Crypto Wallets — A Beginner’s Digest
New to crypto? That’s great! Welcome to the journey. Despite being 10+ years old, crypto is still a new technology that requires some learning for most people.
The upside of this world is that your stuff (NFTs, BTC) can be privately stored and held by you and you alone with just a few lines of computer code.
We are surprised how many crypto veterans still don’t understand a few basics of crypto security, and so for new and old, we made this digest. It uses non-technical language and lots of puns-sorry in advance.
Wallets are basically a long string of numbers/letters on the blockchain (imagine this stored somewhere in the vastness of the internet. You are given a public wallet address and a private password/keys. Your wallet exists on the chain. Imagine this to be somewhat like your bank account. Does your money exist on your Iphone when you login to the bank? Of course not. It is somewhere else- your phone application simply allows you access with a secure password.
Let’s talk about passwords and keys:
Public Wallet Address — this is what anyone can see. People can send stuff to you, kind of like accounts receivable.
Private Keys/Seed Phrase- these are for YOUR EYES ONLY. If you have private keys, you are able to actually send crypto and NFTs out of the wallet.
Never give these away to any person. If someone has your private keys, they have total control over your assets. That is no bueno.
Setting Up a Wallet
Whether you set up a “hot wallet” or a “cold wallet” using trust wallet, metamask, safepal, coinbase wallet, etc. this process will require you to write down the seed phrase / private keys.
Once you have done this it is important to store that seed phrase somewhere it cannot be hacked, read found, etc. Write it down and store it in a safe that is fireproof.
Hot Wallet vs Cold Wallet
Cold wallets are devices that securely store the private seed phrase that has never moved off the device itself. These are the safest wallets and safest ways to store crypto.
Hot wallets are mobile and browser applications that while providing security, the wallet has been connected to the internet so it is technically possible for someone to hack the keys. The stories of this happening are very few, and most often, people have their keys stolen because they have given the keys away by being tricked (social engineering). Learn more tips to stay safe here.
Don’t be fooled, no one will ever need these private keys from you and if they get them, they can do whatever they want with your funds in your wallet.
This is why it is important to never give away these keys to anyone, ever, for any reason. The only one who needs them is YOU!
About Your Specific Wallet Application
Technically, the application you are using (metamask, coinbase wallet, etc.) is NOT the wallet itself, remember? The wallet is the string of numbers and letters as an address on the blockchain.
This functionally means that if you have your seed phrase / private keys securely written down, you can delete the wallet applications, and download another application that you like more without risk to your wallet.
All you have to do in this instance is use your seed phrase or private keys to import your wallet. The author has done this when migrating from trust wallet to metamask.
Rather than setting up a new wallet, he just “imported” an existing wallet by using the seed phrase. While we don’t necessarily recommend doing this, we are simply pointing out the value of your private keys.
So remember, metamask, or safepal or whatever application is NOT your wallet. Your wallet exists on the blockchain as a pair of public and private keys; and these mobile phone applications simply allow you to access your wallet by using your private keys and can be migrated at any time.
You can even set up multiple apps with the same private keys (although we don’t recommend doing this either). Many people use metamask wallet because they can set up the chrome browser extension easily so they can use their phone OR they can use their browser on their desktop computer when interacting with the blockchain.
Best Practices on Wallets
- Cold Storage (cold wallets) are always the best way to store long term crypto savings. Consider purchasing a ledger or trezor for crypto assets for long term holding.
- Use Hot Wallets only for daily transactions and immediate use.
- Use multiple wallets to distribute funds to hedge against risk. If someone were to uncover your private keys, you haven’t lost everything because it is distributed across multiple wallets.
- Consider using multi-signature wallet solutions(such as gnosis) that require 2–3 different wallets to sign off any transactions. Many notable projects use this to secure funds.
- For free NFT mints (this is a common trend at time of writing), use a fresh/new wallet and transfer the NFT out once you have purchased. NFT contract owners can change the contract and this feature has been abused to rob people through clever tricks with minting contracts.