Wallet
The role of a Bitcoin wallet is to securely manage the user's keys and facilitate easy transaction (transfer) creation through them.
It provides the user with the basic functionalities they need, as follows:
- Transaction inquiry
- User balance inquiry
- New block creation notification
- Address book management
- User key management
Types
Web Wallet, App Wallet, Paper Wallet, Hardware Wallet
Cold vs Hot Wallet
Cold Wallet and Hot Wallet are distinguished based on whether the software (wallet) that manages private keys is connected to the internet or not.
- Exchanges manage assets by distinguishing between Cold and Hot Wallets due to the active deposit and withdrawal activities of users and the constant risk of hacking.
- Hot Wallets include Web Wallets, App Wallets, and Desktop Wallets.
- Cold Wallets include Hardware Wallets, Paper Wallets, and Offline Computer Wallets.
Nondeterminisitc vs Hierarchical Deterministic Wallet
Nondeterminisitc Wallet
- Gerenrates 100 random keys, and use them once
- Using an address only once enhances privacy assurance, but requires regular backups for managing privacy keys
Hierarchical Deterministic Wallet
- Generate private keys hierarchically around the Master Key created from a single Seed value.
- It is possible to manage multiple addresses with a single private key (Master).
- Generate multiple Branch keys to classify address groups based on the purpose for each Branch.
Mnemonic
- A new Seed management approach proposed in BIP-39.
- With the conventional Random Seed, if the private key is lost, recovery is impossible.
- Mnemonic allows for the regeneration of the private key even if it is lost.
