Cryptocurrency wallet

A cryptocurrency wallet stores the public and private keys which can be used to
receive or spend the cryptocurrency. A wallet can contain multiple public and
private key pairs.[1] As of January 2018, there are over thirteen hundred
cryptocurrencies; the first and best known is bitcoin.[2] The cryptocurrency itself is
not in the wallet. In case of bitcoin and cryptocurrencies derived from it, the A paper printable bitcoin wallet
consisting of one bitcoin address for
cryptocurrency is decentrally stored and maintained in a publicly available
receiving and the corresponding
ledger.[3]:93 Every piece of cryptocurrency has a private key. With the private key, it private key for spending.
is possible to write in the public ledger, effectively spending the associated
cryptocurrency.[4]

Contents
Wallet access
Backup
Wallet characteristics
Multicurrency
Software wallet
Hardware wallet
Watch-only wallet
Multisignature wallet
Brain wallet
Hot and cold wallet
Key derivation
Deterministic wallet
Non-deterministic wallet

References

Wallet access
When choosing a wallet, the owner must keep in mind who is supposed to have access to (a copy of) the private keys and thus has
potentially access to the cryptocurrency. Just like with a bank, the user needs to trust the provider to keep the cryptocurrency safe.
Trust was misplaced in the case of the Mt. Gox exchange, who 'lost' most of their clients' bitcoins. Downloading a cryptocurrency
wallet from a wallet provider to a computer or phone does not automatically mean that the owner is the only one who has a copy of
the private keys. For example with Coinbase, it is possible to install a wallet on a phone and to also have access to the same wallet
through their website. The software can also have known or unknown vulnerabilities. For receiving cryptocurrency, access to the
receiving wallet is not needed. The sending party only needs to know the destination address. Anyone can send cryptocurrency to an
address. Only the one who has the private key of the corresponding address can use [5][6]
it.

Backup
A backup of a wallet can come in different forms like:

A (encrypted) file like wallet.dat or wallet.bin which contains all the private keys.
 A mnemonic sentence from which the root key can be generated, from which all the private keys can be recreated.
Preferably these words could be remembered or written down and stored on other physical locations.
A private key like: KxSRZnttMtVhe17SX5FhPqWpKAEgMT9T3R6Eferj3sx5frM6obqA (see the picture).
When the private keys and the backup are lost then that cryptocurrency is lost forever. When using a webwallet, the private keys are
managed by the provider. When owning cryptocurrency, those trusted with managing the private keys should be carefully selected.
An (encrypted) copy of the wallet should be kept in a trusted place. Preferably off-line.[6] Some people 'write' their mnemonic
sentence or private key on metal, because it isrobust.[7]

Wallet characteristics

Multicurrency
Some wallets support multiple cryptocurrencies.

Software wallet
They come in different forms like:

An application installed locally on a computer , telephone or tablet (see the picture).

When using a webwallet the private keys are managed by a trusted third party . Some
web-based wallet providers use two-factor (likeGoogle Authenticator) for extra
security. In that case a keylogger is not enough for a hacker to steal the credentials and
get access to the wallet.[8]
Cryptocurrency exchanges link the user's wallet to their centrally managed wallet(s).
For example: When trading bitcoins between users on theKraken exchange, the
trades are written in their privateledger (off-chain transaction). Only when a user wants
to enter his cryptocurrency into the exchange or when he wants to take his
cryptocurrency out of the exchange, the transaction is written onto the public bitcoin
blockchain (on-chain transaction).
In order to initiate or verify a transaction, the cryptocurrency wallet connects to a client or node on
the network to process the request. In the case of bitcoin there are several types of clients like: full
An Ethereum wallet on
clients, headers-only clients, thin clients and mining clients. Some of them can process transactions
an iPhone.
and some of them also have their own wallet functionality.[9] Full clients verify transactions directly
on a local copy of the blockchain, or a subset of the blockchain.[10] Lightweight clients consult full
clients.[11]

Hardware wallet
Hardware wallets are considered the most secure, because the private keys never
leave the physical wallet. The keys are created, live (sign transactions) and die (are
deleted) inside the hardware wallet. If a hardware wallet uses a mnemonic sentence
for backup, then the users should not electronically store the mnemonic sentence, but
write it down and store in a separate physical location. Storing the backup
electronically lowers the security level to a software wallet level. Hardware wallets
like LedgerWallet and Trezor have models that require the user to physically press or
touch the wallet in order to sign a transaction, the destination address and the
amount of coins. The private keys remain safe inside the hardware wallet. Without
An actual bitcoin transaction from a
the private key a signed transaction cannot be altered successfully. Some hardware
web based cryptocurrency exchange
wallets have a display (see the picture) where the user can enter a pin to open the to a hardware wallet.
wallet and where the transaction can be verified before being signed. When reading
a mnemonic sentence from the physical display of the hardware wallet a
[12][13][14]
screencapture of an infected computer will not reveal the mnemonic sentence.
Watch-only wallet
With a watch only wallet someone can keep track of all transactions. Only the address (public key) is needed. Thus the private key
can be kept safe in another location.[9]

Multisignature wallet
With a multisignature (multisig) wallet multiple users have to sign (with their private key) for a transaction out of that wallet (public
key address).[15][16][17]

Brain wallet
With a brain wallet someone remembers the information to regenerate the private and public key pair(s), like a mnemonic
sentence.[18][19]

Hot and cold wallet

Terms also used in the context of cryptocurrency wallets are hot and cold wallets. Hot wallets are connected to the internet while cold
wallets are not. With a hot wallet cryptocurrency can be spent at any time. A cold wallet has to be 'connected' to the internet first. As
long as something is connected to the internet, it is vulnerable to an attack. The short version is that software wallets (where the
device is turned on or the wallet software is running) are considered hot wallets. A (not connected) hardware wallet is considered a
cold wallet.[20]

Key derivation

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 the exact 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 ever given 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 a third party software or hardware wallet.

A mnemonic sentence is considered secure. It creates a 512-bit seed from any given mnemonic. The set of possible wallets is 2512 .
.[3]:104
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
[3]:94
future keys that may have already been given out as addresses but not received payments yet.

References
1. Private and public keys in wallet on books.google.com(https://books.google.com/books?id=cFQxDwAAQBAJ&pg=P
T17&dq=cryptocurrency+public+receive+private+send+tracking+balance&hl=nl&sa=X&ved=0ahUKEwif7JiX2r_W Ah
UNK1AKHUsRD1EQ6AEIJjAA)ISBN 1387139967
 2. McGoogan, Sara; Field, Matthew. "What is cryptocurrency, how does it work and what are the uses?" (http://www.tel
egraph.co.uk/technology/0/cryptocurrency/). The Telegraph. Retrieved 14 September 2017.
3. Antonopoulos, Andreas (12 July 2017).Mastering Bitcoin: Programming the Open Blockchain(https://books.google.c
z/books?id=MpwnDwAAQBAJ&pg=PA93&redir_esc=y#v=onepage&q&f=false). O'Reilly Media, Inc.
ISBN 9781491954386. Retrieved 14 September 2017.
4. Juchisth, Smith. "Wat is cryptocurrency? Een introductie in deblockchain" (https://cryptostart.nl/introductie-in-cryptoc
urrency/). Cryptostart (in Dutch). Retrieved 9 December 2017.
5. "What is a Cryptocurrency Wallet? - CryptoCurrency Facts" (http://cryptocurrencyfacts.com/what-is-a-cryptocurrency-
wallet/).
6. "How to store your bitcoins - bitcoin wallets - CoinDesk"(https://www.coindesk.com/information/how-to-store-your-bit
coins/).
7. "Cryo Card Review: Nearly Indestructible Bitcoin Cold Storage - CoinAlert"(http://coinalert.eu/2015017743-Cryo+Ca
rd+Review+Nearly+Indestructible+Bitcoin+Cold+Storage.html) . coinalert.eu.
8. "How Bitcoin Companies Keep Your Funds Safe" (https://www.coindesk.com/bitcoin-companies-keep-funds-safe/).
CoinDesk. 25 November 2014.
9. Bitcoin clients on theseus.fi(https://web.archive.org/web/20140118104507/http://publications.theseus.fi/bitstream/ha
ndle/10024/47166/Skudnov_Rostislav.pdf)
10. "Bitcoin Core version 0.12.0 released"(https://bitcoin.org/en/release/v0.12.0#wallet-pruning)
. bitcoin.org.
11. "Lightweight clients on iacr.org" (https://eprint.iacr.org/2014/763.pdf) (PDF).
12. Burton, Charlie. "So, you've bought Bitcoin. Now what?"(http://www.gq-magazine.co.uk/article/bitcoin-hardware-wall
et).
13. "The 3 Best Hardware Wallets For Bitcoin of 2018 ( ++ Altcoins)" (https://coinsutra.com/best-hardware-wallet-bitcoi
n/). 15 November 2017.
14. Torpey, Kyle. "Bitcoin Hardware Wallet Review: Ledger May Have Caught Up to Trezor With Nano S" (http://www.nas
daq.com/article/bitcoin-hardware-wallet-review-ledger-may-have-caught-up-to-trezor-with-nano-s-cm679849).
www.nasdaq.com. Nasdaq. Retrieved 5 December 2017.
15. "The best multisignature wallets for 2016 » Brave New Coin"(https://bravenewcoin.com/news/the-best-multisignatur
e-wallets-for-2016/). 13 January 2016.
16. "Zendesk" (http://support.ledgerwallet.com/knowledge_base/topics/how-to-use-your-ledger-with-copay-as-a-multisig-
wallet). support.ledgerwallet.com.
17. "Bitcoin, Litecoin, & Ethereum Vault" (https://www.coinbase.com/vault?locale=en#features).
18. "How to create a brain wallet - CoinDesk"(https://www.coindesk.com/how-to-create-a-brain-wallet/). 10 June 2013.
19. Matonis, Jon. "Brainwallet: The Ultimate in Mobile Money"(https://www.forbes.com/sites/jonmatonis/2012/03/12/brai
nwallet-the-ultimate-in-mobile-money/).
20. "Bitcoin Glossary" (https://support.coinbase.com/customer/portal/articles/1833695-bitcoin-glossary)
.

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