Demystification on Crypto Wallets

Just a few minutes back, a friend of mine came to me asking about Wallets!

As usual, I make sure to get others' understanding, than abruptly make the 'bang' with the theories, on others! This is to say that I learn to listen to others first! This strategy not only helps you to avoid the cumbersome lessons that would mystify yourself, but to put the lessons into a proper trove, yet closing the gaps of your partner. In the process, you also gain insightful bits from your friend, who you may underestimate. Or the worst case, your talkativeness may sound boorish. 

Well ! While we may 'similarise' conventional wallet and crypto wallet, the 'ad idem' may be far from reach, unless their elements are a 'real' match.

Orthodoxically,  we carry wallet, and its understood that we own money - I mean fiat currency. In other words, you would be carrying money or a debit card (ATM), in your wallet-unless you are deadened with destitute. Conversely, owning a crypto wallet does not mean you automatically own coins. The ownership is tied to UTXOs (Unspend Transaction Outputs) that are link to your wallet's public address. To reiterate, unless your address controls certain UTXOs, you do not own any spendable Bitcoin. The analogy of winning the lucky-draw system, through the match of your ID, would then proclaim the actual ownership of the price. Similarly, have an actual ownership of the coin in the network, proves the presence of a verifiable link on a public ledger.

Do you own a physical coins in your wallet, if you own part of public ledger?

NO. You only have the key (private key) that allows you to spend the UTXOs associated with your address. Remember! every satoshi on the blockchain is always assigned to some address. That is, the crypto wallet does not store Bitcoin, instead stores the key to spend Bitcoin recorded on the public ledger. In other words, you own bitcoin only if your wallet key can unlock UTXOs assigned to your public address. 

What types of wallets are available?

As far as I know, I have the following in my list:

1.   Hardware Wallet: You own a hardware (such as Ledger or Trezor), wherein, you could store the private key. The device is literally offline, and is protected from malware or attacks. However, be careful in securing the ownership as the key to the vault is with you. 

2. This is similar to 1, but here, we use devices such as thumb-drive to store the keys.  Please read if you are to own the hardware wallet https://www.binance.com/en/square/post/17155193813290

Analogy 1/2

You keep the box of gold at home, and the key to the box is with you. Thus, the only way to open the box of gold, is to get you and the key altogether.  

3. Software Wallet (such as Blue Wallet, and Electrum): Unlike 1, and 2, this wallet is online, and is often referred to by another name-hot wallet.  Since this wallet will be connected to the internet, security aspects are at the owner's disposal. Keep in mind that the private keys are exposed to the internet. 

Analogy 3

You kept the box of gold at home, and the key to the box is at home. The only way to break open the box, is to open the door. 

4. Custodial Wallet (such as Binance):  This is more or less an Exchange, through where you can trade your bitcoin. However, to me, I use it interchangeably, as Binance also offers Software Wallet option. But keep in mind, as the keys are kept with Binance-in a way, you fully trust Binance.

Analogy 4

You are keeping the box of the gold, and the key with Binance.  

Note: 

Every coin has two sides, so is the case with all options. And having written the insights on cyrpto-wallet, I do not claim to invite or encourage the readers for any sort of cypto investments. Additionally, the name ‘Binance’ is mentioned only as an example and is intended purely for educational purposes. For detailed disclaimer, please visit https://immtalimm.blogspot.com/p/disclaimer.html