I’m here to disabuse you of a notion. This notion is obscuring important information and could possibly lead to unintended adverse consequences. Here’s the notion:
An or contains your actual holdings, such as ETH or .
Many people believe this is so. It is not so. Your can never contain , or indeed digital value of any description. These things reside entirely on a , a type of , distributed around the world on that ’s many nodes. Your , whether hardware- or software-based, actually contains one or more pairs of public and private keys. A “” is more akin to a keychain, not a real-world .
First, a definition
In case someone reading this is unfamiliar with the term , here’s a quick definition:
: A digital or virtual currency that uses cryptography for security, operating independently of any traditional banking system.
is often abbreviated to crypto, risking confusion with cryptography.
The misconception
The belief that your holdings are actually contained in something referred to as a “” is totally understandable. Wallet was an unfortunate choice of names for this technology. If you forget the password or PIN to your crypto , or your phone or computer is lost or stolen, as long as you have a record of your private key in the form of a or a you can regain access to your funds. If your crypto holdings were actually contained in a so-called “” and you lost access to it, you would lose access to the funds as well.
Public-key cryptography
There’s no need to go into great detail about . Just know three things:
1. , , and other blockchains make extensive use of the technology;
2. Public-key cryptography uses two keys: a public key and a private key;
3. That private key is the most important piece of data that you possess.
The third point is worth stressing. You must keep your private key safe.
Private key -> public key -> Ethereum address
There are three related pieces of data used by : a public and private key pair and an associated address on the . A private key is simply a very large random number¹ that would take many times the age of the universe to guess on today’s computers². The public key is derived from the private key and in turn, the address is derived from the public key. It can’t be done in reverse. This shows the importance of the private key: if you lose it or it is somehow stolen and you don’t have a record of it, you’ve lost your ETH.
Keychain vs wallet
So with all of this talk about keys, you can see why a so-called crypto is much more like a keychain: it holds cryptographic key pairs, not ETH, , LTC or any other . I think this is a very important distinction. I use a hardware keychain (“”) to keep my key pairs safe. If I lose it I can always regain access to my ETH holdings because I have stored a long recovery phrase (established when I activated the hardware keychain) in a very safe place. If my ETH were actually on my device and I lost it, I’d be out of luck.
Conclusion
I would love it if everyone started calling “wallets” keychains instead. After all, they hold cryptographic keys, a virtual equivalent of real-world keys. I will push for this change in nomenclature whenever I have the opportunity. It is very important to understand what’s actually going on to avoid misunderstandings and potential monetary loss.
I hope this short explainer has helped you understand important aspects of and . Please leave a comment if you need further explanation.
Published at Sat, 18 May 2019 12:41:37 +0000
