You can explore the world of blockchain and e-assets for as long as you want, but the process will never be complete without the application of cryptocurrency. And for operations with cryptocurrencies and tokens, you can’t do without cryptowallet, and not just one. At first glance, it may seem that the principle of its operation is similar to a bank card, where there is an account, certain amounts of money and a list of possible transactions with them. However, in reality, a crypto wallet is a much more complex phenomenon. Unlike a card account, they serve as a pass to the services of the Web 3.0 world, for example dApps. So, let’s find out.
A crypto wallet is not a piggy bank
First of all, I would say that the word “wallet” is not used very appropriately in this case. After all, in the original version, paper money or coins should lie in the wallet — I mean physically be there. It may come as a surprise to some to hear that technically there are no electronic assets in a crypto wallet at all. The task of the wallet is only to generate the data needed for transactions with cryptocurrencies or tokens.
Therefore, formally, your assets in a crypto-wallet are not a bunch of electronic coins, but rather a receipt from a decentralized network, which indicates how many assets belong to you. Also, now you understand that each network requires its own wallet, as it is a separate and unique phenomenon. Of course, there are very similar token standards, but this does not mean that a cryptowallet will be able to process heterogeneous information at the same time. And even if you have a multi-currency wallet, it’s actually a shared shell for individual wallets for each decentralized network separately.
Therefore, a person can and should have more than one crypto wallet. Today, there are many services that provide users with such opportunities. And the BeFund team can always develop your own crypto wallet for any needs and assets.
Rights to perform operations
Now let’s find out what a crypto wallet consists of. The two most important components are called “keys” and there are two of them:
- Public — required to identify the wallet. Together with the generated address, the public key allows replenishing the wallet with new assets. This key can and should be shown to other users;
- Private — the key used to confirm the transaction. This is secret information that cannot be disclosed or lost, as anyone who knows the private key will be able to confirm any transaction.
If you think that private key is a big problem and pain for every cryptowallet’s owner — you are absolutely right. After all, unlike most of the WEB 2 solutions known to us, where there are logins, passwords and services for resetting and restoring passwords, the private key cannot be bypassed. I’m sure you’ve all heard the sad stories of unfortunate cryptocurrency owners who have lost or forgotten their private key and are no longer able to use their stored assets. It is believed that more than 3 million of all the Bitcoins in the world are lying dead in wallets with lost access.
This problem is no less difficult for the heirs: in the event of the unexpected death of the owner of electronic assets, it is simply impossible to transfer coins or tokens to the legal heirs. The network doesn’t care about family ties or grief: no private key, no transaction. There are many different ways to store keys, for example:
- the key has the form of a QR code that can be printed on paper;
- the key comes in the form of a notification to the specified number/email;
- the key is stored on a flash drive, which must be inserted into the gadget at the time of transaction approval;
- the key is an NFT that cannot be changed or removed from the blockchain;
- the key must be remembered and entered manually and much more.
However, you can get rid of all these problems under one small but very important condition — entrusting the private key to a third party. In fact, this is an extremely common practice and if you use crypto exchanges, you have already taken this step. A wallet where the public key does not belong to the asset owner is called a custodial wallet (respectively, we considered non-custodial wallets above). In this case, each transaction takes place with the consent of a third party that owns the public key. And indeed:
- If you want to withdraw cryptocurrency from the exchange, you create a request and wait for its approval;
- If you create a transfer from a crypto exchange wallet, you actually have to get approval as well, even if you don’t know it;
- Transactions on exchanges usually take longer, not because of the workload of the blockchain, but because of the delay in processing numerous user requests.
So in the case of custodial wallets, you get rid of a large part of the responsibility of dealing with electronic assets. Instead, these assets don’t actually belong to you until you withdraw them to a non-custodial wallet. Arguing about which of the types of wallets is better is absolutely pointless. However, to use dApps, you will definitely need a non-custodial wallet.
A non-custodial wallet solution
At the end of 2023, the BeFund finished developing a Telegram bot for customers from Europe, where there was a difficult task in terms of security. According to the terms of reference and project policy, customers were not supposed to keep any user data. This condition already at the beginning of the project determined the type of future wallets for Telegram bot users, as it excluded the possibility of creating custodial wallets.
Telegram itself came to the rescue. In fact, for the service to work, the customer only needs the user’s Telegram ID. This is not sensitive information, so no additional encryption or other security measures are required to process or store it. In this case, the creation of a new wallet occurs as follows:
- The user selects the desired network and the Telegram bot backend forms a request to the corresponding node;
- The node returns the address of the new wallet processed on the bot’s backend;
- The public key is added to the address and sent to the user in the form of a message that disappears after a certain time — this is a Telegram feature;
- The user is warned and has enough time to save the private key.
As you can see, the method developed by us completely eliminates the need to save confidential user data. The associated information is automatically deleted, and the responsibility for the private key rests entirely with the users.
Results
The private key to a crypto wallet is an extremely important thing that requires a lot of responsibility. If you are not yet ready to accept it, use custodial wallets, but choose services with a high level of trust from users. After all, in this case, your assets will be dependent on a third party. If you have an idea to create your own wallet, the BeFund team is ready to help you develop and implement a project of any complexity. Non-custodial wallets are just entering people’s lives, but very soon it will be as commonplace as, for example, the key to the front door to your home. Remember that a crypto wallet is, first of all, a pass to the world of Web 3.0 and its many charms and advantages.
