Crypto wallets details

Before go deeply in some crypto wallet concepts, it will present a little review.

In short, a crypto wallet is a tool that you can use to interact with a Blockchain network.

Contrary to popular belief, crypto wallets don't truly store cryptocurrencies.

Instead, they provide the tools to send and receive cryptocurrency via Blockchain transactions. Among other things, they manage one or more pairs of public and private keys.

More about mnemonics

Wallets which are based in a mnemonic is a HD wallet. HD is an acronym for Hierarchical Deterministic.

Essentially, a seed phrase, or mnemonic, works like a root key that generates and gives access to all keys and addresses in a crypto wallet.

A mnemonic is generated from the pattern defined in BIP-39

• BIP = Bitcoin Improvement Proposal

Mnemonics are usually words that are easier to write than a private key.

If the wallet is stolen, for example, just use the word combination to gain access to it again. Therefore words must be kept in absolute secrecy and safety.

Ian Coleman app

This web app:

iancoleman.io/bip39

is very useful for understanding mnemonics and derived keys.

I recommend to do some tests.

On the other hand, it's not so safe to generate a mnemonic and private keys on a website, so do NOT store real cryptos in addresses generated from here.

Derivation Path, or dPath

If you use a mnemonic phrase or hardware wallet, you may come across the term "derivation path".

The same mnemonic can generate addresses for different Blockchains using the dPath. So each coin has its own base derivation path, to ensure that you get different addresses for each coin.

In short, it specifies which is the way will be generated the private key from this wallet. The address comes from public keys which also are generated using the derivation path.

A derivation path looks something like this:

m/44'/60'/0'/0/0

Note the extra "/0" at the end of the derivation path. This number is called the address index, and is used by wallets to show you different address from the same source

Take a look on some dPaths:

The mnemonic generates "master"s public and private keys, and using the address index it is created many addresses from same base.

There are some specifications for this:

• BIP-32
• BIP-44

For example, this mnemonic:

shoot gate legend member sniff asthma smart slot famous call marriage math

Can generate different addresses:

You can try it on iancoleman.io/bip39 .

Ethereum and RSK Accounts

RSK is compatible with Ethereum address and dPath, but, in fact, it has your own dPaths.

Another difference about Ethereum and RSK is that on Ethereum, the addresses from Mainnet and all Testnets are the same. RSK uses different dPaths for Mainnet and Testnet. This avoid you to wrongly uses funds from a testnet Blockchain in another thats the money is "real".

This it a great flexibility, but also can create some confusing between wallets.

RSK recognizes Ethereum addresses, and in some cases, like when you are using a token bridge, which the funds will be sent from one Blockchain to another, they will be sent to the same address. So you need to use the Ethereum dPath on this case.

Checksum

Another point that can create confusion in addresses in different wallets is the checksum concept.

The checksum is the use of the chainID on the process of generate a address.

This will change some uppercase and lowercase letters.

Some wallets use it, others no, and the address can looks different, but in fact they are all the same.

Here is the list of chain IDs for EVMs, Blockchains which are compatibles with the Ethereum Virtual Machine.

• ChainIds list

This is a example, showing the index 0 of the mnemonic presented previously:

• 0xA63375173FFa44725B5cDE4DcFDe7d6ccf5Fffaa - RSK Testnet, without checksum
• 0xa63375173fFA44725b5CDe4dCfdE7D6Ccf5FFFaa - RSK Testnet, with checksum
• 0xa63375173ffa44725b5cde4dcfde7d6ccf5fffaa - RSK Testnet, lowercase

If you have problems with wallets saying that the address is invalid, try to convert the address to lowercase. This will works in most part of the cases.

They have good intentions, they were created to prevent people from sending funds from one network to another unintentionally.

But checksum and dPath can cause a lot of confusion!

So pay attention, this is the most technical topic in this module, but it is very important that you understand it well in order not to have problems with addresses and wallets.

Metamask vs Nifty wallet

Nifty wallet nativally has the cofigurations for RSK networks, so the addresses generated by Nifty uses the RSK's dPath and checksum.

In the other hand, Metamask doesn't have RSK networks already configured, but it allows you to add custom networks too. In this way, it is possible to add the RSK networks.

Take a look on these addresses on RSK testnet:

• 0x0eDbe1BbdA93b333640E1E32866C474ca2Fb5756 - Metamask
• 0xa63375173fFA44725b5CDe4dCfdE7D6Ccf5FFFaa - Nifty

Hey, they are completaly different!

• Metamask uses dPath m/44'/60'/0'/0/0 (from Ethereum), without checksum
• Nifty uses dPath m/44'/37310'/0'/0/0, with checksum

But Metamask, until now, only uses the Ethereum dPath. So you will have a address generated for RSK Blockchain, which you can send and receive funds and transactions normally, but other wallets can tell you that this address is NOT valid in RSK network, but it is!

You also can configure a custom network in Nifty adding the RSK networks, but using Ethereum dPaths. This is a great funcionallity from Nifty!

Account vs UTXO

A important concept about Blockchains Bitcoin and RSK / Ethereum is the way they manage the balance of an address.

This is the difference between Account vs UTXO.

Accounts

RSK and Ethereum uses the account concept, it means that it has a screenshot of all accounts in the last block, and the balance of an address is the value stored over there.

UTXO

UTXO means unspent transaction output.

Bitcoin uses the UTXO model.

A UTXO is an output of a Blockchain transaction that has not been spent, i.e. can be used as an input in a new transaction.

When a portion of a Bitcoin is transferred, at the current address it will be a spent transaction, and at the new address it will be an unspent transaction.

I like to say that it is the "parking lot" of Bitcoins, they are the addresses that a part of Bitcoin has passed through.

The goal here is to have only an overview. To deepen these concepts, I suggest some reference books at the end of this lesson.

The importance of backups

If you loose the access in your wallet and you don't have any backup, you probally lost your cryptocurrency forever!

It's important to back up them regularly. In many cases, this is achieved by simply backing up wallet.dat files or seed phrases.

Also, if you opted for password encryption, remember to back up your password as well.

It is very important that you have a backup of your mnemonic / seed phrase!

Closing thoughts

Crypto wallets are an integral part of using cryptocurrencies.

Now you know important concepts related to wallets!

They are one of the basic pieces of infrastructure that make it possible to send and receive funds through Blockchain networks.

The next step is know about some types of wallets.