Blockchain Wallets - The Key to Custody

Blockchain Wallets - The Key to Custody

Francesco Ponziani

Francesco Ponziani

MELD Ambassador

July 7, 2022

The Cardano ecosystem has seen much development over the past year as it continues to ramp up solutions in achieving its fundamental pillars of scaling, interoperability and sustainability. If you are new to crypto or even if you are a seasoned veteran, projects on Cardano are relatively new and require a degree of research and understanding to fully benefit from the explosion of amazing projects, and most importantly, to do it in a safe way. 

This leads me on to discuss Cardano native wallets and dispel some misconceptions and understandings some people may have and to simply educate on what is available and how they work.  

To begin with, a blockchain wallet isn’t actually a wallet where you physically or more appropriately, digitally, store your crypto in, but more of a window and proof of your asset ownership residing on the blockchain. Wallet descriptions always state that you can store, send and receive crypto into your wallet. What a wallet really does however is hold your private keys allowing you access to manage ownership of your assets stored on the blockchain. When you decide to trade/sell an asset from your wallet, you are relinquishing digital ownership of that asset. The blockchain will assign ownership of that asset to a new wallet, and it will assign ownership of the asset for which it was traded to your wallet. Tokens reside stationary on the blockchain and it’s only proof of ownership that changes. A good analogy to help understand this concept is to imagine a room filled with safety deposit boxes. All assets belong in the same room that can be analogised as the blockchain, but only people with keys can access what’s in each individual box. 

When you create a wallet, two keys are generated: a public key and a private key. A public key is essentially an address that can be shared with people so that they can send you assets and see what assets you own, known as inclusive accountability. A private key allows you to control and sign transactions. Since you never actually move crypto, asset ownership can be easily managed from a multitude of user interfaces (UI) termed as wallets, that all offer unique configurations and functionality to suit individual preferences. This can be done from any computer in the world with internet access as long as you have your very important seed phrase. If anyone has access to your seed phrase, then they can take full control of your assets, therefore it is incredibly important to ensure it is kept safe. Important seed phrase safety tips can be accessed here, and remember never give out your seed phrase under any circumstances as it will be a scam.    

Wallets can be categorized into two groups: hot or cold wallets. A hot wallet is always connected to the internet enabling you to conveniently and easily interact with dApps. Although hot wallets are secure, because they are always connected to the internet, they are not considered as secure as a cold wallet. A cold wallet, also known as hardware wallet, is a physical device that keeps your private keys offline. Two well renowned hardware wallets that allow you to manage a multitude of cryptocurrencies are Ledger and Trezor.

As well as hot and cold wallets there are full node and light wallets. A full node wallet, means you download the complete copy of a blockchain and use your computer power to support the network. A full node wallet is very secure and has a trustless operation however requires a higher spec computer and bandwidth to run smoothly, with Daedalus being Cardano’s full-node wallet. A light wallet operates by connecting to the internet and accessing the blockchain network by talking to other nodes. It connects and relies on centrally hosted servers to which have the full copy of the blockchain. This option makes it incredibly fast, practical, and user-friendly for the majority.  Each kind of wallet has it’s tradeoffs, so you should take your time to review and make the best decision based on your risk profile and needs.

Cardano Wallets

Wallets on Cardano allow you to access and manage ownership of its native coin ADA, all fungible native assets and Cardano non-fungible tokens (CNFT’s). Cardano wallets may exist on centralized exchanges too; however, by keeping ADA on exchanges, it is they who hold your private keys, making your crypto more vulnerable to being hacked. There is a famous saying “Not your keys, not your crypto”, and with many users having had issues withdrawing assets from exchanges in the past, this saying really emphasizes this fact. Keeping assets on exchanges also hurts the decentralization of the network and can limit the rewards you receive.

Cardano wallet private keys can be stored on cold wallets, however management of the assets need to be facilitated through an intermediary wallet to interact with the blockchain. Currently smart contract signing to interact with dApps from cold wallets is being worked on by ledger and will hopefully be fully implemented in the near future. 

The following wallets are all light client wallets that can sign smart contract transactions to operate with a multitude of dApps in the ecosystem. Please note that seed phrases from cold wallets can be imported to hot wallets, but that defeats the purpose.

Also note, the following wallets are available as extensions to browsers making it incredibly easy to connect to dApps. The dApps can recognise your ownership and display your assets in an array of unique features in order to interact with its services.

Yoroi

Yoroi was the first open-source native light client UI available on Cardano. Developed in October 2018 by Emurgo, one of the three organizations behind Cardano, Yoroi was originally formulated as a chrome extension but is now also available on iOS and android. Users can easily stake, send and receive transactions. Throughout the last year, it appeared that Yoroi development was somewhat at a standstill with many users having experienced syncing issues as well as issues displaying multiple assets. This was addressed by Emurgo’s senior technical officer Sanchez Ferrer at the Cardano summit 2021, outlining that a new improved version, offering voting, fiat ramps, assets swaps and dApp connectivity was close to being released. In Feb 2022 Yoroi launched a web extension UI version enabling dApp connectivity with other features to be released in time. The iOS and android version are yet to have this dApp functionality. 

With the swift advancement of development on Cardano, many other wallets have been developed offering different functionality and UI experiences in this highly competitive market. 

Eternl (Formerly CCVault) 

Eternl is a closed-source Cardano wallet launched in July 2021 by Tastenkunst, a limited liability advertising company based in Leipzig Germany. Eternl wallet is incredibly feature-rich, allowing users to not only conduct the usual send/receive and stake transactions, but also was the first wallet to allow split delegations by creating subaccounts. Voting on Project Catalyst proposals, managing NFTs and interacting with dApps are all features capable from within the UI. Advanced features allow users to use hierarchical-deterministic (HD) wallet modes which generates new key pairs from a master key pair for each crypto transaction, enhancing privacy and security and other features include token fragmentation and adding metadata to transactions.   

Eternl operates on all Chromium-based browsers such as Chrome, Brave, Kiwi, Opera and Edge and also has an app for iOS and android however dApp connectivity isn’t possible on the app as of yet. 

Nami

Available as an extension on Chrome, Brave and Edge, aside from usual wallet functionality and interacting with smart contracts, Nami can also delegate ADA tokens to stake pools, only to [BERRY] stake pool through the UI, but you can delegate Nami to other stake pools through poolpeek.com. Nami’s UI is simple and friendly, making it a breeze to quickly navigate and interact with its features leading to mass appeal.  

The open-sourced wallet was created by Pascal Lapointe from Canada and Alessandro Konrad from Germany. Alessandro is also one of the creators of SpaceBudz, an early Cardano NFT project which has reached a significant level of acclaimed fame within the Cardano community. 

Nami is currently the only wallet that supports MELD staking through the MELDApp.

Flint 

The Flint Wallet was created by the creators of dcSpark, a company that builds critical infrastructure to support layer 1 blockchains with Milkomeda, a novel sidechain protocol that powers several leading blockchains such as Cardano, Terra, Algorand and Solana to interconnect, to be one of them. Members of the team have a background at Emurgo and led the development of Yoroi. 

Flint also works as an extension to Chromium-based browsers offering the usual dApp connectivity features but also supports cross-chain asset transfers. For example you can wrap your ADA from your Flint wallet into MilkADA, Milkomeda’s base asset, in your metamask wallet for asset sidechain interoperability. Information regarding how to do this can be found here.

These are just a flavor of some of the UI’s available on Cardano with many more in development. The space is evolving incredibly fast with new and enhanced features being constantly upgraded, therefore it may be wise to familiarize yourself with a range of wallets to grasp how they work and develop. It may be the case that you find different wallets work best with specific dApps and find yourself switching between them. 

The most important thing to remember is that the UI you choose to use is a decentralized window of access to your assets, making you the manager of your own security and the sole custodian of your assets.

Disclaimer

The opinions shared within this article are those solely of the MELD Ambassador. Note that the content within should not be considered financial, legal, or tax advice. Neither the author nor MELD Labs PTE Ltd. are financial, legal or tax advisors. None of this content should be used to make any form of financial, tax, or legal decisions. Do your own research and consult professionals as needed for official policies, restrictions, and requirements in your jurisdiction.

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Tags
wallet
banking
Blockchain Basics
Cardano

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