallets (3rd party can also access our keys). They are least secure and is more prone to attacks. Examples are Coinbase, blockchain, Gemini, etc.

All other wallets other than web-based wallets are also known as non-custodial wallets (only we can access our keys)

· Mobile wallets- These wallets can be accessed through a mobile app on your smartphones. Transactions can be easily facilitated by scanning QR codes or by touching (NFC). Example is Mycelium famous mobile bitcoin wallet.

· Desktop wallet- These wallets can be installed on your laptops or computers. These wallets re connected to nodes (nodes help in validating transactions and keep your cryptos secure. Some types of nodes are full node, lightweight node, mining nodes, etc.). example exodus bitcoin wallet, bitcoin core, etc.

COLD WALLETS- They don’t need internet connectivity, can work offline and are secure to execute the transactions. These are further classified into hardware wallets and paper wallets.

· Hardware wallets- These wallets are like USBs. You can plug them to your computer or laptop and can access your keys. Main companies which provide hardware wallets are ledger, Trezor and keep key, etc. Different hardware wallets have different features like coins they can hold, etc. Whenever you will use these wallets, some seed phrase or mnemonic phrase will be displayed to you which you should write down securely and store safely as these phrases help you generate your private key. These are the most secure wallets but you should still be aware of some of its cons like seed phrases can be lost, it’s a new wallet only and not a used one, etc.

· Paper wallets- It’s a printed paper which stores your key addresses and should be kept at a safe place to access your coins. However, they are accessed through live wallets like desktop wallet, mobile wallet, etc. So, completely they are not cold wallets. As key addresses on these live wallets gets printed out.

Now you can see all these are digital wallets. So, one more type of digital wallet is-

Hierarchical deterministic wallet- In these wallets private key and public key is generated randomly using seed(phrase). It is hierarchical because from a seed a master private key is generated which further generates some private keys which can further generate private keys, etc. Also, a master public key is generated which can separately generate more public keys without knowing private key. It is a detailed concept, if you want, I can make a separate article on it.

NOW LET’S HAVE SOME LOOK ON KEY

In current cryptography method used (asymmetric cryptography) There are 2 keys- public key and private key. These keys are not like keys you use at your home to unlock something, but these are addresses of a particular length, also public key is generated if private key is known.

Example sender wants to send some ether to the recipient then he will take the latter's public address will encrypt the message and will send it to the recipient which he can decrypt using his private key.

Length of a key is in bits. 1 bit only has 2 possible values 0 or 1. As you can see in the figure. Key space are possible combinations to decrypt data which protect your keys from getting stolen. Key space is 2^n. Example a 128 key length has 2^128 key space. It means hacker has to try 2^128 combinations to steal the key.

Now how these keys are generated?

These keys are generated using Encryption algorithms like RSA, DES, AES, etc. Or random number generator, pseudorandom number generator, etc.

A detailed article on encryption algorithms will be published soon. Hope you are clear about the topic and will be interested to read future articles too.

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