Wallets
Last updated
Last updated
Blockchain technology has revolutionized the way digital assets are transferred and stored. One important aspect of blockchain technology is the blockchain wallet. This paper aims to provide an overview of what a blockchain wallet is, how accounts work on major blockchains, the difference between a seed phrase and a private key, what a hot and cold wallet is, why wallet security is important, which wallets are the best ones for each major blockchain, and what UTXO is as opposed to the standard accounts model.
Firstly, a blockchain hot wallet is a software that enables sending and receiving cryptocurrencies such as Bitcoin, Ethereum, etc. It stores the record of transactions and also public and private keys which are used to perform transactions.
Major blockchains have different account systems. For instance, Bitcoin and Litecoin use the UTXO (Unspent Transaction Output) model. In this model, each transaction output creates a new UTXO that can be spent later by the recipient.
In contrast, Ethereum and most other smart contract platforms use the standard accounts model. In this model, an account has a balance that can be spent by the account owner.
Web-based hot wallets that are custodial and store users' private keys on their behalf. Custodial wallets are provided by centralized crypto exchanges like Coinbase. This type of wallet is preferred by newcomers to the cryptocurrency world because of its user-friendly interface and convenience factor. With custodial wallets, users don't have to directly interact with their wallets and can often rely on the exchange to handle their security measures. But, not your Keys, not your Crypto.
Cold wallets are a type of cryptocurrency wallet that stores digital assets offline, making them less vulnerable to hacking or other cyber-attacks. They are also known as offline wallets or hardware wallets. Unlike hot wallets, which are connected to the internet and are accessible via a web browser or mobile app, cold wallets are typically physical devices that are connected to a computer or mobile device via a USB cable.
There are two types of cold wallets: hardware wallets and paper wallets. Hardware wallets use an offline device or smart card to generate private keys offline. An example of a hardware wallet is the Ledger USB Wallet. These wallets are often compact and easy to carry around with you. The Ledger Nano X is a popular second-generation cold storage wallet that costs around $119. Paper wallets, on the other hand, are a document printed on paper (occasionally printed on plastic) and store the private key offline. Never buy a used unsealed Hardware Wallet.
Cold wallets are used to store cryptocurrency for a long period of time or to store large amounts of cryptocurrency that aren't being actively traded. They are particularly useful for investors who are concerned about the security of their digital assets. When using a cold wallet, you need to transfer cryptocurrency from a hot wallet to the cold wallet, which can be done via a QR code or public address. However, you will need to have access to an internet connection to complete this transfer.
One of the biggest problems with cold wallets is the potential for loss or damage. If you lose your cold wallet or it gets damaged, you may lose access to your cryptocurrency forever. Additionally, while cold wallets are generally considered more secure than hot wallets, they are not immune to all forms of hacking or cyber-attacks.
It's also important to note that cold wallets can be difficult to use for individuals who are not familiar with the technology, and there may be a learning curve involved in setting up and using a cold wallet. They are typically not used for everyday use cases and are better for Treasury Storage which is hardly accessed except to add more.
A seed phrase and a private key are both used to secure access to a blockchain wallet. However, there is a difference between them.
A seed phrase is a list of words used to generate a private key. It is often presented to the user when creating a new wallet or when restoring an existing one.
A private key is a secret number that allows the owner to access their wallet and make transactions. It can be imported into other wallets.
It is important to note that losing a seed phrase or a private key can result in the loss of all assets in the wallet or account. Make sure to follow proper Cybersecurity.
The best blockchain wallet for each major blockchain depends on various factors, such as security, ease of use, and compatibility with the blockchain. These are the main ones we recommend.
