You might not have a Babelfish stuck in your ear, but if you don’t understand the differences between the various currencies and the way they are manipulated, you might as well give way to an intergalactic highway, since the blockchain is here, it is not going away, it is growing daily and its only a matter of time till the whole world is one big ball of chains all linked in various ways to a blockchain highway.
Ethereum is just one fork in the blockchain of life, it is a cryptocurrency platform that decided it wanted to do more than just hash out bits of code. Ethereum is, essentially, an all-purpose blockchain that is used as a platform for many different dApps (dApps are apps made for blockchain).
Consider the source, the Satoshi Bitcoin and the blockchain he created to make it happen. The product was important, but the way he created the product, or the platform he initiated the coin within, was to be more important than the coin itself. Today, there are bitcoin blockchains, altcoin blockchains and Ethereum blockchains.
Each blockchain caters for a specific customer; the bitcoin caters to traders in cryptocurrencies. The altcoin does the same, but in a separate environment, each coin has its own blockchain environment, and then there is Ethereum, which is a conglomerate blockchains that create tokens, similar to bitcoin, but are not real cryptocurrencies, more like company shares without actually sharing anything.
Ethereum as a Platform
The Ethereum blockchain is an open source platform that enables you to create dApps and add tokens if you want, but they are not obligatory or necessary, and as such, you can use the wonders of a blockchain platform and environment to create extensive software systems for various applications and have nothing to do with cryptocurrency trading at all.
Ethereum as a Token
On the other hand, you might want to try your hand at trading, hoarding or just plain gambling with different Ethereum tokens and in this instance, you will need to know all about the various Ethereum Wallets: Mobile, Web, Desktop, and Hardware. Since they deal with your tokens and enable you to connect to an exchange where you can buy, sell and essentially trade in all the little Ethereum tokens floating around the Ethereum blockchain world.
Now, the first thing you need to know is that tokens are not coins, or any even a standalone bit of data. A token is a record that is stored within the blockchain and has a specific code attached to it. This code is a unique identifier that is attached to a specific block, and it can have a number of specific crypto-codes attached to it, which are then translated by your wallet into the amount of token you hold and own. As such, there are no unclaimed tokens on the blockchain; every token has an owner. Trading only transfers the code of ownership from one individual to another, or from one wallet to another. If a person loses a wallets information and cannot reclaim it for whatever reason, the tokens still exist, and are still attached to the code of ownership, but are essentially lost, since the owner lost access to the data.
Another issue with code is theft, and this comes in many forms, the most common is when someone gains access to your wallets data and transfers the tokens to their wallet. That is, in fact, the only way to steal on a blockchain and that is why security is so high around wallets, codes, and trades. The blockchain is designed to be impregnable to actual blockchain hacks, but individual wallets are definitely hackable. It’s all about the level of security you deploy.
Wallets as Security
Since a token has an owner, that is the “public address” of your wallet. Transferring ownership is easy, you just send the tokens to a specific address, and the transfer is done. What makes the transfer secure is the “private key” and the “seed code,” which is a 12-24 series of individual and random words that are used to recreate a wallets data when the codes are lost. The “private key” is the only way you can access your wallet, and sign trades, using it. So, losing it is tantamount to losing the key to a standard safe.
All is not lost, you can always recover a new private key by using the seed code.
Before I start to discuss each wallet type, let’s take a quick look at two concepts in the blockchain, these are Full Node or Not Full Node (Binary)
A full node connected to the blockchain means you are a blockchain node that holds all the information in the blockchain on your computer. As such you will need a pretty powerful computer with enough storage space since you are also capable of “mining” or “hashing” data and getting paid in tokens for your troubles.
Most of the worlds blockchain community is not an active Node; they prefer to connect as traders via exchanges to perform basic asset trades. If you intend only to trade and not become a functional miner or transaction processor, then do not download the node, it only grows, literally grows daily. A non-full node connection or wallet is called a “light” wallet.
Hot and Cold
There are two major categories of Ethereum wallets: hot and cold. A hot wallet is an online wallet that store your public and private keys online so that it is easy to access your data from anywhere and at any time. The more secure method is a cold wallet, which stores your data offline, these are either on a device such as PC or Mobile and in the more extreme cases in a hardware device specially designed to be a cryptocurrency vault.
Summing up so far
- The Ethereum blockchain is a blockchain platform that allows open source programmers to add dApps and create applications that work on the platform.
- Each dApp can create its own token, and in fact, you can create as many different tokens as you want using smart contracts to create them.
- You can connect to the Ethereum blockchain as a node, which means you download a copy of the entire blockchain on your computer and it works as a node, hashing and growing with the blockchain. Or, you can connect via an exchange, without being a node, and either use dApps as you would any other software application, as well as trade in tokens.
- You can trade on the blockchain by connecting to an exchange.
- You must open a wallet to be able to hold and trade in tokens.
- There are two types of wallet category, hot and cold, each one provides s a different level of security.
- A wallet does not store data, it only provides access to data that is on the blockchain, and your codes link the blockchain data to your wallet.
Now let’s look at the wallets.
There are a number of wallet to use, these are:
- 3rd Party Wallets (Online)
- Desktop Wallets
- Mobile Wallets
- Paper Wallets
- Hardware Wallets
3rd Party Wallets (Online or Web Wallets)
3rd Party wallets are wallets you open in an exchange. This means, you decide you want to trade in tokens, you never did before, and you want to start because it’s something you have to do on your bucket list. Instead of learning all about the Ethereum blockchain you take the short and fast route, and go-to a popular exchange. This exchange will provide you with the ability to open a wallet on their node, yes, their node, you are not connected to the blockchain, you are connected to the exchange that is connected to the blockchain. Your wallet is “owned” by the exchange, you might have a private and public key, but this data is stored in the online server, so you are relying on the server’s security to maintain your credentials and your wallet free from hacking.
The advantage of an online wallet is that it is fast to access, fast to use for trading and generally secure. The disadvantages are that you are relying on the exchanges security and their integrity to remain available and safe at all times.
Creating your own Online Wallet
There are a number of options, you can choose from any number of online exchanges such as MyEtherWallet or CEX.io, and there are many more to choose from. These are 3rd party Platforms that enable you to access the blockchain without being a node, as such, you only need to provide certain identification proofs to assure that you comply with anti-terrorism and anti-trafficking issues. As such, you will need to prepare your ID or passport, and some form of payment such as a bank account, credit or debit card or 3rd party payment sits such as PayPal and others.
MyEtherWallet is a preferred hot wallet to use since it is extremely safe and has not been compromised in all its years of existence.
Every wallet is recognized by a specific code, this is called a public key, you can call it whatever you want, but when you want to connect to the blockchain, you will need your public key. The public key is like an e-mail address; it is where you receive and send tokens.
The private key is like your password, only much more secure and compromising. Each public key is paired with a private key. If you lose your private key, you lose the contents of your wallet. The only way to regain them is to restore your private key by using the seed code.
The seed code is a set of (usually) 24 words that are randomly generated for every wallet when created, You use this to restore a lost wallet, and it is replaced once used. Like a private key, you must not lose this. IN fact, this is not like a private key, it’s much worse. If you lose your seed code, you lose your wallet if you lose your private key. Which means, don’t lose it…ever. Also, the seed code is an easy way to access the wallet without a private key.
Key & Code Security
Always make a copy of both your private key and seed code, but not digitally. Write them down using pen and paper and stored them off person. If you are mugged or pickpocketed, and your codes are with you, you can kiss your wallet goodbye. The same goes for digital storage, if the data is hacked, or accessed in any way, you lose your wallet.
Now we discussed web wallets, which are the most common. Let’s take a look at paper wallets. A paper wallet is essentially a QR code that is scanned every time you want to use it. This means you can carry it about you in your wallet, on your person and every time you want to use it, you scan it with your mobile device or PC reader and access your wallet information online. It comes with your public and private keys printed on it as well. So, understand the nature of the paper.
This is a very secure method and is not hackable; it’s a piece of paper. However, it can be destroyed or stolen. So, make sure that this innocent little piece of paper is not easily obtainable. Otherwise you can kiss your assets goodbye.
Setting up a Paper Wallet
You can print a paper wallet from MyEtherWallet. You just enter to set up a new wallet as you would for a standard online one, only in this instance you will choose to download the keystore file and then you will hit the ‘print’ button they provide you. This will print on your paper a “paper” wallet.
These are all light wallets since they are on a mobile device with limited hashing power and even more limited storage. Essentially a web wallet is a standard online wallet that is accessible using a mobile device. So long as you have access to an exchange, you can connect your smartphone or tablet and trade.
One of the more popular mobile wallets around today is Jaxx; then there is Abra and Ethereum as well. In fact, there is a number of mobile wallets that enable you to perform immediate trading via the cellular network as well as WIFI. However, security is the issue you need to consider here.
You download the wallet as you would any mobile app, either from the site of the wallet online or via the Apple or Google store.
These are the most popular and can be either full node or light. Desktop wallets are simple to set up, you just go to the Ethereum blockchain and download the full node, or go to desktop wallet site such as MetaMask, that will open a wallet for you but will not store your data other than your public key.
Desktop wallets are as secure as your internet connection is secure, this means that you cannot blame the 3rd party for the insecurity of your network. Once you set up a desktop wallet, every time you connect to a site such as MyEtherWallet or any exchange, you will essentially rely on your own computers security systems and firewalls to protect your data. Another issue to remember is that your public, private and seed code can be stored on your PC. Many do this, and this means that if your PC is compromised or even physically stolen, you will lose your assets.
Hardware wallets are not actually wallets; they are vaults. These are cold wallets, by definition they are not connected to the internet, like a paper wallet, but are much more secure and mobile to use. A hardware wallet is a USB stick with software and security features that make it impossible to hack.
There are only a handful of such wallets around, and only three really work with Ethereum, and these include the Ledger Nano-S, Trezor, and KeepKey.
These are portable devices, easy to store, and easy to use, and work on the same basic principles as all wallets. They have a public key, private key and seed code, and if you lose your seed code the vault is dead and so are your assets. If you lose your seed code and you have access to your wallet, open anew wallet, transfer everything over to that one and store the new seed code. (Oh, this goes for all your wallets, not just hard ones).
You will notice that I did not go into details about different sites, wallets and how to actually join them. There are separate articles that explain this in more detail, and to be honest, the process is virtually identical in all of them. You log in, open an account, follow the process by inputting your data, providing proof of identity, a real money source, and off you go.