Unlike a physical wallet, a cryptocurrency wallet doesn’t hold any currency. Rather, it holds codes, some as password-type keys and others as addresses.
These keys and addresses range from about 25-42 characters in length. They are derived from a Base 58 system which comprises numbers (23456789) and letters (abcdefghijkmnopqrstuvwxyz) and (ABCDEFGHJKLMNPQRSTUVWXYZ). Note that in a usual character set there should be 10 numbers and 26 lower-case and 26 upper-case (i.e. 62). Base 58 gets rid of some potentially confusing characters – the zero, the one, the lower-case ‘l’ (ell), and upper-case ‘O’ (oh) – leaving 8+25+25=58 characters.
Most things crypto are managed by computer software. Crypto wallet keys and addresses are created by software. Some names of the software I’ve tried are Phantom, Metamask, Crypto Onchain. There are many others and there are differences, sometimes very significant differences, between one and another.
The software creates a wallet by generating unique keys and addresses through cryptographic algorithms. The software generates a ‘Seed Phrase’ of 12, 18, or 24 words derived from a list of 2048 words. Each of these words has a binary number equivalent that is used in the cryptographic algorithms to generate the ‘Master Private Key’ for a wallet. The ‘Master Private Key’ is used to confirm legitimacy of transaction requests, but is never revealed in the process.
Seed phrases and the Master Private Key are much like passwords and must be kept secret and secure. So far, I’ve only seen my ‘Seed Phrases’ and not my Master Private Keys. I think I can see my Master Private Keys, using the software, but have not found any reason to look at them as yet.
Most importantly, a Seed Phrase can be used on virtually any of the wallet software to gain access to a wallet. This means two things: 1) that I can use different software apps/packages to gain access to my wallet using my ‘secret’ Seed Phrase, and; 2) that anyone else in the world with internet access can gain access to my wallet if they get my Seed Phrase (hence the need to keep it secret and secure).
In addition to the secret ‘Seed Phrase’ and ‘Master Private Key’, the software generates public addresses. These public addresses are used for transactions and are recorded on Blockchains. If I know any public address, I can see the transactions involving that public address using a blockchain explorer online — this is a very open and public aspect of the crypto ecosystem. There are typically many public addresses associated with a wallet, each associated with a particular network/blockchain. For example, if I want to receive a payment from someone else on the Ethereum network, I give them my public address associated with Ethereum.
Choosing the appropriate public address for a transaction is important. If I were to give someone the wrong address, the transaction might still occur but the crypto would likely be lost. And there is little or no recourse because there is no centralized authority to turn to for help – it would just be gone. This aspect was a little scary for me, especially for the first few transactions, holding my breath until my wallet updated with the correct numbers.
One last point is that crypto wallets are ‘Deterministic’. The initially created Seed Phrase is used in cryptographic algorithms built into the software to ‘determine’ (i.e. generate) the Master Private Address. The algorithms are the same from one software to another and, so, the Seed Phrase is consistently converted into the same Master Private Address. The Master Private Address is further processed by common cryptographic algorithms to ‘determine’ all the associated Public Addresses for transactions. The cryptographic algorithms only work in one direction, from Seed Phrase to Master Private Address to Public Addresses, so it is not possible to reverse-engineer a public address back into a Seed Phrase or Master Private Address – a hugely important security feature. Ultimately, all that I really need to know to gain access to my unique wallet is the Seed Phrase and have access to the software/app and the internet.
This is merely a basic introduction to some of the things I’ve learned about crypto wallets. It’s not advice, so do your own research.
Thanks, Jim.