Wallet

Written by Saurabh Deshpande

Introduction

A wallet is an application that controls access to their funds by managing keys and addresses, tracking balances, and creating and signing transactions. Contrary to popular misconception, wallets do not hold bitcoin or other assets. Assets are always on the blockchain, wallets only allow users to control funds by signing transactions with keys.

Technically, wallets can be categorized into non-deterministic wallets and deterministic wallets. A non-deterministic wallet is a collection of private keys. The disadvantage of this wallet is that one has to manage the backups frequently and as more keys are generated it becomes cumbersome. Deterministic wallets are initialized from a seed. The seed is a randomly generated number which is combined with other data to derive private keys. The most common type is a hierarchical deterministic wallet that has keys derived in a tree structure, where children keys can be derived from a parent key and grandchildren keys can be derived from children keys and so on.

A non-deterministic wallet, is one where each key is independently generated from a random number. The keys are not related to each other. This type of wallet is also known as a JBOK wallet from the phrase "Just a Bunch Of Keys."

Different types of wallets based on how a user interacts with the wallets are desktop wallets, mobile wallets, hardware wallets, and paper wallets. Of all these wallets, hardware wallets are proven to be the most secure as these wallets are not connected to the internet all the time.

Suggested Reading

Wallet Overview by Amin Mazinani

Bitcoin Wallets for Beginners: Everything You Need to Know by Jose Luis Pires Nascimento

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