About the difference between cryptocurrency wallets and addresses

BY KEYHUNTER 09.02.2024
About the difference between cryptocurrency wallets and addresses

Beginning cryptocurrency users often do not understand the difference between the concepts of a cryptocurrency address (address) and a wallet (wallet). Moreover, the wallets that appear now often hide the entire “kitchen” from the user in order to make using the wallet as simple as possible. What is the difference between a cryptocurrency wallet and an address?

In short, a wallet is a large piece of software that is used to manage individual addresses. The program takes care of accounting/storage/protection and all the necessary mathematical calculations.

If you have a cryptocurrency address, you must have the key to this address! It is important. It is from a specific address (private key, PrivateKey), and not just from a wallet. If the wallet does not provide you with this key, the cryptocurrency does not belong to you, but belongs to the creators of the wallet, and you simply operate it as on a regular bank account.

Let’s take a closer look at the differences between cryptocurrency wallets and addresses. As an example, let’s take addresses/wallets for working with bitcoins, since similar ideas are used by Litecoin, DASH, Monero and many other coins.

What is a Bitcoin address and where can I get it? A Bitcoin address is a combination of alphanumeric characters that usually starts with 1, 3, or 1bc.

About the difference between cryptocurrency wallets and addresses

Examples of Bitcoin addresses:

35hK24tcLEWcgNA4JxpvbkNkoAcDGqQPsP – the address of the world’s largest cold Bitcoin wallet, owned by the Chinese exchange Huobi;
1A1zP1eP5QGefi2DMPTfTL5SLmv7DivfNa – presumably the address of Satoshi Nakamoto’s Bitcoin wallet (the first address in the Bitcoin network to which a reward was awarded for finding the first, so-called Genesis block in the Bitcoin blockchain);
1XPTgDRhN8RFnzniWCddobD9iKZatrvH4 is the wallet address of Laszlo Heinz, who bought pizza for 10 thousand bitcoins in 2010.
The address used for Bitcoin payments is a pair of asymmetric keys: a public key and a corresponding private key. A private key is needed to send funds by the owner of bitcoins stored in a bitcoin address.

About the difference between cryptocurrency wallets and addresses

Bitcoin addresses (public keys) and private keys
A Bitcoin address (public key) can be compared to a bank account number or email address. It is also used to link the recipient to a specific payment (the amount of bitcoins associated with the address). There are cryptocurrencies that use email as an address, for example, Grin and its clones.

To directly carry out the operation of transferring bitcoins from one address to another, you need to have a confidential private key from the Bitcoin address. Without this key, it is impossible to use the funds, since access to them is protected and cannot be hacked even by a quantum computer. The private key is used to sign transactions as proof of ownership of the associated Bitcoin address.

Dissemination of information about the Bitcoin wallet address is absolutely safe for the owner in terms of the funds stored on it. The Bitcoin wallet address must be known to the sender of the funds, otherwise he will not be able to complete the transaction. Disclosure of private key information means loss of control over the assets of the associated Bitcoin address.

About the difference between cryptocurrency wallets and addresses
https://cryptodeep.ru/bitaddress.html

How to create a Bitcoin address?
Each person can theoretically generate as many Bitcoin addresses as they wish. It’s completely free and quite simple. The Bitcoin Whitepaper, written by Satoshi Nakmoto, recommends creating a new address for each transaction.

To ensure maximum security when working with bitcoins, it is necessary to prevent the compromise (theft) of private keys from the address where the funds are stored. It is to simplify the work with key pairs (public – the address itself and private – for managing funds) that a Bitcoin wallet is needed.

What is a Bitcoin wallet?
A Bitcoin wallet is an application that stores a list of public (Bitcoin addresses) and private keys and is also used to create transactions. Public addresses are needed to receive bitcoins, and private keys are the data needed to send them.

In order to send bitcoins, the wallet first synchronizes with the network and checks the balance against the list of addresses stored in it. Then, using the private key, wallet creates a transaction signature and transmits it to the network.

In fact, none of the user’s coins are stored in the wallet. All crypto assets are tied to the blockchain. In this regard, a transaction sent and recorded in the blockchain can no longer be canceled. The only way to get back bitcoins sent by mistake is to return them (return to the sender’s address) by the owner of the private keys of the final bitcoin address.

Types of Bitcoin wallets
Most cryptocurrency wallets typically use text or .dat files to store data. Their format differs between different wallets, since usually each developer uses its own system of encryption, backup and work with addresses.

It is not necessary to store private keys for all addresses in the list in your wallet. It is reasonable to use a wallet connected to the Internet (such wallets are called hot) only to track the balance. For security reasons, there is no point in storing a private key in it, which could be stolen and an attacker would withdraw funds associated with the address. You can check the balance and transactions of any Bitcoin address in an online browser (explorer), for example, blockchain.info, or in any software wallet, for example, Electrum.

There are many types of wallets: online, hardware, desktop wallet, mobile wallet, etc. It is better to use open source wallets, since closed source applications may have hacker/spyware built-in.

Exchange and online wallets should be included in a special category. When using them, private keys are not available to the user, so control over assets can be lost at any time, for example, as happened with the scam exchange Poloniex in 2019.

When using cryptocurrency wallets, you should be guided by the rule: “No keys, no bitcoins.”

To work with a serious amount of bitcoins, you need to use only hardware wallets or cold software wallets (not connected to the network).

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