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Like other asset classes, crypto assets are valuables that should be kept secure at all times. Failure of which will result in the loss of such an asset.
Therefore, to avoid such scenarios of financial loss, it is essential to get familiar with using crypto wallets to safeguard your crypto assets. This article aims to explain crypto wallets, the types of crypto wallets, and some valuable tips for keeping your crypto wallet safe.
Crypto wallets are like the gateway to the world of cryptocurrencies, NFTs, and DeFi. Everything you would encounter in the crypto or Web3 space involves the use of a crypto wallet. Hence, it is crucial to understand crypto wallets and how they work clearly to participate in the space.
When you first come across the term “wallet” in the crypto space, what comes to mind is the physical wallet that stores your I.Ds, Cash, credit, or debit card. However, when we talk of crypto wallets in this article, we are referring to applications that provide wallet functions for your cryptocurrencies.
In plain terms, a crypto wallet is a software application or hardware device that enables you to store your cryptocurrency. Think of a crypto wallet as your personal bank. Not only does it safeguard your crypto assets, but it also allows you to send and receive cryptocurrencies. Crypto wallets are divided into two main Categories: Hot and cold wallets, which we shall discuss later.
Cryptocurrencies, Bitcoin, Ethereum, Solana, e.t.c, unlike other currencies like the United States Dollar, pounds, e.t.c, do not exist in the physical form. They are simply digital currencies built on the blockchain and exist purely in digital form. Hence, you cannot carry them around like you would physical cash since they exist only on the blockchain. This is in the same way that the wallet does not literally hold the crypto.
Essentially, crypto wallets hold the keys to your cryptocurrencies on the blockchain. Since blockchain is a distributed public ledger that stores data of all transactions, consider your crypto wallets to be your “access key” to the blockchain. It enables you to perform transactions on the blockchain. For example, if you were trying to send 10 ETH to John, your crypto wallet lets you gain access to and interact with your digital currency on the blockchain.
It goes through the public ledger, shows you the balance in your address, and confirms your transaction on the blockchain.
A crypto wallet works using two major components.
Public Key
Private key.
The public key enables crypto transactions on the blockchain. Think of the Public Key as your regular bank account number. It acts as your public address and consists of a random combination of letters and numbers that can be shared with others.
Your public key is open to anyone on the blockchain network; however, no one has access to your funds through your public key. And they typically do not contain any of your details as the wallet owner.
On the other hand, the private key can be likened to a password or pin to your internet banking app. To access the app, you would need to input your username and password. This is the same way private keys work. To prove that you are the owner of a public address/key when you attempt to access your crypto wallet, you will have to input your private key.
This is the more tricky part of using crypto wallets that most users get confused about. The private key is used to authorize crypto transactions. Therefore, it is important that you always safeguard your private key. If you are careless about your private key, anyone who gets a hold of it ultimately has access to all your funds.
Most Crypto wallets fall into two main categories:
Hot wallet
Cold wallets
Hot wallets, also referred to as software wallets, are digital tools connected to the internet that enable you to send, receive and store crypto easily. Hot wallets are the number one choice for those who engage in trading activities frequently, primarily because of their convenience. In addition, you can easily download a hot wallet as a browser extension on mobile phone apps.
Examples of Hot wallets include:
Mobile wallets; Edge, eToro wallet
Web-based wallets like Metamask, Exodus,
Desktop wallets: Exodus, Atomic wallets
While Hot wallets are designed to be easy to use and effective, especially for beginners, they may not be the most secure crypto wallet type. This is because since they function when connected to the internet, just as it is with every other thing on the internet, they are subject to online attacks and hacking. Thereby putting your assets at risk and making your crypto security an issue.
Cold wallets are physical crypto storage tools that exist offline. They mostly come in the form of USB drives or other physical features. e.g Trezor One, Ledger Nano series.
Cold wallets are referred to as hardware wallets because to access funds or confirm transactions with hardware wallets; you will need to plug or connect the device to your computer. Arculus Wallet took crypto security to another level by coming up with an Arculus key card which adds a third layer to customer verification. Before the card works, it has to be in close proximity to the phone or device you want to use it with, and it works with biometric authentication.
Cold wallets are generally considered to be a more secure form of crypto storage because their physical form allows them to be free of internet-related theft. However, this does not mean they could not be stolen. It is always important to keep your cold wallet safe and free from prying eyes. It is always advisable to keep them locked in a safe or other secure places.
Cold wallets are more expensive to use when compared to hot wallets. The cost of hardware wallets ranges from $100 to $200. Nonetheless, the extra security layer and the fact that they can store up to 170 tokens in some cases make the price worthy.
Crypto wallets can be further classified into Custodial or non-custodial wallets.
Custodial wallets are wallet services provided by a third party. It is where you store your crypto assets with a third-party centralized exchange like Coinbase, Binance, or other crypto exchanges. Here the user is entrusting their funds in the custody of the wallet provider. The centralized exchange holds your private keys on your behalf and has control over your funds.
The advantage of using custodial wallets is that users are not burdened with understanding the advanced technicalities of crypto wallets. All that is required here is that you sign up on the platform with your email and password, and each time you want to make a transaction, all you have to do is log in with your credentials.
Are completely decentralized and entrusts you with the custody and control of your private wallet. It presents a solution to some of the issues with keeping your assets with centralized exchanges. Only you have access to this wallet, and you exercise complete ownership of your wallet. Therefore, you have to take full responsibility for keeping your asset secure.
The next question most users are faced with is “how to decide which wallet to use.” The truth is, there are no hard and fast rules when choosing a crypto wallet. All you have to do is analyze your crypto needs and usage. Ensure that you ask yourself basic questions like, what do I want to trade? What are the functions of each wallet type? What is the cost of each wallet type? And How dedicated am I to keeping my crypto wallet safe? What is the reputation of your wallet choice?
It is not uncommon to find people who use both hot and cold wallets. Ultimately you hold the decision to the type of wallet you end up using.
The safety of your crypto wallet is crucial for keeping your assets and investments safe. The following are some of the ways to achieve that.
Always ensure that you keep your private keys safe at all times. You can do this by writing down the 12 seed words generated when you create your wallet in a paper or notebook. Make sure that you keep this safe in your drawer, bookshelf, or any other place you dim fit. What is important is that nobody should have access to your seed phase. The most important thing is that nobody has access to your seed phrases.
As you would normally keep your private keys safe, it is imperative that you always ensure that you keep your hardware wallet safe to avoid it being misplaced or stolen. When this happens, you will lose access and control over your crypto wallet.
Be careful of the websites you visit, connect your wallets to, or notifications prompting you to connect your wallets fast in the name of instant freebies. These are examples of strategies developed by manipulators to take over your assets.
Also, before you purchase a hardware wallet, ensure that you check the website to confirm the manufacturers. Go through their official website or social media accounts, and where confused, you can try to reach out to the team.
You can also consider using multi-signature wallets, which require you to input two or more private keys before you can authorize a transaction. The multi-signature wallet is available in both wallet types.
Connect with me on Twitter.
Like other asset classes, crypto assets are valuables that should be kept secure at all times. Failure of which will result in the loss of such an asset.
Therefore, to avoid such scenarios of financial loss, it is essential to get familiar with using crypto wallets to safeguard your crypto assets. This article aims to explain crypto wallets, the types of crypto wallets, and some valuable tips for keeping your crypto wallet safe.
Crypto wallets are like the gateway to the world of cryptocurrencies, NFTs, and DeFi. Everything you would encounter in the crypto or Web3 space involves the use of a crypto wallet. Hence, it is crucial to understand crypto wallets and how they work clearly to participate in the space.
When you first come across the term “wallet” in the crypto space, what comes to mind is the physical wallet that stores your I.Ds, Cash, credit, or debit card. However, when we talk of crypto wallets in this article, we are referring to applications that provide wallet functions for your cryptocurrencies.
In plain terms, a crypto wallet is a software application or hardware device that enables you to store your cryptocurrency. Think of a crypto wallet as your personal bank. Not only does it safeguard your crypto assets, but it also allows you to send and receive cryptocurrencies. Crypto wallets are divided into two main Categories: Hot and cold wallets, which we shall discuss later.
Cryptocurrencies, Bitcoin, Ethereum, Solana, e.t.c, unlike other currencies like the United States Dollar, pounds, e.t.c, do not exist in the physical form. They are simply digital currencies built on the blockchain and exist purely in digital form. Hence, you cannot carry them around like you would physical cash since they exist only on the blockchain. This is in the same way that the wallet does not literally hold the crypto.
Essentially, crypto wallets hold the keys to your cryptocurrencies on the blockchain. Since blockchain is a distributed public ledger that stores data of all transactions, consider your crypto wallets to be your “access key” to the blockchain. It enables you to perform transactions on the blockchain. For example, if you were trying to send 10 ETH to John, your crypto wallet lets you gain access to and interact with your digital currency on the blockchain.
It goes through the public ledger, shows you the balance in your address, and confirms your transaction on the blockchain.
A crypto wallet works using two major components.
Public Key
Private key.
The public key enables crypto transactions on the blockchain. Think of the Public Key as your regular bank account number. It acts as your public address and consists of a random combination of letters and numbers that can be shared with others.
Your public key is open to anyone on the blockchain network; however, no one has access to your funds through your public key. And they typically do not contain any of your details as the wallet owner.
On the other hand, the private key can be likened to a password or pin to your internet banking app. To access the app, you would need to input your username and password. This is the same way private keys work. To prove that you are the owner of a public address/key when you attempt to access your crypto wallet, you will have to input your private key.
This is the more tricky part of using crypto wallets that most users get confused about. The private key is used to authorize crypto transactions. Therefore, it is important that you always safeguard your private key. If you are careless about your private key, anyone who gets a hold of it ultimately has access to all your funds.
Most Crypto wallets fall into two main categories:
Hot wallet
Cold wallets
Hot wallets, also referred to as software wallets, are digital tools connected to the internet that enable you to send, receive and store crypto easily. Hot wallets are the number one choice for those who engage in trading activities frequently, primarily because of their convenience. In addition, you can easily download a hot wallet as a browser extension on mobile phone apps.
Examples of Hot wallets include:
Mobile wallets; Edge, eToro wallet
Web-based wallets like Metamask, Exodus,
Desktop wallets: Exodus, Atomic wallets
While Hot wallets are designed to be easy to use and effective, especially for beginners, they may not be the most secure crypto wallet type. This is because since they function when connected to the internet, just as it is with every other thing on the internet, they are subject to online attacks and hacking. Thereby putting your assets at risk and making your crypto security an issue.
Cold wallets are physical crypto storage tools that exist offline. They mostly come in the form of USB drives or other physical features. e.g Trezor One, Ledger Nano series.
Cold wallets are referred to as hardware wallets because to access funds or confirm transactions with hardware wallets; you will need to plug or connect the device to your computer. Arculus Wallet took crypto security to another level by coming up with an Arculus key card which adds a third layer to customer verification. Before the card works, it has to be in close proximity to the phone or device you want to use it with, and it works with biometric authentication.
Cold wallets are generally considered to be a more secure form of crypto storage because their physical form allows them to be free of internet-related theft. However, this does not mean they could not be stolen. It is always important to keep your cold wallet safe and free from prying eyes. It is always advisable to keep them locked in a safe or other secure places.
Cold wallets are more expensive to use when compared to hot wallets. The cost of hardware wallets ranges from $100 to $200. Nonetheless, the extra security layer and the fact that they can store up to 170 tokens in some cases make the price worthy.
Crypto wallets can be further classified into Custodial or non-custodial wallets.
Custodial wallets are wallet services provided by a third party. It is where you store your crypto assets with a third-party centralized exchange like Coinbase, Binance, or other crypto exchanges. Here the user is entrusting their funds in the custody of the wallet provider. The centralized exchange holds your private keys on your behalf and has control over your funds.
The advantage of using custodial wallets is that users are not burdened with understanding the advanced technicalities of crypto wallets. All that is required here is that you sign up on the platform with your email and password, and each time you want to make a transaction, all you have to do is log in with your credentials.
Are completely decentralized and entrusts you with the custody and control of your private wallet. It presents a solution to some of the issues with keeping your assets with centralized exchanges. Only you have access to this wallet, and you exercise complete ownership of your wallet. Therefore, you have to take full responsibility for keeping your asset secure.
The next question most users are faced with is “how to decide which wallet to use.” The truth is, there are no hard and fast rules when choosing a crypto wallet. All you have to do is analyze your crypto needs and usage. Ensure that you ask yourself basic questions like, what do I want to trade? What are the functions of each wallet type? What is the cost of each wallet type? And How dedicated am I to keeping my crypto wallet safe? What is the reputation of your wallet choice?
It is not uncommon to find people who use both hot and cold wallets. Ultimately you hold the decision to the type of wallet you end up using.
The safety of your crypto wallet is crucial for keeping your assets and investments safe. The following are some of the ways to achieve that.
Always ensure that you keep your private keys safe at all times. You can do this by writing down the 12 seed words generated when you create your wallet in a paper or notebook. Make sure that you keep this safe in your drawer, bookshelf, or any other place you dim fit. What is important is that nobody should have access to your seed phase. The most important thing is that nobody has access to your seed phrases.
As you would normally keep your private keys safe, it is imperative that you always ensure that you keep your hardware wallet safe to avoid it being misplaced or stolen. When this happens, you will lose access and control over your crypto wallet.
Be careful of the websites you visit, connect your wallets to, or notifications prompting you to connect your wallets fast in the name of instant freebies. These are examples of strategies developed by manipulators to take over your assets.
Also, before you purchase a hardware wallet, ensure that you check the website to confirm the manufacturers. Go through their official website or social media accounts, and where confused, you can try to reach out to the team.
You can also consider using multi-signature wallets, which require you to input two or more private keys before you can authorize a transaction. The multi-signature wallet is available in both wallet types.
Connect with me on Twitter.
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