Bitcoin Wallets
A bitcoin wallet is a user friendly piece of software that interacts with the bitcoin network. These wallets enable you to send and sign transactions, receive, and manage your bitcoin funds on mobile and desktop devices, much like your mobile banking.
Software wallets have the capability to create and manage your private keys, public keys, and all the public addresses associated with those keys, which are derived from your private keys. (Understanding keys)
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Some examples of software interfaces are:
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Sparrow for Desktop.
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BlueWallet for Mobile.
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Nun-chuck wallet for mobile. (Wallet names blurred out)
Software wallets have the capability to function with just a public key, with your private key stored offline, ensuring it's isolated from any online threats (remember, not your keys, not your coins). Wallets without your private keys can only view your account balance and receive incoming transactions. To send funds from these wallets, a transaction must be manually signed with your private keys, this is done done using a hardware wallet signing device.
Software wallets can be categorised into two types:
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Hot wallets - These hold your private keys and have the ability to send funds with out the use of a Hardware device. They come with greater ease of use but offer lower security.
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Cold wallets - These do not hold your private keys; consequently, they do not have the ability to send transactions without manual signing from your external private keys utilising a hardware device. They come with slightly less ease of use but offer an exponential increase in security.
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It is recommended as a safe practice to never hold more in a hot wallet than you would be willing to lose, just as you would not carry your life savings in your physical wallet on a daily basis.
Cold wallets are recommended for holding larger amounts. They are far more secure because your keys are offline, safely isolated from any potential threats.
Hardware wallets/devices
A hardware wallet (HWW) is a physical device designed to store your private keys in an environment isolated from any internet connection. These devices are used to manually sign transactions from cold wallets.
There is a wide range of hardware wallet brands, and they come in various shapes and sizes.
Examples of some hardware devices include:
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Cold Card
Trezor
Passsport
Hardware devices (AKA Signing Devices) have the ability to generate your private keys offline, store them securely, and export only the public key to a software wallet, creating a cold wallet.
All hardware devices are protected by a password or PIN, which you'll be prompted to create upon setup.
To explain how a hardware device signs a transaction, imagine making a transaction in your cold wallet to a recipient's address. Since this cold wallet lacks the private keys to approve the transaction, it enables you to print a physical "cheque" for signing.
For example, this check may say:
To sign this "check" the process would look like this:
Once you use the hardware device to sign the cheque, you compress it back into digital form and import it back into your cold wallet. Now that the signature has been added, the transaction can be broadcast to the network, and the funds sent to the nominated recipient.
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This is what happens when utilising a hardware device to sign a transaction: The cheque will just be in digital form, signed inside the hardware device with your private keys.
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A hardware device is primarily a transaction-signing device, not a key storage device. It's crucial to have a backup of your mnemonic seed phrase stored securely in a separate location (Not your keys, not your coins). This will allow you to recover your funds in case of loss, theft, or damage to your hardware device.
Prior Preparation Prevents Piss Poor Performance.
Be vigilant and take necessary precautions to protect your bitcoin.
Sovereignty = Responsibility.
