How do crypto wallets work anyways?
How do crypto wallets work anyways?
Crypto wallets don’t work the same as normal wallets do in the physical world. A first big difference between the two is if you lose your physical wallet, you lose everything.
Crypto wallets are a mastered improvement on physical wallet innovation, and deal specific with private keys.
If you’re new to the cryptocurrency ecosystem, here is what you *must* know before diving in.
Table of Contents
- What are crypto wallets?
- Private keys versus public keys
- How crypto wallet recovery works
- What is a ‘hidden’ wallet?
- SecuX crypto wallet coin support
What are crypto wallets?
Crypto wallets are digital and physical entities that guard the private keys used to manage your digital assets.
These wallets for cryptocurrency do not hold the cryptocurrencies themselves–as some may think. Cryptocurrency assets themselves live and exist on the blockchain itself.
Instead, crypto wallets hold the private keys used to sign digital transactions that permit the flow of any cryptocurrency asset from one location to another.
A wallet collects information, also known as a transaction ledger, from the blockchain network and displays all the information to a user.
For example, when you access your Ethereum account on the SecuXess web application, the system will use your keys to find the corresponding ledger on the Ethereum network and display it on your device and SecuXess.
You might ask then what is the point of a crypto wallet when all it does is pull the information from the blockchain network for you to look at and it does not store any actual coins?
Crypto wallets and your your private keys
Storing your private keys is the most crucial function of your cryptocurrency wallet. Every piece of information on the blockchain is public, except your private key!
Your private key is needed to access your funds and authorize transactions. Your keys prove your ownership of your digital currency, and allows you to make transactions!
If you lose your private keys, you lose access to your crypto!
Hardware wallets keep your private key offline
Hardware wallets are a type of crypto wallet that store your private key in an offline environment. This helps to ensure it’s only use the key to sign off on transactions you permit!
The difference between a hardware wallet and a software wallet is that with software wallets, your private key is always online.
Hardware wallets prevent all of that.
Private Keys versus public keys
Bitcoin, as well as all other major cryptocurrencies that came after it, are built upon public-key cryptography.
This is a cryptographic system that uses pairs of keys: public keys, which are publicly known and essential for retrieving information, and private keys, which are kept secret and are used for authentication and encryption.
Private keys generate public keys
Major cryptocurrencies like Bitcoin and Ethereum function using three fundamental pieces of information:
- The address, associated with a balance and used for sending and receiving funds
- The address’s corresponding public key
- The address’s corresponding private key
The generation of a bitcoin address begins with the generation of a private key!
From there, its corresponding public key can be derived using an algorithm. However, this cannot be done in reverse.
The address, which can then be used in transactions, is a truncated representation of the public key.
Private keys authorize any outgoing transactions
The private key is what grants a cryptocurrency user ownership of the funds on a given address. The wallet automatically generates and stores private keys for you.
When you send assets from a crypto wallet, the software signs the transaction with your private key without actually disclosing it.
This indicates to the entire network that you have the authority to transfer the funds from the address with which it is associated.
One-way street system
The security of this system comes from the one-way street that is getting from the private key to the public address.
As mentioned in regards to the limitation that prevents anyone from deriving a private key from a public key, it is also impossible to derive the public key from the address.
This one-way street system is what drives the cryptography and privacy benefits that come from working within the blockchain ecosystem!
How crypto wallet recovery works
Each private key is associated with a ‘recovery phrase’ or a ‘seed phrase’, which often gets misconstrued as being the same thing as your private key.
In fact, when you create a wallet for the first time, the device will provide you with a new recovery phrase, which is normally 12, 18 or 24 words long. This may also be referred to as a mnemonic phrase.
The private key is then generated by the encryption algorithm with the seed phrase, through which you may access or recover your access to your crypto wallet from a different device.
Losing your recovery phrase makes crypto wallet recovery impossible. Be sure to keep multiple copies on a durable material that won’t wither over time.
BIP 32, 39 and 44
BIP39 or Bitcoin Improvement Proposal: 39 is one of the many design ideas that was approved by an economic majority of the Bitcoin community and became a standard for many popular wallets.
BIP39 is the use of a mnemonic phrase, a group of easy to remember words, to serve as a backup to recover your wallet and coins in the event your wallet becomes compromised, lost, or destroyed.
Now these words aren’t just any words. They are pulled from a specific list of 2048 words known as the BIP39 wordlist.
When setting up your wallet for the first time, wallets that utilize the BIP39 standard will provide you with a 12,18, or 24 word phrase randomly chosen from the standard BIP39 wordlist!
As we have mentioned before, anyone can recover your wallet on any BIP39 compatible wallet using your recovery phrase. If that were to happen, it would become impossible to stop that entity from moving your digital assets to their own crypto wallet, so be sure to keep them safe!
What is a ‘hidden wallet’?
SecuX’s crypto wallets also have a feature called the ‘hidden wallet’, which is an advanced feature that enables extra protection to your crypto assets.
Simply, our ‘hidden wallet’ feature is a 25th recovery passphrase that you can set up to configure a parallel, separate wallet within your SecuX device.
In the event of a robbery or a ransomware attack, if you are forced to surrender your 24 recovery words and your PIN, you can give up a wallet of lesser value, and maintain full access and control to the parallel wallet. This allows you the ability to distribute your cryptocurrency across multiple crypto wallets, and improves your overall security against physical attacks!
SecuX crypto wallet coin support
Our wallets currently support 1000+ coins and tokens, including major coins such as Bitcoin (BTC), Ethereum (ETH), Cardano (ADA), Solana (SOL), Dogecoin (DOGE), Ripple (XRP), Bitcoin Cash (BCH), Binance (BNB), Litecoin (LTC), Stellar (XLM), and more, as well as all of the ERC-20 tokens, BEP-20 tokens, and the more popular TRC-10 and TRC-20 tokens.
Our team is also continuously looking for ways to add support for more coins and tokens.
Have any questions? Contact us today!