Roles and functions of a wallet
Roles and Functions of a digital wallet
In this series, we will look at wallets, which are applications that users use for transactions in a blockchain environment. We will cover topics such as the features of the wallet, the type and safety of the wallet, and the importance of recovery.
※ This article is premised on understanding the blockchain basics and cryptography basics.
What is a digital wallet?
Wallets are used to store things like cash or credit cards, identification cards, and the like. It provides convenience so that users can store the things they need to carry with them. Since wallets keep important information such as cash and identity in one place, it can lead to great damage if lost.
With the development of the Internet, many things have been digitized, and the generalization of smartphones and tablets has enabled us to digitize many things we own. We used to take out a note when a memo is needed. Today, we see a lifestyle change in which people write down notes on their smartphones, the items people carry are gradually decreasing and becoming digital.
A digital wallet is an application that still has a lot of room for development as a result of efforts to digitize the role of a traditional wallet. Among them, a cryptocurrency wallet or blockchain wallet is an application that attempts to digitize and use important information such as personal assets and identity.
Understanding Ownership
Just like storing cash in a physical wallet, you can think of a blockchain wallet is for storing assets (cryptocurrency). However, blockchain wallets do not hold assets internally. A more accurate statement would be that blockchain wallets preserve ownership of an asset.
For a more intuitive explanation, imagine a transparent, padlocked box. This box has holes so it's easy to put cash in, but you need a key to get cash out of the box. Each user's cash is stored in several boxes, and only the user that has the key to open the box can take out the cash. Who owns the cash inside these boxes in public places? Since only the person with the key can open the box and use the cash, the person who holds the key is the owner.
When applied to the blockchain environment, writing the act of moving cash from one box to another is called a transaction history. On the blockchain, all transaction details are disclosed, and who owns the assets is also disclosed. Just as anyone with an asset can take money out of a box and move it to another box with a key, having a private key can transfer assets on the blockchain.
On the blockchain, the private key is the only means of proof of ownership required when moving an asset. This is because blockchain networks only accept transactions with valid digital signatures.
Were you able to understand that your assets actually exist on the blockchain? In summary, assets exist on the blockchain and are public, but only those with the private key can move them. Therefore, the private key is the most important piece of information that proves ownership, and we use a blockchain wallet because we need a tool to manage it well.
Functions of blockchain wallet (or cryptocurrency wallet)
A wallet is a software that provides services to users to create and manage private keys. From the generated private key, an address corresponding to the account number on the blockchain is created. In addition, we perform the process of creating the necessary transaction details when moving assets and creating a digital signature that proves ownership with the private key. It also includes a solution to recover the private key in case of loss or theft.
To summarize, the basic roles of a wallet are:
  1. 1.
    Create and recover private key and address
  2. 2.
    Write transaction details
  3. 3.
    Write digital signature on transaction history with a private key
Transaction details stored in the blockchain are written according to a set format and sent to the network with a digital signature. When the transaction is validated, it gets recorded on the blockchain ledger. (If you do not understand the content, please refer to the Basics of Blockchain.)
Since cryptocurrencies have different networks for each type, the wallet assists you in selecting it and writing the transaction details for the network. For example, Bitcoin and Ethereum are different networks and they are not compatible with each other. This is why different types of wallet software support different cryptocurrencies.
In this part, we learned about the roles and functions of the wallet. In the next section, we will look at the types of wallets.
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