Running a full node is only for some as it places demands on disk storage, bandwidth and computing power. The reward is maximum security and trustless status. Users tend to be surprised that it can take a long time to get the Daedalus wallet up and running. Daedalus is a full node and people should know what that means. For some, a light wallet is a better choice even at the cost of having to trust a third party. What is the difference between a full-node Daedalus wallet and a light wallet like Yoroi and many others?
- Daedalus is a desktop wallet that also installs Cardano full node on your computer.
- Daedalus gives users freedom and independence.
- Light wallets connect to servers operated by third parties. The server is running Cardano full node.
- Always use only self-custody wallets.
- It is the most secure to use hardware wallets to generate and store private keys.
Daedalus wallet is a full node
Each full node maintains a copy of the entire blockchain. When you launch the Daedalus wallet on a computer for the first time, it connects to peers and starts downloading all blocks from the first (Genesis) to the last one produced. The blockchain network is constantly adding new blocks, so the full node downloads them without stopping. In addition, it verifies all transactions that are in the blocks. This requires computing power.
Daedalus is an open-source desktop wallet that also installs Cardano full node on your computer. The wallet is connected to the full node and gets all the information from it. All user requests are directly forwarded to the locally running full node.
You can install Daedalus on Windows, Mac and Linux. For obvious reasons, there is not and never will be a full node wallet for mobile phones. If you see a Daedalus wallet for mobile phones, it will most likely be a scam.
After the first installation of Daedalus, the process described above takes place regarding the synchronization of the Cardano blockchain. This can take several hours depending on your bandwidth and computer's performance. It is necessary to have a large enough free space on the disk. At the time of writing, the size of the Cardano blockchain is close to the 90 GB mark.
If you don't turn off your computer and leave your wallet open, the full node will sync all the time. This way the Daedalus wallet will be ready for immediate use. If you start the wallet after a longer period of time, you have to expect that the full node will start synchronizing and this will take some time.
Using Daedalus wallet provides maximum security and completely trustless operation, without centrally hosted 3rd party servers. Users gain the maximum degree of freedom and independence as they are part of the Cardano network with their own copy of the blockchain.
This means, for example, that if you submit a transaction, the transaction will be distributed from the local node to the entire network and no third party cannot censor the transaction. It further means that what the user sees in his wallet is 100% true and no one could fake the information in any way.
Running your own full node and wallet attached to it is the best possible solution for those who want to comply with the principles of decentralization. The saying "do not trust, verify" can be interpreted to mean that you do not have to trust any third party, as you have your own version of the blockchain that your full node verifies. So you know what is true and what is not.
Light wallets are usually web browser extensions, phone apps, or accessible as a web service. Light wallets connect to servers operated by third parties. The server is running Cardano full node. The server is generally run by the team that created the wallet.
Users do not come into direct contact with the full node. The wallet is installed instantly and is always immediately available. The wallets (clients) connect via the server to the full node, which is always synchronized.
All resources required to run a full node are consumed on the server side. The cost of running the node is covered by the wallet provider. Light wallets have minimal requirements for disk storage, bandwidth and computing power. Therefore, they can run even on a mobile phone. The only communication is between the client and the server via a proprietary protocol. The wallet only needs a minimum of information, usually only that which is directly linked to the user's account.
Users of light wallets must trust third parties. If they want to verify something, they have to do it through other third-party services.
If the user submits a transaction, this request goes to the server, which then forwards it to the full node. If a third party decided to censor the transaction, the transaction would not make it to the blockchain. To verify that the transaction was actually submitted, the user must use a blockchain explorer from another third party to trace the transaction. The certainty is not 100%, but it is relatively high.
For example, a third party may collect sensitive information about a user. An authority can force a third party to shut down a server. In this case, the wallet would stop working. However, if you hold your own private keys (in the form of a passphrase), your assets are not at risk. You can use another third-party wallet (or Daedalus) and gain access to your assets.
Non-custodial vs. custodial wallets
Always use only self-custody (non-custody) wallets. If you hold private keys to your assets, even a third party cannot take them away. The transaction can only be signed by you, and the third party is just an intermediary who will pass the transaction to the full node.
Of course, you and only you are responsible for the safe keeping of your passphrase. The third-party providing the self-custody wallet bears no responsibility for your assets. We assume that the wallet is open-source and that there is no way or backdoor for the team (or anyone else) to easily access the passphrase.
Keep in mind that as a user of any blockchain wallet, you must always trust the team. Daedalus is from the IOG team, so it is the most trusted. Yoroi is from the Emurgo team, which is one of the founding entities of the Cardano project. This third party is trusted.
Some people believe that if they use a decentralized network, they don't have to trust anyone. This is not the case with wallets. Users of any software must trust whoever created it. Programmers can make unintentional mistakes or deliberately introduce backdoors into the code. Be aware of this. Choose open-source projects that someone you trust has looked at and considers safe.
As for other wallets, always do your own research. There are a large number of quality wallets in the Cardano ecosystem. Be careful when choosing.
If you choose a custodial wallet, a third party holds the private keys. In this case, the third party can sign transactions without your permission. You must fully trust the third party. This choice is not in line with the principles of decentralisation and returns you to the old system, which is based on faith and regulation. These wallets are chosen by people who are afraid of self-custody solutions.
It is the most secure to use hardware wallets to generate and store private keys. The most widely used are Ledger and Trezor. Daedalus, Yoroi and many other light wallets support hardware wallets.
Private keys must always be stored somewhere. Even if they are stored in encrypted form on a computer or mobile phone connected to the internet, they are never ideally protected.
The best possible solution is a combination of a Daedalus wallet and a hardware wallet for storing private keys. If you don't want to run your own full node, you can choose a light wallet that you trust and keep the keys on the hardware wallet. Although you must trust the third-party server, this combination gives you instant access to your assets and the maximum possible security for your private keys.
Some people mistakenly think that because they are using a hardware wallet that everything is decentralized. This is not the case. Even if the HW wallet allows you to delegate ADA through its own interface, everything happens in the background through the connection to the server. Remember, if you're not running your own full node, someone else is running it for you and you have to trust them.
Running a full node is a trustless solution that all fans of decentralization should choose. On the other hand, people use mobile phones for a large number of financial transactions. If people want to have ADA and other native assets available at all times, they need to have them on their smartphones. Trust in third parties is necessary. Tailor the solution to your needs so that it is always as secure as possible.
The IOG team is working on a light client. This will allow the creation of a light wallet that will not depend on a third-party server but on a decentralized infrastructure. The light client can run on a mobile phone and will be similarly trustless and secure as a full node.