A software wallet is a specialized type of virtual credit card wallet that stores the user’s personal keys in a secured hardware device. They also have several major benefits over conventional personal software wallets: most private keys are kept in a highly protected environment of a microprocessor and therefore cannot be compromised in the normal course of operation.
At the same time, they can be sent over the internet and used in conjunction with other online services and applications. Most often, the operating system is free and open source, enabling a user to verify the whole operation of their device without any risk. This is how they are popularized and used for the first time by merchants and enthusiasts.
. The Electrum VPS (Virtual Private Server) was one of the very first products to offer advanced features such as encrypted offline storage and cold storage, among others. Their product also had the distinction of being the first (and only!) virtual credit card wallet to offer both offline and online functionality. It was later followed by the similarly-interesting Ledger model.
Ledger was the first Cryptocurrency Hardware Wallet that offered both the offline and online functionality. Unlike its rival, Electrum, it did not attempt to address security concerns related to sensitive personal data. Instead, its primary focus was on its advanced features and ease of use.
The Ledger wallet application (تطبيق محفظة ليدجر) had the following basic features: a key generator, a paper-less (paperless in the sense that no paper was used in the process of generating the key-the user would have no way of knowing if the generated key matched the one printed on the ATM receipt) account files storage and an offline storage facility (the user would still be able to access his funds).
The Ledger hardware wallet, meanwhile, had a few more features: a hardware-based encryption device, built-in admin interface with a web-based console, an AMF4 compliant module, a hardware-based recovery manager, as well as the ability for the user to change his PIN at any time without having to restart the system.
The major difference between the two, in terms of advanced features and ease of use, was in the manner in which they worked. Electrum’s key generator was the first piece of software to implement the concept of combining Cryptocurrency Storage with Anonymous Transactions and Stealth Protection, as we will see in a bit. This was quite novel, as no other model at that time offered anything close to this functionality.
However, the Ledger model goes further, in that it implements what is known as a “decentralized key distribution network”. By decentralizing the key distribution process, in other words ensuring that only a single, trusted computer is used to create the final cryptographic key for a Cryptocurrency Hardware Wallet, it is hoped that users are far less likely to be subjected to the attacks mentioned previously.
Another important aspect of both methods is the recovery seed. In the Ledger Hardware Wallet, one can recover their private key much like a conventional CD or DVD, simply by following the procedure outlined in the backup procedure. In the Byzantine Fault Tally protocol, however, the recovery seed is not recovered by copying the whole thing on the fly like in Electrum.
Instead, the recovery seed is split into many small parts, and these parts are then encrypted and put on the offline/online storage devices used by users, and are only made accessible when the corresponding user requests access. Because of this feature, both Byzantine Faults and the Ledger Wallet are able to coexist peacefully.
The Ledger Wallet, on the other hand, does not use any sort of recovery seed, and therefore, the whole key distribution process is centralized. This means that there is no way for a user to obtain a copy of his private key.
The key distribution in the Ledger Wallet happens entirely offline, in the form of digital certificates, which are attached to the various financial websites that a user wants to use. This is in contrast to the Byzantine Fault, where users are able to recover their private keys by restoring specific files that have been affected by the attack, such as databases, files, or even applications.