Wallet: Defined in CryptoCurrency

Cryptocurrency wallet

An example paper printable bitcoin wallet consisting of one bitcoin address for receiving and the corresponding private key for spending.

A cryptocurrency wallet is a device, physical medium, program or a service which stores the public and/or private keys and can be used to track ownership, receive or spend cryptocurrencies. The cryptocurrency itself is not in the wallet. In case of bitcoin and cryptocurrencies derived from it, the cryptocurrency is decentralize stored and maintained in a publicly available ledger called the blockchain.

Functionality:

A cryptocurrency wallet, comparable to a bank account, contains a pair of public and private cryptographic keys.

A public key allows for other wallets to make payments to the wallet's address, whereas a private key enables the spending of cryptocurrency from that address.

Wallet types:

Wallets can either be digital apps or be hardware based.

They either store the private key with the user, or the private key is stored remotely and transactions are authorized by a third party.

An actual bitcoin transaction from a web based cryptocurrency exchange to a hardware wallet (a Ledger Nano S).

Multisignature wallet

Main article: Multisignature

Multisignature wallets require multiple parties to sign a transaction for any digital money can be spent. Multisignature wallets are designed to have increased security.

Deterministic wallet:

With a deterministic wallet a single key can be used to generate an entire tree of key pairs. This single key serves as the root of the tree.

The generated mnemonic sentence or word seed is simply a more human-readable way of expressing the key used as the root, as it can be algorithmically converted into the root private key.

Those words, in that order, will always generate exactly the same root key.

A word phrase could consist of 24 words like: begin friend black earth beauty praise pride refuse horror believe relief gospel end destroy champion build better awesome.

That single root key is not replacing all other private keys, but rather is being used to generate them.

All the addresses still have different private keys, but they can all be restored by that single root key.

The private keys to every address it has and will ever give out can be recalculated given the root key.

That root key, in turn, can be recalculated by feeding in the word seed. The mnemonic sentence is the backup of the wallet.

If a wallet supports the same (mnemonic sentence) technique, then the backup can also be restored on another software or hardware wallet.

A mnemonic sentence is considered secure. The BIP-39 standard creates a 512-bit seed from any given mnemonic. The set of possible wallets is 2512. Every passphrase leads to a valid wallet. If the wallet was not previously used it will be empty.

Non-deterministic wallet:

In a non-deterministic wallet, each key is randomly generated on its own accord, and they are not seeded from a common key.

Therefore, any backups of the wallet must store each and every single private key used as an address, as well as a buffer of 100 or so future keys that may have already been given out as addresses but not received payments yet.

What is a cryptocurrency wallet?

A cryptocurrency wallet is an app that allows cryptocurrency users to store and retrieve their digital assets.

As with conventional currency, you don’t need a wallet to spend your cash, but it certainly helps to keep it all in one place.

When a user acquires cryptocurrency, such as bitcoins, she can store it in a cryptocurrency wallet and from there use it to make transactions.

Deeper definition

Cryptocurrency wallets are apps just like those you might run on a smartphone or computer.

If you prefer the tactile experience of holding a wallet, you can also buy a physical device that runs a wallet app.

The first cryptocurrency wallet was introduced by Satoshi Nakamoto when he first released the bitcoin protocol in 2009.

Bitcoin is the most popular and widely used cryptocurrency, but others building upon its blockchain technology have emerged, and any of them can be stored on a cryptocurrency wallet. Wallets can hold multiple cryptocurrencies.

When you want to acquire cryptocurrency, whether by purchasing it in a currency exchange or receiving it as a gift or as revenue, you direct the sender to a unique cryptographic address issued by the wallet.

You might picture your cryptocurrency stored on the wallet the same way files are stored on a USB drive, but, in fact, the information stored on the wallet only points to your cash’s location on the blockchain, the public ledger that records and authenticates all transactions for a cryptocurrency.

Spending with the wallet is as simple as scanning a retailer’s QR code or directing a specific amount of cryptocoins to the retailer’s public address.

Some economists warn that cryptocurrency makes for a lousy investment. You might be better off using Bankrate’s comparison of investment rates.

Cryptocurrency wallet example

For Bilbo’s 112th birthday, Frodo wants to send him some money.

He decides to send bitcoin, which has been appreciating in value. Bilbo has a cryptocurrency wallet app on his Apple Watch, and he gives Frodo the public address.

That following September 22, Frodo sends one bitcoin to the public address. Once that transaction is authenticated on the blockchain, Bilbo becomes the owner of the bitcoin.

Later, Bilbo wants to book a flight to Gondor. His travel agent accepts bitcoin, and he directs a precise amount from his bitcoin wallet to the travel agent and receives a plane ticket in return.

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