What Is a Blockchain Wallet?

Blockchain wallets keep track of encryption keys used to digitally sign transactions for distributed ledgers. These can include crypto currencies like Bitcoin and Ethereum as well as non-fungible tokens that represent anything from concert or airline tickets to art or goods in a supply chain.

Securing these wallets requires a combination of ledger-specific security, platform trust and secure coding. Gartner recommends that you use cold (hardware, paper, or offline) and mobile wallets with two-factor authentication to reduce vulnerability.

1. Encryption

A crypto wallet contains a public key and private key, which together resemble a bank account number and PIN code to access one's assets on a blockchain network. Wallets interact with blockchain networks to monitor balances and broadcast valid transactions. They also act as a gateway to participation in DeFi activities such as lending, borrowing, trading, and more on platforms like Uniswap.

When it comes to crypto wallets, the security of private keys is a major concern. Loss or theft of a private key can render a user's cryptocurrency wallet irreversibly inaccessible. While solutions like multi-signature wallets, cold storage, and decentralized custody services help mitigate these risks, they do not entirely eliminate them. Additionally, wallet software vulnerabilities and user carelessness remain a significant threat to wallet security.

To help users better protect their digital assets, many blockchain wallets encrypt the private keys stored in their devices. Bui et al. use a password_check field, which is used to verify the correctness of user passwords by comparing it to a known value (such as "null"). However, attackers can easily brute-force this field by simply knowing its salt and IV. Therefore, it is crucial to develop more sophisticated encryption techniques that are resistant to common attacks. Increasing the entropy of master seeds can also help mitigate threats by reducing the success rate of dictionary attacks.

2. Authentication

Crypto wallets, at their core, provide a user-friendly means of handling asymmetric keys and thus also represent an opportunity to authenticate users. For example, they could replace conventional login mechanisms like username/password or single sign-on (SSO). This is already being explored by projects such as Sign In With Ethereum.

Nevertheless, crypto wallets face the same threat vectors as any other application. Among these are phishing attacks, injections, MitM, brute-forcing users' passwords, mnemonics leakage, and attacks against the local storage that holds the users' sensitive data (plist vs. Keychain / Keystore, storing in plist versus storing in preferences).

The latter is especially important since most crypto wallets have no centralized database with information about accounts and balances. Instead, the owners have to keep track of their own data across multiple systems — a process that exposes them to several kinds of risks, such as getting hacked or losing their devices.

Moreover, wallets are often built with external dependencies that can have access to the sensitive data of the application. As such, these are vulnerable to supply chain attacks — in which an attacker can take control of the wallet by compromising one or more of these libraries. This is a common problem in the blockchain space. For example, the Mt Gox hack in 2014 saw over $450 million stolen from its hot wallets.

3. Storage

A blockchain wallet is a piece of software that safely stores and manages crypto assets. It also tracks transaction records to help users know how much their cryptocurrency is worth. It also helps them execute transactions in cryptocurrencies.

The wallet is used to store the private keys that verify ownership of digital assets on distributed ledgers. Without these keys, people would not be able to prove that they have a cryptocurrency, and they would not be able to execute any transactions with it. The wallet is a vital component of the cryptocurrency ecosystem, and it's important that it's secure.

Essentially, a wallet is like a virtual bank account. It has a public key, which is kind of like an account number, and a private key, which is a series of numbers and letters. The private key is what encrypts information before it's posted to the blockchain, and only that private key can decrypt it. The public key, on the other hand, is something that can be shared publicly to allow others to send money to the wallet's address.

A wallet can be custodial or noncustodial. A custodial wallet is managed by a third party, usually a cryptocurrency exchange. Examples of custodial wallets include desktop and mobile applications. Noncustodial wallets, on the other hand,Blockchain Betting Game Platform , are wallets that are owned and managed by users. These include paper and metal wallets. These are typically stored offline and are not connected to the internet, making them a great choice for those concerned about security.

4. Transactions

When someone buys or sells a cryptocurrency, the transaction records are added to the blockchain. To make a transaction, you need two things: the wallet address, which is similar to an email address; and the private key. You can share the wallet address with others so they can send you crypto. You can also use your private key to authorize transactions, which is why a good crypto wallet has solid transaction security features such as data-in-transit encryption and secure sign-and-verify protocols.

When a wallet is compromised, attackers can steal users’ crypto assets. They can do this faster than hackers can break into mobile banking apps, because there is no central authority to revert transactions and no bank employee who can call the police. To prevent this, crypto wallets should use proven building blocks and incorporate them properly. For example, using a secure software development cycle (SSDLC) ensures that the code has a high level of entropy to keep attackers from easily guessing the secret.

A crypto wallet is a piece of software that keeps track of the encryption keys used to digitally sign cryptocurrency transactions on distributed ledgers. Those keys are like the car keys to the blockchain car, and without them, you don’t have access to your crypto. They are also what proves ownership of a given cryptocurrency or digital asset, and they allow you to execute transactions that transfer those assets.