Cryptocurrency users today are showered with benefits of feature-rich technology that make cryptocurrency software and hardware wallets much simpler to use as compared to only a decade ago. Though we do owe thanks to Satoshi Nakamoto, who engineered the first cryptocurrency wallet back in 2009, which proved resilient for years to come and ultimately iterated to wallets that exist today.

Today, with the ease of access to digital currencies, a speculated maturity in the market along with booming popularity fuelled by Elon Musk – cryptocurrency wallet users are exploding in numbers.

68 million wallet users exist worldwide as of 2021, a quantity that was just a few thousand 10 years ago, according to Statista. With these currencies taking full form in today’s digital world, if you are an outsider looking in to get your hands dirty and experiment, it is essential to understand what are cryptocurrency wallets and how blockchain technology makes transacting with them so easy.

What is a cryptocurrency wallet?

A cryptocurrency wallet is a software programme or application that allows its users to store and access their digital assets or currencies like bitcoins, somewhat like a bank account. So just as we store our physical cash in a wallet, these cryptocurrencies are located digitally, on our mobiles or computer desktops. In theory this stands true, but practically cryptocurrencies are not stored anywhere! Every individual who has some balance in their crypto wallet can access their coins through a private key or a ‘classified number’ that corresponds to that specific wallet’s address (public key).

How do cryptocurrency wallet transactions work?

Before we jump into the process, it’s worth understanding how the ‘public key’ and ‘private key’ of a crypto wallet works. Whenever you create a crypto wallet you are given a private key and public key associated to your wallet, that is a string of alphanumeric code. This could simply be compared to how you would send and receive emails. The email address could be seen as the public key that allows individuals to send you emails, but the email address would not allow just anyone to access your email. That is only possible with your password, and in the case of crypto wallets, your ‘private key’. 

But how exactly do these keys help carry out pseudo-anonymous transactions from your wallet that publicly reveal transaction amounts, while keeping transactors encrypted? Let’s get into the process step-by-step.

The individual executing the transaction must have access to their public and private key. They use their wallet to transfer funds, like a specific amount of bitcoins, to another wallet by utilising the public key or address of the wallet that will receive the digital currency. 

The transaction is now pending while it is sent to the cryptocurrencies network where it is queued up, awaiting to be added to the public ledger. This is the process of confirming transactions, which is done by the computers maintaining the network, also known as ‘miners’. Once the transaction is verified, it is stored on a public ledger by a process known as ‘mining’. Many transactions or ‘blocks’ of them are added to the ledger at once by miners. Each block is added sequentially which is why the ledger and the tech behind it is known as ‘block – chain’. 

Once added to the blockchain, the individual who’s cryptocurrency wallet address is associated with the transaction amount will receive the cryptocurrencies and is free to spend it!

Though the basis of executing transactions are essentially the same across cryptocurrency wallet platforms, the wallet you hold on your mobile compared to the one on your desktop are not all the same! There are a few types of wallets that exist today.

So, what are the different types of cryptocurrency wallets?

Desktop Wallets 

As the name suggests, a desktop wallet is a software that can be downloaded onto your desktop and execute locally on your computer. These wallets act as an address for the wallet owner to send and receive digital coins. These types of wallets also give you full control over your keys and allow you to store your private key as well. Some examples of desktop wallets are, Electrum and Armory.

Mobile Wallets 

Though quite similar to their desktop counterparts, these wallets are built primarily for an alternative utility. These wallets are stored on your mobile as an application and allow you to transact through a ‘ touch-to-pay’ mechanism made possible through near field communication (NFC) by scanning a QR code. These wallets allow for daily and more frequent transactions. Trust Wallet is a good example for a mobile wallet.

Web Wallets 

Web wallets offer the convenience of accessing your wallet from anywhere through a web browser or mobile device, without the need to install anything. However, this could be dangerous in some cases, as certain providers store and manage your key online on your behalf. Coinbase and Blockchain are some popular web wallet providers.

Hardware Wallets 

Hardware wallets are physical wallets that are considered to be the safest alternative to range digital wallets. Though it could be argued that they are relatively less user friendly, they do offer the benefit of being practically immune to virus attacks! These devices can be plugged into your computer device like a USB and have keys stored within themselves. However, these wallets are the only ones that are not free of cost and could range from $100 to $200.

Today crypto wallets go well beyond staching your cryptocurrencies. Its growing momentum in the ecosystem could lead it to end up being nearly as predominant as the browser is to the web. Financial institutions like MasterCard and Bank of America are capitalising on the rampant growth of these currencies to introduce crypto wallets of their own. In today’s digital era, it is impossible to escape the fact that all these trends beckon us to a single unspoken truth – cryptocurrencies are here to stay if not change the payments landscape forever.

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Blockchain has given partisans of the libertarian movement unlooked for backing. This technology and its offshoots will soon give rise to a number of solutions, over and above cryptocurrencies.

About the Authors

François Masquelier

François has founded “SimplyTREASURY”, a company that delivers advisory in treasury, corporate finance and ERM. Before and until December 2019, he was Head of Corporate Finance, Treasury and Enterprise Risk Management at RTL Group, leading European media company. He joined RTL in 1997. Before, he worked for Eridania Béghin-Say and ABN.AMRO.

Simon Masquelier

Passionate about the data world, Simon recently obtained a master in that field. He is comfortable with various algorithms and tools for classification, regression, natural language processing and computer vision as well as big data technologies such as Spark and Kafka. He is seamlessly eager to learn more.

Summary

Blockchain, the innovative technology underpinning Bitcoin, could have the power to spark a revolution across several industries. But why aren’t we probing deeper into its capabilities? Francois and Simon, raise some important questions about this underlying technology’s applications, implications and even suggest how blockchain could be a libertarian panacea in their paper.

The start of a revolution? 

Over the last few months, a profusion of articles, reports and other presentations have come out on this fascinating new blockchain technology. Its best ambassador is none other than the bitcoin which has now reached highs that would have been unimaginable a few years ago, with one bitcoin at the time of writing equalling about 15,000 USD. It is often said that this technology could spark a complete revolution in many sectors of economic activity, just as the internet did for all business activities. What is more, it could even take the very way our modern society is structured and turn it on its head.  However, going beyond the purely technical workings of blockchain, which are difficult to explain because they are so complicated, nobody is raising questions about some of the implication of its ever-widening spread. Blockchain was developed as the result of a venture driven by libertarian ideas, with the underlying idea, initially, of side-lining intermediaries, such as central banks and even some government bodies. Might this decentralised system lead to a partial withdrawal of governments and their ancillary institutions from the role of intermediary?

Could blockchain become an instrument to serve libertarianism?

Blockchain technology is an innovation that operates in a decentralised way to make permanent records of transactions, such that they cannot be deleted. Each transaction has an encrypted block, containing one or more transactions and the data relating to them. These blocks are recorded in a digital blockchain, each of which has been approved by the group.  Before a block can be added, each node in the network must validate and approve it. What is more, the data stored in a blockchain can never be deleted.

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