It is impossible to talk about Blockchain Technology without talking about the Blockchain Wallet.
In this guide, I will be telling you everything you need to know about the Blockchain Wallet.
To start with let’s talk a little about Blockchain Technology itself so as the grasp the basics.
What is a Blockchain
In simple terms, a Blockchain is simply a decentralized database that stores anything of value. This technology got its popularity from its unique way of storage, making it the safest way of storage so far.
Blockchain technology got recognition after the release of the first decentralized digital currency (cryptocurrency) known as Bitcoin using it as a storage mechanism. This leads us to the main subject of the day.
What are Blockchain Wallets?
A Blockchain Wallet is like a keeper or a place where we could access our digital decentralized currencies. I will explain; taking PayPal for instance, PayPal stores your fiat currencies in a centralized server using your email and password as a means of gaining access to your funds. You could either receive, send, and also store your money on this platform.
But, in terms of a Blockchain Wallet, instead of using just your email and password, it uses what is called a private key, which is similar to emails and passwords, and a public address, which is similar to an account number. Also, a Blockchain Wallet reads data from the decentralized Blockchain database just as PayPal reads data from its centralized database.
Most wallets would abstract the process of creating a private key so you probably will have to set a seed phrase instead and in some cases also an email and password which is then stored in the centralized server of the wallet provider. In as much as this has its downsides, it helps to improve user experience.
The Blockchain Wallet serves as a mediator between a user and the Blockchain itself.
Please note that although the Blockchain is decentralized, a Blockchain Wallet is not.
Why Blockchain Wallets?
Being a descendant of Blockchain Technology, it takes its attributes from the Blockchain itself.
Before Blockchain Wallets, transactions would take hours, sometimes days depending on the proximity. Imagine you wanted to send funds from the US to a person in Algeria using Western Union, it will take at least 3 days to get to the recipients.
But, with a Blockchain Wallet, you could send funds to any country in a matter of seconds or minutes depending on the block time (the time taken to validate and add a new block to the blockchain) of that particular cryptocurrency.
Also, the banking system falls short in terms of proper tracking and record-keeping but, this is where the strength of Blockchain Technology lies. The ability to store transactions in a secure, decentralized, and transparent way.
How do Blockchain Wallets Work?
As we previously mentioned, a Blockchain Wallet helps to send and receive decentralized currencies called cryptocurrencies.
Now, let’s see the chemistry behind this mechanism.
Whenever you create a Blockchain Wallet account, you create a private key and public key. These serve as your access keys.
The private key is your email and password, then some other complex security measures like pattern matching, and so on, depending on the wallet provider. While the public address is like an account number that is used to receive funds into your account.
The structure of the wallets is not something to bank upon, because it is centralized. Rather, all trusts lie on the Blockchain itself.
Again, a Blockchain Wallet serves as an intermediary between you and the Blockchain, thereby saving you the stress of running a node, and all complexities involved. In other to achieve this, it is easy to use, processes transactions fast, converts currencies, and also secure. At least, more secure than conventional systems.
Types of Blockchain Wallets?
Blockchain Wallets come in a variety of ways. With unique attributes ranging from the way of storage, structure, and device base.
Basically, they can be classified as follows:
Based on Medium of Storage of the Private Keys
Hot wallets are kinds of wallets that are always with us may be on our phones, desktops, online, and so on. An example of this is Binance.
It’s easy to access but has a high risk of being hacked because the user is prone to falling short of basic security.
As the name implies, these are kinds of wallets are built in a way that doesn’t support portable. They can be mirrored as vaults where cryptocurrencies are stored within a high level of security.
Based on Structure
These are the kinds of Blockchain wallets that are built in form of a computer program either on a desktop, mobile or, just online. Examples are electrum for desktop, Trust Wallet for mobile, and Blockchain.com itself. Okay, to clear confusion, note that all aforementioned wallets are online-based.
Hardware wallets are basically Blockchain wallets that are built most times in form of a USB, where users could store their currencies inside the USB. Also, it can only be accessed by connecting it to software that then enables the transaction.
This is more secure in comparison to the software wallets being that you can’t make transactions without the hardware present. But, it is prone to physical damages just like any other hardware.
Paper wallets are practically the most secure of other kinds of wallets is that it’s almost completely offline. Though outdated.
Also, all you need to do in order to receive cryptocurrencies is just provide your public address. Optionally, you could decide to link it to an online wallet for flexibility.
Similar to the hardware wallet, it is prone to damage. So, it is advised to store it in a safe place.
Because of its nature, it is used to store a large number of cryptocurrencies.
Blockchain wallets are one of the most tools for the blockchain. It makes it seamless to talk to the blockchain.
Though, it is prone to attack due to the fact that they are centralized in nature. So, make sure to ascertain the credibility of any wallet you decide to use.
With these, you should be able to get the fundamental idea of a blockchain wallet.
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