If you’re new to the blockchain scene, talk of crypto wallets, private keys, and the threat of losing all your crypto if you forget a single password can be just a tad overwhelming.
You might not know the difference between hot wallets and cold wallets; you might be confused about hardware wallets, software wallets, and paper wallets; or you might not even have a clue what any of this means – your coins are safe on an exchange, right?
Not always.
Key Points
- A crypto wallet does not store cryptocurrency in the same way that a physical wallet stores cash.
- The way crypto wallets work is by storing your public and private keys. These are required for you to buy crypto and provide digital signatures to authorize every transaction you make.
- There’s a wide variety of cryptocurrency wallets available, from hot to cold, hardware to software, custodial to non-custodial.
- Your choice of cryptocurrency wallet depends entirely upon your trading needs.
What is a crypto wallet?
Let’s start at the beginning: what is a cryptocurrency wallet?
Crypto wallet definition
Crypto wallets are digital wallets that store your private keys, keeping your crypto safe and easily accessible. They allow you to send, receive, and spend cryptocurrency like BTC, ETH, and ELA.
Crypto wallets allow you to completely control and own private keys. As the old crypto adage goes, if you don’t own your keys, you don’t own your crypto.
Public keys vs private keys
But there’s two different types of keys, right?
Correct.
Every wallet will have a public key and a private key.
- The public key allows you to receive cryptocurrency transactions. It is public, shareable, and open to anybody on the system.
- The private key proves ownership of your public key. It should never be shared, as anybody who has access to it can control your funds. Store it securely and keep it protected.
The two keys are inextricably linked.
- Public keys encrypt while the private keys decrypt.
- Private keys sign transactions, while public keys verify the signature.
- Private keys authenticate, while public keys verify the authentication.
If all of this is confusing to you, just remember these two points and you’ll be fine:
- Everyone can obtain your public key – that’s why it’s a public key.
- Only you can know your private key – that’s why it’s a private key.
What does a Bitcoin wallet look like?
A Bitcoin wallet, or any other crypto wallet, is made up of code. Hardware wallets often look like a little USB, while software wallets and other web wallets will have an interface that reveals the balance associated with your address. The wallet itself only stores your keys.
Your private keys allow you to interact with the cryptocurrency stored on your public key: buying, selling, or moving. Therefore, the image of your crypto wallet containing crypto is not strictly speaking true.
All a blockchain does is verify where all crypto coins are at any given time. You don’t possess the coins themselves, rather you own the key to using your specific coins.
Why use a crypto wallet?
Your cryptocurrency’s safety depends on the way that you store it. While you can leave your crypto on an exchange, it’s never recommended to do so unless you trade regularly.
Centralized exchanges are prone to hacks. While they undergo rigorous security testing, and often take out big insurance policies, you can never rule out a centralized exchange exploit.
Not to mention, by leaving crypto on an exchange, you don’t own the private keys – therefore, you don’t own the coins. While it’s unlikely that a big CEX is going to steal your money, it’s entirely possible as they own the keys.
Here are some of the main reasons for why you should use a crypto wallet:
- Manage your crypto. Secure all your digital assets in one (or more) crypto wallets.
- Send and receive crypto. You can make peer-to-peer transactions, sending or receiving crypto from across the world in mere moments.
- Connect to dApps. Most crypto wallets allow you to connect to dApps and use your crypto in DeFi, NFT marketplaces, games, or other decentralized applications. The best web3 wallets, like Essentials, enable you to access dApps from multiple blockchains directly from your wallet, meaning you have everything in one place.
- Get a DID and a username. Instead of remembering long crypto addresses, a username will enable you to send and receive crypto under a name of your choice. Some web3 wallets (again, like Essentials), allow you to create a decentralized identity upon installation. This DID can be taken with you as a one-stop log-in for all of web3.
- Control your keys. Keep your crypto secure by fully owning and controlling your private keys.
- Shop. Buy, sell and trade crypto, as well as shop at stores that accept crypto.
How does a crypto wallet work?
We briefly touched upon how crypto wallets work already. They don’t actually store your coins, rather crypto wallets hold the key to your coins. The crypto itself is stored on a public blockchain network – this is how all the coins can be tracked to ensure digital scarcity and avoid the double-spend problem.
When you want to perform a transaction with your crypto, you’ll be required to verify your address via a private key. The speed and security may vary depending on your choice of wallet.
How to create a cryptocurrency wallet
Creating a crypto wallet depends on what kind of wallet you want. Generally, it will require you to remember a mnemonic phrase which usually consists of a dozen or so words in a random order. You’ll need to write it down somewhere safe and secure that won’t get lost or be found by somebody else. If you share this phrase with anybody, then they can access your wallet and your funds.
You also have the option to save the private key as a JSON file. This might be easier, but can be risky if someone else gains access to your computer. Similarly, saving this file to a centralized cloud storage system like Google Drive might seem appealing, but this exposes it to potential hacks and other data security risks. This is one of the main reasons for advocating for decentralized storage like with Elastos Hive.
How to use a crypto wallet
The way you use a cryptocurrency wallet will depend on what type of wallet you have. There’s a variety of different options. You can take a look at the ones you’ll most frequently encounter below.
Different types of cryptocurrency wallets
Hot wallet
Hot wallets are so-called because they are connected to the internet. They are convenient and easy to use, but they can be vulnerable to hacks.
They’re best suited for beginners, regular traders, or for people making payments.
- Web-based wallets
A web-based wallet is often a crypto exchange wallet. This is a custodial wallet in which you don’t have complete control over your coins. Think of it like a bank account. While your money is in the bank, you don’t technically own it – a middleman does. Users access their web wallet by signing into their account.This is super convenient as there’s nothing to buy or download, but it can be risky. You need only look at the biggest centralized exchange hacks to see it can be quite common. - Mobile wallets
You can get mobile apps or dApps that store your public and private keys. They’re easy to use and only require a single download. These are more secure than web-based wallets but not quite as secure as cold storage. - Desktop wallets
Similar to mobile wallets, a desktop wallet stores the cryptographic keys on an application on the user’s desktop system.
Cold wallet
Cold wallets are methods of storing your private keys offline. They are less convenient to use and are often expensive, unlike hot wallets which are free. They have a reduced threat from online attacks which makes them a more secure choice. Cold wallets can also be included in a will, which is trickier for hot wallets.
Cold wallets are best for those storing large amounts of crypto over a long time-span.
- Paper wallets
A paper wallet is where keys are written down on a physical medium. Like its name suggests, this is usually on a piece of paper, but no one is going to stop you if you feel like carving them in wood or etching them into your bedroom wall. The point is you own your keys physically and you should keep them in a safe spot. One of the downsides of paper wallets is that you need to have it in front of you to access your digital currency.This was once considered the gold-standard method for storing large amounts of cryptocurrency, as it’s both non-custodial (you own the keys) and cold (offline), but there are arguably better methods available now. - Hardware wallets
Hardware wallets usually come in the form of a USB device. As these can be pulled out of the computer, it isn’t always connected. This increases security without making it too difficult to use.The Essentials Super-Wallet has recently integrated with Ledger so that it can be used as a hardware wallet too.
Custodial wallets vs non-custodial wallets
Crypto wallets can also be broken into two more categories: custodial and non-custodial wallets.
A custodial wallet is where a third-party has control over your keys and funds. It’s online, therefore less secure, and it requires that you trust the third-party. It’s less responsibility for you and there are back-up methods in place so that you can easily regain access to your wallet if you forget your password or key. They’re user-friendly and great for beginners, but you’ll need to go through lengthy KYC (Know Your Customer) and AML (Anti-Money Laundering) procedures.
A non-custodial wallet is the opposite. You have complete control over your funds. You are 100% responsible for keeping your keys secure – if users lose their keys, they lose their funds. There’s no KYC or AML procedures, however they are usually less user-friendly. They’re best for users who want to retain complete control over their funds.
Multi-signature wallets
A multisig wallet is one which requires more than one private key to authorize transactions. This type of crypto wallet can be beneficial in multiple cases, for example:
- It will prevent you from losing access to the entire wallet if one key is lost.
- A multisig wallet can prevent the misuse of funds. They are great for businesses, corporations, governments, and decentralized autonomous organizations, where the funds in question do not belong to any specific individual.
You can have multisig hot wallets and multisig cold wallets.
What is the best crypto wallet?
When considering the best crypto wallet, consider the following:
- Hot vs cold wallets
Do you want your crypto online and accessible, or offline and secure? - Backup options and security
Even the most secure crypto wallet has flaws, but a cold non-custodial wallet like ledger would be the best choice.Do you want something that has biometric authentication or two-factor authentication? Many wallets offer these staple security measures, but not all of them. - Blockchain support/compatibility
Not all wallets are compatible with all blockchains. If you want to store $ETH, then you’ll need a wallet compatible with the Ethereum network, for example. - NFTs
Do you want to store NFTs? Most wallets allow for the storage of non-fungible tokens, as well as connect you to dApps in which you can make the most of their growing utility, but not all of them. Check beforehand. - Integration and access to dApps
Many web3 wallets allow you to access dApps, but very few facilitate dApps from the wallet itself. - UI and user friendliness
Consider how much control and customization you’d like to have over your wallet. User experience is important when handling money. It should be as smooth as possible. - Fees
Depending on the network, some wallets will have higher fees than others. You should also take into account that hardware wallets will cost money, whereas most other wallet options won’t. - Wallet reputation and longevity
You’ll often feel your funds are more secure when the wallet was coded and updated by a well-known brand.
There is only one real choice that maximizes every aspect of what makes a great crypto wallet: The Essentials Super-Wallet.
It’s a mobile wallet dApp, available for both Android and iOS, however due to its Ledger support, you can also utilize it through a hardware wallet. It has multiple security measures, including biometric authentication and two-factor authentication.
It supports NFTs and more than fifteen different blockchains (including native Bitcoin, Ethereum, Binance Smart Chain, and Elastos Smart Chain of course).
As a cutting edge wallet for the world of web3, it enables you to access decentralized applications from all connected chains, directly from the wallet. It’s super easy to use (no need to import the wallet to each network like in Token Pocket), and when you get started, you’ll automatically create a DID that you can take with you on your web3 journey.
In a coming update, users will be able to fully customize their home screen, placing whatever they find most important in the place that’s best for them. This could be Uniswap, Glide, PancakeSwap or your favorite DeFi dApp from a compatible chain, or it could be your balance, or even your ELA DPoS voting and staking section. No other crypto wallet gives you this much control.
To top it all off, Essentials provides a convenient token discovery (erc20 and NFTs). If a new token is added to your wallet, you’ll be able to see it automatically. Wave goodbye to tediously adding new token addresses, say hello to the crypto wallet of the future.
Download Essentials today and try it for yourself.
