[ uh-nak-ruh-niz-uhm ]

noun

1. something or someone that is not in its correct historical or chronological time, especially a thing or person that belongs to an earlier time

Being aware of anachronisms is important. Mainly because so many of the jokes in Robin Hood: Men in Tights are predicated on anachronisms. But also because an awareness of them can help prevent misunderstandings when they are used. As technology advances, anachronisms are inevitable as we attempt to fold new developments into our everyday language. The classic example is referring to a car as a “horse-less carriage”.

When the term wallet is used in the crypto space, it is used anachronistically. The term gets the job done, but often leads to confusion about what exactly a wallet is or does. You may hear of web3 wallets, crypto wallets, bitcoin wallets, or ethereum wallets. When I was coming up, all the cool kids had a Fossil wallet, the long checkbook kind. I am writing an article on web3 and cryptocurrency, so clearly I did not have this kind of wallet. I’m pretty sure mine was Dockers brand. Definitely a trifold.

So what is this new kind of wallet exactly? A web3 wallet is software that allows you to interact with a blockchain. Remember, the blockchain maintains records. In a typical cryptocurrency setting, these records are records of transactions. A wallet allows you to initiate new transactions or new records on the blockchain. Of course these must be confirmed and validated by the network.

Web3 wallets do not hold or contain any cryptocurrency in the way that a traditional wallet would hold dollar bills. This is the main anachronistic misunderstanding that needs to be avoided. What they contain is the software necessary to interact with a blockchain network. They also contain two cryptographic keys. These keys are referred to as a Public Key and a Private key. These two keys are the most important thing contained in a wallet.

These two keys are the basis of the cryptography that secures the blockchain. The typical analogy used to describe them is a padlock and key. The public key works like an open padlock that you can give to anyone. You keep the private key, which opens the padlock. When they want to send you something, they secure it with the padlock. Once the padlock is secured the only way to open it is by using the Private key, which only you should have.

Both of these keys are very long and complicated alpha-numeric codes. For example, the public key for my Ethereum wallet is:

0x14237e3a87BDa9FC4aD65ED2a2c9d43F535f73CF

This code represents me on the ethereum blockchain. This is my address or identity. This key is public, so it is safe for anyone to have it. If someone wants to send me something, such as cryptocurrency or an NFT, they would send it to this address. “Sending it” would mean they use their wallet to create a transaction that assigns or records ownership of the item to my address. Now it is under my control. It has been locked with my public key. I can leave it locked or I can unlock it and send it to someone else. In order to unlock it, I would need the other thing inside my wallet - my private key. Private keys must be kept secure. Private keys are used to unlock the cryptocurrency, NFT, or other item and send it to a new address. The person who has the private key is the person who has control over the items associated with the paired public key. If your private key is lost, your ability to access and control any assets associated with your public key address is lost as well. Wallets help you keep up with these keys.

Within a wallet, you can create and manage multiple Public key / Private key pairs which operate like different accounts.

The first thing a person has to do to interact with the web3 world is to get a wallet. There are lots of options. Some wallets are designed to work with a single blockchain only, such as a bitcoin wallet. Other wallets, called multi-chain wallets, can interact with multiple blockchains and allow you to manage different types of cryptocurrencies through the same wallet interface. Once someone has a wallet, they can connect to an online exchange to trade their American dollars for cryptocurrency or an NFT. (I know I keep mentioning NFTs without explaining what that is. That will be the next article.) The exchange will then create a new transaction that assigns the agreed upon amount of cryptocurrency to the pubic key address of the wallet. It is now locked with that Public key. Once the transaction is added to the blockchain record, the person “owns” or is in control of that cryptocurrency because they are the only ones who have the Private key to unlock it.

Remember, when this cryptocurrency is “sent” to the new user, nothing is actually sent. This is often a hard concept for people to get their minds around, but an incredibly important one to understand. Instead, the record on the blockchain is updated to show that their address now controls the cryptocurrency they purchased. In this way, they own it. The cryptocurrency is not in their wallet, but rather their wallet contains the Private key that allows them to control the cryptocurrency.

There are some important distinctions among the types of wallets out there. These distinctions are typically based on a trade off between ease of use and security.

The first type of wallet to consider is a hardware wallet. This is the most secure type of wallet. These typically look like a USB thumb drive. The reason they are so secure is because they can be unplugged from your computer and buried in a coffee can in your yard. Without that device and the Private key it contains, no one is gaining access to your cryptocurrency. The downside is, if you forget where you buried the coffee can you aren’t gaining access to your cryptocurrency either. These are also going to be password protected, so if you lose your password you won’t be able to get into the device to access any cryptocurrency associated with that wallet. There is also the possibility that the device itself could break, leaving you in the lurch without a way to access your cryptocurrency.

When you use a hardware wallet, you and you alone are in control of your Private key. Therefore, you and you alone are in control of your cryptocurrency. If something happens to your hardware wallet, there is no tech support to email or call to help you get it back.

Most people are going to use a software based wallet that is accessed through a computer, web browser, or smartphone app. The major distinction between these types of wallets is Custodial vs Non-Custodial.

A Custodial wallet is a wallet that you access through a third party or custodian. These types of wallets are the most user friendly in the sense that if you have any issues or forget your password, there is normally tech support options and the usual password recovery options. The reason they are able to offer so much help is because they hold both the Public and Private key. This is helpful when it comes to ease of use, but it presents a major risk when it comes to security. The reason it presents such a security risk is because you are not actually in control. Instead, you are trusting a third party, which is really antithetical to the entire web3 ideal.

One of the biggest risks associated with Custodial wallets is for the custodian to go out of business. If you use a Custodial wallet through a company that goes out of business, you will most likely loose access to your wallet and the keys it contains. Without that private key, you cannot control any of what you own. This was a very common issue in the early days of cryptocurrency when companies would pop up and then fail quickly. In fact, there is quite a bit of cryptocurrency sitting on the blockchain, never to be accessed again because someone lost their access to their Private keys when a company went dark.

Another risk to Custodial wallets is the potential for censorship. If the third party custodian decides for some reason, political or otherwise, that you should not have access to your cryptocurrency, then they can cut you off by removing your access to the Private key controlling your cryptocurrency.

Arguably the best happy medium between a hardware wallet and a Custodial wallet is a Non-Custodial wallet. These are sometimes referred to as Self-Custody wallets. These are wallets that only you control, so there is no third party who has access to your keys. These wallets live on your device. These can be desktop applications, web browser extensions, or smartphone apps. The main security risk is that the device they live on will typically be connected to the internet and therefore have the potential to be hacked. Also, the device could be stolen. These wallets are password protected. If you lose your password, there are some limited options for recovering the password. Typically password recovery is through a “seed phrase” which is a long collection of random words that essentially function as a very secure backup password. If you lose your password and your seed phrase, you are toast. It will be very difficult to recover access to your wallet and the Private key it contains.

If you wander around the crypto world for very long, you are sure to run into someone saying, “Not your keys, not your coins”. This is a good summary of how to understand wallets and control of cryptocurrency. Wallets contain keys. These keys are used to control the cryptocurrency associated with them. If you don’t have access to the keys because you lost access to your wallet, then you can’t control your coins.

Another thing people will say is, “I have some bitcoin in my wallet”. This is simply not true. This is an anachronistic understanding of what crypto wallets do. Even when people say they “own” cryptocurrency, this isn’t exactly the case. What they own, or what they are in possession of, is the Private key that allows them to control the coins associated with a particular Public key. This control plays out on the blockchain record where the software contained in a wallet allows the person to create a new record that shows the cryptocurrency is now assigned to a different Public key, which represents the address or identity of a different person. This new person will be the new owner, so long as they have their Private key.

Since the last article I published, cryptocurrency prices have tanked. Some people are crying because they lost a bunch of money. Other people are patting themselves on the back for being so shrewd and knowing better than to invest in something as silly as computer money.

No one should be surprised. It was a bubble and the bubble popped. Many people have been forecasting a so-called Crypto Winter for awhile. Is this it? Maybe. Could things go lower? Maybe.

This isn’t all bad. (Easy for me to say, I didn’t just lose my shirt.) This will be a chance for web3 applications that are actually good, useful, and solve problems to rise to the top, while less valuable ideas and scams will get left behind. Projects that are inherently valuable will hang around and get better.

I’ll keep writing; you keep reading. If and when you decide to join the web3 world, it won’t be because of hype, but rather because you understand what you are getting into and you see the real value in it.

[ uh-nak-ruh-niz-uhm ]

noun

1. something or someone that is not in its correct historical or chronological time, especially a thing or person that belongs to an earlier time

Being aware of anachronisms is important. Mainly because so many of the jokes in Robin Hood: Men in Tights are predicated on anachronisms. But also because an awareness of them can help prevent misunderstandings when they are used. As technology advances, anachronisms are inevitable as we attempt to fold new developments into our everyday language. The classic example is referring to a car as a “horse-less carriage”.

When the term wallet is used in the crypto space, it is used anachronistically. The term gets the job done, but often leads to confusion about what exactly a wallet is or does. You may hear of web3 wallets, crypto wallets, bitcoin wallets, or ethereum wallets. When I was coming up, all the cool kids had a Fossil wallet, the long checkbook kind. I am writing an article on web3 and cryptocurrency, so clearly I did not have this kind of wallet. I’m pretty sure mine was Dockers brand. Definitely a trifold.

So what is this new kind of wallet exactly? A web3 wallet is software that allows you to interact with a blockchain. Remember, the blockchain maintains records. In a typical cryptocurrency setting, these records are records of transactions. A wallet allows you to initiate new transactions or new records on the blockchain. Of course these must be confirmed and validated by the network.

Web3 wallets do not hold or contain any cryptocurrency in the way that a traditional wallet would hold dollar bills. This is the main anachronistic misunderstanding that needs to be avoided. What they contain is the software necessary to interact with a blockchain network. They also contain two cryptographic keys. These keys are referred to as a Public Key and a Private key. These two keys are the most important thing contained in a wallet.

These two keys are the basis of the cryptography that secures the blockchain. The typical analogy used to describe them is a padlock and key. The public key works like an open padlock that you can give to anyone. You keep the private key, which opens the padlock. When they want to send you something, they secure it with the padlock. Once the padlock is secured the only way to open it is by using the Private key, which only you should have.

Both of these keys are very long and complicated alpha-numeric codes. For example, the public key for my Ethereum wallet is:

0x14237e3a87BDa9FC4aD65ED2a2c9d43F535f73CF

This code represents me on the ethereum blockchain. This is my address or identity. This key is public, so it is safe for anyone to have it. If someone wants to send me something, such as cryptocurrency or an NFT, they would send it to this address. “Sending it” would mean they use their wallet to create a transaction that assigns or records ownership of the item to my address. Now it is under my control. It has been locked with my public key. I can leave it locked or I can unlock it and send it to someone else. In order to unlock it, I would need the other thing inside my wallet - my private key. Private keys must be kept secure. Private keys are used to unlock the cryptocurrency, NFT, or other item and send it to a new address. The person who has the private key is the person who has control over the items associated with the paired public key. If your private key is lost, your ability to access and control any assets associated with your public key address is lost as well. Wallets help you keep up with these keys.

Within a wallet, you can create and manage multiple Public key / Private key pairs which operate like different accounts.

The first thing a person has to do to interact with the web3 world is to get a wallet. There are lots of options. Some wallets are designed to work with a single blockchain only, such as a bitcoin wallet. Other wallets, called multi-chain wallets, can interact with multiple blockchains and allow you to manage different types of cryptocurrencies through the same wallet interface. Once someone has a wallet, they can connect to an online exchange to trade their American dollars for cryptocurrency or an NFT. (I know I keep mentioning NFTs without explaining what that is. That will be the next article.) The exchange will then create a new transaction that assigns the agreed upon amount of cryptocurrency to the pubic key address of the wallet. It is now locked with that Public key. Once the transaction is added to the blockchain record, the person “owns” or is in control of that cryptocurrency because they are the only ones who have the Private key to unlock it.

Remember, when this cryptocurrency is “sent” to the new user, nothing is actually sent. This is often a hard concept for people to get their minds around, but an incredibly important one to understand. Instead, the record on the blockchain is updated to show that their address now controls the cryptocurrency they purchased. In this way, they own it. The cryptocurrency is not in their wallet, but rather their wallet contains the Private key that allows them to control the cryptocurrency.

There are some important distinctions among the types of wallets out there. These distinctions are typically based on a trade off between ease of use and security.

The first type of wallet to consider is a hardware wallet. This is the most secure type of wallet. These typically look like a USB thumb drive. The reason they are so secure is because they can be unplugged from your computer and buried in a coffee can in your yard. Without that device and the Private key it contains, no one is gaining access to your cryptocurrency. The downside is, if you forget where you buried the coffee can you aren’t gaining access to your cryptocurrency either. These are also going to be password protected, so if you lose your password you won’t be able to get into the device to access any cryptocurrency associated with that wallet. There is also the possibility that the device itself could break, leaving you in the lurch without a way to access your cryptocurrency.

When you use a hardware wallet, you and you alone are in control of your Private key. Therefore, you and you alone are in control of your cryptocurrency. If something happens to your hardware wallet, there is no tech support to email or call to help you get it back.

Most people are going to use a software based wallet that is accessed through a computer, web browser, or smartphone app. The major distinction between these types of wallets is Custodial vs Non-Custodial.

A Custodial wallet is a wallet that you access through a third party or custodian. These types of wallets are the most user friendly in the sense that if you have any issues or forget your password, there is normally tech support options and the usual password recovery options. The reason they are able to offer so much help is because they hold both the Public and Private key. This is helpful when it comes to ease of use, but it presents a major risk when it comes to security. The reason it presents such a security risk is because you are not actually in control. Instead, you are trusting a third party, which is really antithetical to the entire web3 ideal.

One of the biggest risks associated with Custodial wallets is for the custodian to go out of business. If you use a Custodial wallet through a company that goes out of business, you will most likely loose access to your wallet and the keys it contains. Without that private key, you cannot control any of what you own. This was a very common issue in the early days of cryptocurrency when companies would pop up and then fail quickly. In fact, there is quite a bit of cryptocurrency sitting on the blockchain, never to be accessed again because someone lost their access to their Private keys when a company went dark.

Another risk to Custodial wallets is the potential for censorship. If the third party custodian decides for some reason, political or otherwise, that you should not have access to your cryptocurrency, then they can cut you off by removing your access to the Private key controlling your cryptocurrency.

Arguably the best happy medium between a hardware wallet and a Custodial wallet is a Non-Custodial wallet. These are sometimes referred to as Self-Custody wallets. These are wallets that only you control, so there is no third party who has access to your keys. These wallets live on your device. These can be desktop applications, web browser extensions, or smartphone apps. The main security risk is that the device they live on will typically be connected to the internet and therefore have the potential to be hacked. Also, the device could be stolen. These wallets are password protected. If you lose your password, there are some limited options for recovering the password. Typically password recovery is through a “seed phrase” which is a long collection of random words that essentially function as a very secure backup password. If you lose your password and your seed phrase, you are toast. It will be very difficult to recover access to your wallet and the Private key it contains.

If you wander around the crypto world for very long, you are sure to run into someone saying, “Not your keys, not your coins”. This is a good summary of how to understand wallets and control of cryptocurrency. Wallets contain keys. These keys are used to control the cryptocurrency associated with them. If you don’t have access to the keys because you lost access to your wallet, then you can’t control your coins.

Another thing people will say is, “I have some bitcoin in my wallet”. This is simply not true. This is an anachronistic understanding of what crypto wallets do. Even when people say they “own” cryptocurrency, this isn’t exactly the case. What they own, or what they are in possession of, is the Private key that allows them to control the coins associated with a particular Public key. This control plays out on the blockchain record where the software contained in a wallet allows the person to create a new record that shows the cryptocurrency is now assigned to a different Public key, which represents the address or identity of a different person. This new person will be the new owner, so long as they have their Private key.

Since the last article I published, cryptocurrency prices have tanked. Some people are crying because they lost a bunch of money. Other people are patting themselves on the back for being so shrewd and knowing better than to invest in something as silly as computer money.

No one should be surprised. It was a bubble and the bubble popped. Many people have been forecasting a so-called Crypto Winter for awhile. Is this it? Maybe. Could things go lower? Maybe.

This isn’t all bad. (Easy for me to say, I didn’t just lose my shirt.) This will be a chance for web3 applications that are actually good, useful, and solve problems to rise to the top, while less valuable ideas and scams will get left behind. Projects that are inherently valuable will hang around and get better.

I’ll keep writing; you keep reading. If and when you decide to join the web3 world, it won’t be because of hype, but rather because you understand what you are getting into and you see the real value in it.