Crypto Wallets Are Not Actually Wallets...What?!? How?!?
An attempt at simplifying blockchain concepts, companies, and coins.
The other day I was chatting with a good friend of mine who recently purchased a hardware wallet (Nano Ledger S) and was telling me how he had all of his cryptocurrencies inside the Nano Ledger. That's when I started to think about how misleading it was to call a crypto wallet a wallet, because it's actually a terrible metaphor and confusing the shit out of people. Here is why.
We use design metaphors to help us associate something we do in the digital world to something we do in the physical world. A simple example would be the trash can icon we have on our computers. When we want to delete something, we put it in the trash. When we want to throw away something in real life, we put it in the trash (at least I hope you do, unlike my roommate who thinks the floor is his trashcan).
When it comes to a cryptocurrency wallet, you would think that your wallet is storing your cryptocurrency like we store cash in our physical wallets, however that is far from the truth. A far better analogy is to think of your cryptocurrency wallet as a keychain with public and private keys. Don't worry, I'll explain more below.
Let's take a step back and use email as an example. In order to access your email, you have to log in through an email portal on your phone or the web. Inputting your password to get into your email account is the same as your private key in the crypto world and the email address that you give to everyone is your public key. If you want people to send you email, you give out your email address (public key) however you never share your email password (private key) because if they have that, they will be able to send email from you which is probably something that you don't want.
Let's switch back to the blockchain now. You have to remember that all of your cryptocurrency is stored on the blockchain ledger. If you need a refresher on what the blockchain is, check out an earlier newsletter here. What your crypto wallet is actually doing is storing your public keys (addresses that you want people to send you money to) and your private keys (what proves that you are the owner of the addresses and gives you the ability to send people money). There is no harm in sharing your public keys far and wide, however you must protect your private key like your whole bank account depended on it. We'll talk about how private and public keys work technically in a future newsletter. That's a whole other rabbit hole to dive down. Maybe i'll get one of my techy crypto nerd friends to do a guest newsletter about it.
So back to the conversation that I had with my friend about his hardware wallet. I explained to him that there was actually no crypto in the physical device he was holding. Rather it held the public and private keys that gives him access to send and receive crypto on the blockchain ledger.
As if crypto wasn't confusing enough, we have design metaphor problems here that result in misleading associations. Crypto wallets are not the wallets that we have in our back pockets or purses, they are more like keychains (unless you actually do put your physical keys in your wallet, in which case you are a weirdo).
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Wallet (Keychain) Examples: Hardware Wallet: Ledger
iOS Wallets: Examples Here
Web Wallets: Examples Here
Ethereum Wallet: My Ether Wallet
In a future newsletter we'll discuss why it's important to keep your crypto in a wallet that you control the private keys to.
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