More on cryptocurrency wallets

Hi it’s Keir Finlow-Bates here, and Tamra
Groff asked me if I could talk a bit
more about wallets, so here goes.
In blockchain, wallets perform one or
more of the following three fundamental
actions: the first is the generation
and/or storage of private keys, the
second is the signing of transactions,
and the third is the submission of
transactions to the blockchain. So if we
start off with the simplest form of
wallet – that would be a paper wallet, and
there what you do is you generate
private keys, corresponding public keys,
and you write them down on a piece of
paper, and then if you have generated the
private keys by tossing a coin 256 times,
for example, and you have generated the
public keys by using those private keys
in an offline computer, provided you put
the paper wallet in an envelope and
store it in a metal box in a basement
with a sign saying beware of the leopard
on the door, then you’re pretty safe, and
what you can do is you can keep the
public keys in your pocket, and credit
them with bitcoins as and when you see
fit, and as long as you’ve done the
public address generation properly you
should be pretty safe for years if not
decades in storing your coins
that way. The next level up would be
hardware wallets, and this is where
companies have made dedicated pieces of
hardware with (hopefully) very good strong
random number generators onboard, and
where there is a memory section that is
protected so it can’t be hacked into if
somebody manages to steal your device.
And typically what happens with hardware
wallets is that you generate a seed
phrase – so this is a long string of words –
and that is used to create a seed for
the random number generator which
generates the private keys, and that
means that if your hardware wallet is
ever lost or damaged you can use that
seed phrase to create a new hardware
wallet as long as you can get hold of
the same model or you know the algorithm
that is used to
generate the random numbers. And
hardware wallets typically also allow
you to create a transaction on your
computer and then feed it into the
hardware wallet where it will then sign
it and return your signed transaction and
then you can use your desktop to
transmit that to the blockchain network.
And the idea is to keep an air gap
between the hardware wallet and the
internet so that nobody can come in and
hack your hardware wallet. Then at the
third level you have software wallets
and Tamra mentions mobile wallets and
software wallets, but I think they’re
actually both the same – if you install a
piece of software on your mobile phone
that’s very similar to installing a piece of
software on your desktop. They’re both
connected to the Internet, they are both
vulnerable to being hacked, so it’s
not the securest way,
however it is the most convenient way so
they make sense for small quantities of
cyptocurrency or to be used briefly when you
take a paper wallet or a hardware wallet
and you need to submit the transaction
to the network. And again there, there
will be something that generates random
numbers to create your private keys just
like the hardware wallet, hopefully
there’ll be a seed phrase or passphrase
to lock leave software when it’s not
being used, and another one for actually
generating the whole clutch of addresses
so that you can recreate them if the
software has ever corrupted or damaged
or deleted accidentally. So there you go –
those are the three levels:
storing keys, secondly – signing
transactions, and thirdly submitting
transactions to the network. And the
different levels of convenience versus
security that you get. Hope that was
informative and see you in the next
video soon. Bye for now!

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