Base / "Internal" and "External"In YOROI Shelley Extension wallet with Ledger

Hi,
My Yoroi Shelley Extesion with Ledger Nano is updated and all is well BUT
one 2 fold question appeared:
When operating with the Ledger Nano
1 - Is is best to have the ADA in the “External” or “Internal” Base of Yoroi?
2 - Assuming it’s best to have all funds in “Internal” how do I transfer the bit of funds appearing in “External” to “Internal”…

Thank you in advance!
Best wishes.
M

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@markstuff, I share your questions, but my interpretation going by the explanation provided in the Yoroi application is that: internal addresses are used to mask your external addresses. I don’t get what that means or how that works, but it sounds to me it’s okay to store funds in the external wallet addresses. Nevertheless, I look forward to a proper clarification by someone more knowledgeable and in response to your original questions.

@SebastienGllmt might be able to help here.

We have a blog post on this topic that may help you understand how and why these exist: https://emurgo.io/en/blog/understanding-unspent-transaction-outputs-in-cardano

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But that blog post doesn’t discern between internal and external addresses. It also doesn’t explain whether it’s normal that an internal address can have “-” funds, while external addresses do have funds… Unless it is implicit by the fact that when you don’t ever send partial funds (so, always “send all ADA”) or if it’s a brand new wallet that has yet to spend ADA, there will never be unspent amounts in the internal address/es? In other words, this would be the case right after migrating from byron to shelley era I assume.

Yes - the change address referred to in the blog post predominantly maps to Internal address. When you receive funds, you’re receiving it in external address.
When you send make a transaction, the leftover from inputs selected is sent to the internal(change) address.

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This origins from the BIP44 standard which simply states:

  • Constant 0 is used for external chain and
  • constant 1 for internal chain (also known as change addresses).
  • External chain is used for addresses that are meant to be visible outside of the wallet (e.g. for receiving payments).
  • Internal chain is used for addresses which are not meant to be visible outside of the wallet and is used for return transaction change.

So, it has some privacy function which is not really relevant with this new Shelley addresses (the system expects at least 80% of them for proper functioning), as all wallets that are participating in staking are exposed. But, following this standard is a good practice anyway.

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@SebastienGllmt, I have another question… there is also the “Reward address” in the “Receive” section of Yoroi 3.3.0. It has 0 funds ("-"), yet I have received rewards and these are displayed in the Dashboard section of the Yoroi application. After I claim my rewards, my balance goes up, Dashboard shows 0 rewards, but also the “Receive” page Reward Address will remain at “-”, so my question here is: is that a problem or will this address be used later to claim “partial” rewards and store the balance of what has not been claimed yet?

It’s not possible to claim partial rewards – only the full reward balance. Rewards are not stored in UTXO entries which is why the UTXO balance is N/A. Rewards are instead stored implicitly in the Ledger state as account-style addresses.