It is now impossible to dissociate cryptocurrencies from Wallets that form the basis of transactions. To make a simple analogy: if cryptocurrency is comparable to fiat currency, the Wallet can be likened to a bank account. A Wallet makes it possible to store and manage its crypto-assets in the same way as a bank account with its balance. Cryptocurrency transactions are recorded on the blockchain which uses asymmetric encryption with a public key for encryption and a private key for decryption. Wallets also obey these rules but, in their case, the public key acts as an Iban, authorizing the sending of cryptocurrencies to his account. The private key is used as an access code to the balance present on the Wallet.
In reality, the funds are stored on the different blockchains, the Wallet acts as an intermediary between them and the user with the aim of making the cluster of characters that compose them more intelligible. It also provides communication with other Wallets to buy, sell, store and spend the cryptocurrencies in its possession, on websites, or directly from one user to another.
Different Types Of Wallet
Wallets are classified into two types that are “ hot” Wallets and “ cold” Wallets.
Hot Wallet
Beyond their recent popularity as an asset, cryptocurrencies as a means of transaction have seen wide adoption in recent years and many merchant sites have started to accept Bitcoin, Ethereum, and hokkaido inu. Hot Wallets allow you to replace the bank card by offering the same ease of use and the instantaneousness of the transaction. Also known as Online Wallets, they are constantly connected to the Internet and blockchains, which still poses risks, especially for hackers. They come in the form of an application with an interface quite similar to what banks offer with theirs.
Cold Wallet
For security reasons, it is not recommended to keep all your assets constantly connected, which is why there are also cold Wallets. They allow the private keys to be stored securely on a storage device and all transaction confirmation is done entirely on the computer in an offline environment. Physical Cold Wallets also exist, often in the form of a key. They work in conjunction with an application or connect directly to a computer in the event of a transaction.
What Proof Of Work
The Proof of Work (PoW) describes a system that requires computing power from the service requester to access it and use it in order to discourage malicious use or attacks. This method was first theorized with a view to creating a system capable of preventing spam and denial of service attacks on the system, making it extremely resilient to common threats found on the web. In 2004, Hal Finney adapted it so that it could be used in a fully digitized monetary system.
How Does (PoW) Work?
The primary characteristic of this system is the asymmetry of the computational cost: the requestor must provide a considerable amount of computing power while the work carried out is easily verifiable by the recipient or a third party. In the context of cryptocurrencies, Proof of Work is used to validate transactions and mine new tokens, key tasks that require a high level of security and that give a cryptocurrency its value, in whole or in part.
Bitcoin was the first network to widely adopt Proof of Work. Today, a majority of calculations are done through hash functions such as SHA-256 which generates 256-bit character strings, and it is moreover the hash rate, the number of strings generated over a given time, which defines the computing power of processors and graphics cards within the framework of the mining.
Also Read About: What is Decentralized Finance (DeFi)?
Criticisms and Limitations of Proof of WORK
On a large scale, Proof of Work requires enormous computing power but guarantees the integrity of transactions without the need for a trusted third party, a bank in the current economic system, since the system becomes this third party. Due to its enormous energy requirement, Proof of Work is increasingly criticized for its environmental impact and several cryptocurrencies such as Ethereum are abandoning it in favor of Proof of Stake, while others like Chia prefer Proof of Space. -Time that uses storage space rather than computing power.
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