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I want to roll my own hardware wallet using a USB stick. I have some concerns:

  1. Do I need to download the entire blockchain in order to create a new wallet?
  2. Do I need to download and store the entire blockchain on the USB in order to send and receive funds?
  3. Do I need to plug in the USB wallet in order to send funds?
  4. Do I need to plug in the USB wallet in order to receive funds?

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  • I'm hoping that the answer to the first question is "no", as I really am not keen on downloading and maintaining a local copy of the entire blockchain. It's such a waste of space.
  • I'm hoping that the answer to the second question is "no". Because again, I really don't want to spend time and bandwidth downloading the entire blockchain, and also I don't want to have to store it. Those are gigabytes that could be spent on something else.
  • I'm hoping that the answer to question three is "no" for security reasons. I don't want random cυnts on the other side of the world transfering my money without my consent.
  • I'm hoping that the answer to question four is "yes" for convenience reasons. I don't want to have to plug in the wallet every time someone sends me money.

My understanding is that there is the public key for receiving, and the private key for sending. Am I correct in thinking that the only thing you fundamentally have to keep secure is the private key? If that's the case, surely I don't have to download the entire blockchain?

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I don't know if I'd call it a hardware wallet but yes you can store keys on a USB stick that also contains software that allows you to build and sign transactions. Technically all you need is the input details (txid, nout, scriptpubkey, and private key (and full input value if segwit)) to build a transaction. This would be for advanced users as building raw transactions can lead to catastrophic loss of funds if you don't know what you are doing.

Am I correct in thinking that the only thing you fundamentally have to keep secure is the private key?

Correct.

If that's the case, surely I don't have to download the entire blockchain?

Also correct. Downloading the blockchain and running a node lets you verify the chain and can help propagate other nodes but it's not required to do what you are describing.

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I want to roll my own hardware wallet using a USB stick.

An ordinary USB stick cannot be made into a hardware wallet.

Hardware wallet incorporates cryptographic hardware designed for cryptocurrencies and has firmware to interact with software on another device (PC, phone, etc)

  1. No and Yes.

    Normal wallet software has some utility while it is synchronising, but until it has synchronised it can't show the amount you control and therefore may not be able to create transactions using those amounts.

    An SPV wallet doesn't need to download the blockchain but is less secure.

  2. A full-node wallet cannot create transactions involving unspent transaction amounts it does not know about.

  3. A wallet must be online to send transactions.

  4. A wallet need not be online for money to be transferred to your control but the wallet won't know about it until it is made online or is able to communicate with other software that is online.

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