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š£ Wallets: The Babysitters that Every Crypto Owner Needs
This weekās edition is on crypto wallets.
Actually, Iām dedicating this entire post to talk about what wallets are not.
Next week, Iāll do a āWallets Part 2ā, where Iāll talk about different types of wallets and how to get one.
š Crypto Wallets Are Actually Keychains
People who own crypto tend to think itās āstoredā in a wallet.
When I say āwalletā, Iām not talking about ^ these ones.1
Iām talking about wallets used for cryptocurrencies, like Coinbase Wallet, MetaMask, and the hundreds of othersā¦2
Unlike leather wallets, crypto wallets donāt store any currencies.3 Theyāre pieces of software or hardware storing something else: ākeysā.
Keys are just long random numbers. There are two types we care about: public keys and private keys.
A public key is like your bank account number. Itās your āpublicā address through which you send and receive cryptocurrencies.
A private key like the bank accountās password. Itās a private number that helps verify that you own the crypto in an account.
Hereās an example of a public key just so you understand how ugly they look ā 0xAbA16998347105c48A87eb47367Af9761fb558BA
(This is actually the public key for my account in case you ever want to tip me :)
Wallets donāt manage your crypto. They only manage your keys. It would actually be much more accurate to call them crypto keychains instead of wallets.
But why do keys need managing? Itās because anyone who knows your private key can spend all your crypto or send it to themselves.
Clearly, then, we need a good babysitter for our keys. Enter the crypto walletā¦
š£ Babysitting the Keys
If people were in charge of creating private keys, theyād choose something like 123456
or privatekey123
.4
And if they had to store the keys safely, theyād write it down on their Notes app or a crumpled sticky note, which is unsafe and extremely easy to lose!
This is where wallets step in. They take charge of creating a secure private key and storing it safely.
Hereās how they do this:
Wallets come up with a random sequence of 12 words and ask you to write them down safely
They use this word sequence to generate long random numbers, a.k.a. our public and private keys
Finally, they store these keys on your mobile or browser or their own device, depending on the type of wallet
Your only job is to take care of the 12-word sequence. Anyone who knows it can āre-createā a wallet and its keys, which is why itās also known as a recovery phrase.
Keep your recovery phrase safe. Hereās a short video from MetaMask on how you can do that:
š¬š¼ A Crypto Wallet is Like Venmoās Ugly Twin
(Not that Iām implying Venmoās a beautiful app, but still.)
If youāre familiar with Venmo, youād know that it doesnāt store any money on your phone or the app itself. It just shuffles peopleās account ābalancesā.
Your ābalanceā is just a number stored on a database somewhere in the world. And yet, even though you don't know where this database is and who has access to it, you trust Venmo.
You build that trust by repeatedly sending and receiving transactions on the app and thinking to yourself, "hmm...maybe I can trust this app to 'storeā my money".
Crypto wallets work in a similar way. They don't store your cryptocurrencies. They only make transactions for you.
The only big difference is that these transactions arenāt stored on Venmoās database, but rather on a special public database (yes, I mean blockchains).
When you want to āVenmoā someone, you ask for their username or āhandleā, open the app, type in their @handle, and press āSendā.
Wallets work the same way, except the handles are ugly long numbers disguised as āaddressesā. To send someone crypto, you paste in their address, specify the amount, and press āSendā.5
So, the more you use a crypto wallet, the more youāll realize that itās actually just an uglier version of Venmo. And the primary reason everythingās uglier is that the design decisions prioritized security over ease-of-use.
Every interaction you make in our crypto world starts with your wallet ā whether thatās exchanging currencies, buying an NFT, or even just checking your balance.
Thatās why wallets are so cool.
Keep in mind that crypto wallets are only cool because they create and store your keys safely. They wouldnāt be as cool if you didnāt do your part.
So, if thereās one takeaway from this post, itās this: keep your passwords and recovery phrases safe.
You never know, sometimes millions could be at stake.
Image Credits: RobbReport
In fact, cryptocurrencies arenāt āstoredā anywhere. The only thing thatās āstoredā is a record of accountsā transactions, giving way to account 'balancesā.
I based my guesses on NordPassās list of the 200 Most Common Passwords.