• The transition from the Byron reboot to the Shelley mainnet will be very important for Cardano wallet users, as they will have to migrate their wallet themselves.
• Cardano will introduce a new address type, BECH32, which will completely replace the old formats.

In another video update, Charles Hoskinson explained how the wallet migration from Byron to Shelley will take place and how the rewards for the Shelley Incentivized Testnet (ITN) will be redeemed. As Hoskinson explained, there have been some misunderstandings recently regarding the upgrade to Shelley. To clear these up, Hoskinson explained that Cardano will have three different address types, those from the Serokell (SL) era and those from the new Shelley era.

The SL era addresses were unique, randomly generated HD wallet addresses that were relatively large in terms of memory requirements (“legacy addresses SL”), which is why Yoroi introduced smaller addresses (“legacy addresses Yoroi”). Both are obviously different, but currently both address types are basically compatible with the Daedalus wallet. However, only the legacy addresses SL are supported by the Daedalus wallet.

With Shelley a new address type is introduced again, BECH32. This address type is “very good work” by the Bitcoin Core developers and Blockstream, as Hoskinson stated, so Cardano will use this format. When Shelley is released, all Cardano wallets will have to migrate to BECH32 so that all ADA owners will be able to participate in the proof of stake by delegation and voting.

The users will then have to become active and perform an action on the user interface of the Daedalus wallet themselves, which they start by clicking a button in the wallet. Hoskinson describes the process as follows:

There will then be a step by step guide. Users will have to enter their spending password. They will then have to create a new wallet. All BECH32 wallets will have their own wallet recovery phrase just like the old Byron addresses. However, they will be 15 words in order to improve the security.

Once the new wallet is created and the output password for the old wallet is entered, the funds will be transferred from the old wallet to the new address. The old Yoroi and Serokell addresses are then rejected. Under the new rules of the Shelley ledger, ADA owners will only be able to make transactions to a BECH32 address.

This means that people will transition to the new wallets over time unless they have lost their passwords. The reason for this is because only BECH32 addresses can vote and stake.

The transition of the Cardano Shelley ITN

As Hoskinson further noted, the rewards of the Shelley ITN need to be transferred to the Shelley mainnet. For this he presented a simple process:

All the staking rewards are aggregating into the UTXO of the ITN. We have an algorithm which will scan the UTXO and then create a snapshot of all the rewards. When Shelley is launched the snapshot will be appended to the Cardano blockchain. […] In Daedalus there will be a button to redeem ITN rewards. Users must enter their ITN wallet recovery phrase. It will then rotate user funds to a wallet on Shelley. We could technically reuse the recovery phrase or create a new wallet.

Once the Shelley mainnet is up and running, there will be an upgrade window. When this phase expires, there will be a hard fork, whereby the protocol will no longer care about Byron and will work solely according to the Shelley rules. From this point on it will also be possible to redeem ITN rewards, participate in staking and delegate.

For Ledger hardware wallets there will be a firmware update that supports the release of Shelley. The user interface will include step-by-step instructions to support the migration process. With regard to the paper wallets, Hoskinson has announced that they will be completely revised. An import will be required to allow users to migrate to Shelley. This will allow users to create a new paper wallet and transfer their ADA. To ease the process, IOHK will also publish a dedicated video.

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