Want to understand crypto assets? Or perhaps you just googled ‘best crypto wallets’ looking for a quick primer. Either way, if you’re looking to understand wallets in a bit more depth, this is the right place to be.
Oh, and if you’re interested in all kinds of new crypto knowledge, we’ve got the goods- from Web3 to an (actually) approachable guide to cryptocurrency.
What is a Crypto Wallet?
Crypto wallets are an essential part of the theWeb3 ecosystem. Unlike physical cash, in order to acquire crypto, you first need to have a place to store it. Enter the humble crypto wallet. Wallets come in a few different flavors and also have a bit of complexity under the hood - you'll often hear terms like self-custody, private keys, cold and hot storage tossed around (do we sense a Law and Order episode coming on?). We’ll cover all that and more in this article, giving you best practices for using each while debunking a couple of common myths. Let’s jump in.
Why are Crypto Wallets Important?
Cryptocurrencies are forms of digital money that enable you to transact or “exchange value” online. Their value is recorded and verified via a decentralized ledger - meaning no bank or intermediary is used. This is important because it means that to access your crypto you can just use a driver's license or passport to verify your identity…because there is no one to verify it with.
This is where crypto wallets come in - though if we’re being honest the name ‘wallet’ is a bit misleading since it implies that there is an account somewhere that you’re storing your crypto inside.
Instead of storing crypto in an account, wallet stores keys’ which are pieces of data that allow the holder to complete transactions associated with entries on a blockchain. If you have access to both of the keys (public and private) for a given wallet, you can sign off on transactions that are associated with it.
Here’s a visual to help you out. Imagine if there was a spreadsheet shared with the entire world that was filled with rows of transactions (sender address/recipient address/value/date, etc). Now imagine that every row is always visible to everyone, but only you can access certain rows using a password. There’s a bit of nuance missing here, but that is essentially how a crypto wallet works. Mind blown yet? Keys are an important piece of the crypto equation so stay tuned for a future deep dive on this concept.
Now that your brain hurts from all that fresh knowledge, let’s figure out which type of wallet will work for you.
Crypto Wallet Tradeoffs
There are a few different types of crypto wallets and each has pros, cons, and ideal use cases. Nevertheless, throughout your crypto journey, you’ll likely use a variety of the main categories below.
● Custodial or non-custodial wallet
● Online, mobile, desktop, or hardware wallet
● Hot or Cold wallet
What is a Hot Wallet?
A hot wallet is one that is connected to the internet. Public and private keys are linked on hot wallets, which helps you utilize the wallet to quickly and easily approve transactions. There are a variety of mobile and online and desktop wallets to choose from, with new providers popping up regularly. When you’re buying crypto on an online exchange, the wallet that you're utilizing is a hot wallet. The easiest to use, hot wallets lack in the security department, making them best for smaller sums of money that you use to transact with often.
What is a Cold Wallet?
Cold wallets are disconnected from the internet (most of the time). The most common type of cold wallet is a hardware wallet which is a physical device that plugs into your computer (or connects via Bluetooth) when it comes time to authenticate transactions. This type of cold wallet is less convenient but also less hack-prone than a hot wallet and is best used for non-trivial sums of money. Another type of cold wallet is known as a ‘paper wallet’ - where you literally store your wallet keys on a literal piece of paper. This is the OG crypto wallet and has fallen out of use in recent years for obvious reasons.
What are Custodial and Non-Custodial Wallets?
As we’ve talked about above, controlling your wallet funds is only enabled by knowing the private keys. When you bear this responsibility you have a non-custodial wallet. When you choose to delegate the control of the keys to another entity it is called a custodial wallet. The exchange’s hot wallet we talked about previously is also a custodial wallet since the exchange is the one responsible for storing the keys.
The trade-off here is ease-of-use for security since while you’re entrusting your crypto access to a third party you are oftenable to reset a custodial password if you forget. If you misplace your-custodial information, well, you’ll be out of luck.
So what is the best crypto wallet?
The answer is…it depends. You might want something more convenient and less secure (hot wallet), or you could be securing long-term investments (hardware wallet). Or perhaps you want to use both! Now that you know the basics you’ll be able to ask the right questions about your situation and from there select the right combination for you.
What are some best practices for crypto wallets?
Yes, this is our favorite part because we get to SHOUT. Never, never, ever, ever, never ever share your private keys!!! This is the primary attack vector of crypto scams, and if you remember only one thing from this Best Crypto Wallets’ deep dive this is it. Don't share your private keys.
Next, get in the habit of using a VPN. VPN stands for virtual private network; using one can help you secure your data and make transacting safer. Last but not least please, for the love-of-crypto, turn on two-factor authorization (2FA) and any other available security features on all wallet accounts, including exchanges.
OMG congrats, you made it to the end!
At SquareWonour mission is to help you learn about crypto and blockchain in a simple, fun, and easy-to-understand way. We’ll have many more articles and explainers diving into each of the concepts above that will take you from zero to crypto-hero in no time.
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