What the hell is a ‘wallet’?

In Australia when people use the word ‘football’ it can mean 5+ different things depending on the context and person you are talking to. It could mean soccer if you were talking to me. It could mean rugby league, rugby union or touch football if you were talking to someone else. It could mean AFL if you were talking to a Victorian.

In crypto land when people use the term wallet it can mean 5+ different things depending on the context and person you are talking to. I found this really confusing when I started in this space.

So let’s try and describe the different types. And let’s limit this to Ethereum to keep it simpler.

Sometimes when people refer to a wallet they are referring to an account. ETH could be transferred to an account. The format of an account address will be something like 0xA033B3af34a30A49271232141e1630eDbB57bD3A. The owner of the account will have a corresponding private key to unlock it.

Sometimes when people refer to a wallet they are referring to a paper wallet. Just think of this having the account address and private key printed on a piece of paper.

Sometimes when people refer to a wallet they are talking about software that manages the private keys for accounts. This is usually done via a seed phrase. From this seed phrase the accounts are generated. Metamask is an example of a software wallet.

Sometimes when people refer to a wallet they are using a hardware wallet. This is a separate piece of hardware dedicated to managing the keys. It also generates the accounts from a seed phrase. Trezor Model T is an example of a hardware wallet.

Sometimes when people refer to a wallet they are talking about their account with a centralised crypto exchange. In this case their balance would probably be held in the exchanges internal database against their username, eg surfing_god_432@hotmail.com. The actual ETH would be held in an Ethereum account controlled by the exchange. Binance is an example of a centralised crypto exchange.

Sometimes when people refer to a wallet they are referring to is a contract that has wallet capabilities programmed into it. An example of this is the Gnosis MultiSig Wallet. This wallet can be programmed to require multiple confirmations to transfer ETH. So imagine there are 4 owners on the wallet and you require 3 confirmations. Someone could submit a request to transfer ETH from the contract to another address. It would not be executed until another 2 owners confirmed it.

If you are still confused don’t fret. I was confused even after reading articles trying to explain it. The best way to get a handle on the terminology is to get your hands dirty. Install MetaMask, grab some test ETH from Ropsten and start messing around. It is only test ETH.