- Crypto wallets do not store cryptos on it, but it stores keys to transactions that are on blockchain
- The way it works is that it generates a public and private key. Public key is used to receive payments and private key is used for “signing” or confirming transactions to assure that you are the owner of crypto that you are trying to send to someone else.
- private key is hard to remember
- Private key never leaves your wallet device
- Private key is very important and shouldn’t be shared with anyone
- WHen you have a wallet, you are the one that owns it and there’s no third party that owns your cryptos
- Because you own all cryptos, you don’t have to ask anyone to give you your own money
- The difference between crypto wallets and normal banking is that a bank has an IOY contract that says that they owe you the amount of money you’ve got on a bank account.
- If bank will go bust, they don’t have to give you all the money you stored on your account
- Because all details are on a blockchain, not on bank’s account, technically, you are the only one that can access the balance
Types of wallets
- Wallets on a marketplace
- It is similar to having a bank account as you don’t own the keys, it is the crypto marketplace that owns them, but assigs them to your account
- if the marketplace is going to go bust, you loose crypto
- there is no guarantee that you will retrieve your cryptos as there’s no guarantee scheme that protects your cryptos from it
- Automatic updates
- Hardware
- It is a hardware wallet that you can plug in to your computer
- Very safe and probably enough for an average person
- Some of them allow you to connect with DeFi
- You have to update by yourself
- You can generate public key offline
- Software
- it is an app that you install on your device
- They allow you to connect to DeFi
- Automatic updates
- Paper
- it is basically a generated piece of paper with private and public key
- Not very safe
- Multi-sig
- it is a method where you have to use multiple wallets to gain access to your cryptocurrencies and it is the safest
- Brain wallet
- It is basically your brain
Categories of wallets
- hot wallet
- they are constantly connected to the internet and are constantly active
- those are mobile, marketplace and desktop wallets
- cold wallet
- hardware
- paper
- brain
How transactions work
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When you send a BTC to someone else, it is being being sent to “miners” that confirm your transactions. all miners verify that you are the owner of the keys to transaction (cryptos) and all of them need to confirm. I
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if one of them won’t confirm, your transaction will be rejected
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If they all confirm, that information is being saved on a new blockchain
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When you are staking from your own wallet, you are not providing the cryptos to that validator, but you are “allowing” them to use them to validate (proof of stake)
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If someone has seed to my hard wallet, I need to transfer all cryptos out of it and then generate a new wallet with new seed phrases. You don’t have throw away your wallet
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You can use your hardware wallet with a hot wallet to secure your hot wallet. The hardware wallet will be used for confirming transactions. It is useful when you want to buy cryptos that your wallet does not support
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Even if the company that created a hardware wallet goes bust, you can still recover your cryptos thanks to EIP39 standard