If you are taking your first steps in crypto investments, crypto wallets are the first major milestone you must conquer. The topic might seem overwhelming initially, so this short guide should provide you with all the important points you need to know to safely start your foray into cryptocurrencies.
Hot or Cold: Types of Wallets
Crypto wallets are broadly divided into two major groups: hot and cold. Hot wallets are connected to the internet and present a digital storage for all your cryptocurrencies. Cold wallets are offline, long-term “cold” storage. They serve to store larger amounts of currencies.
Hot wallets come in several different forms as well. Some users opt for web variants like MetaMask or MyEtherWallet. These require no installation and can be accessed through a browser. This makes them very convenient to use with decentralized apps, but they are also vulnerable to different phishing and malware risks.
Mobile wallets are commonly used for everyday trading. These user-friendly smartphone apps give users quick access to funds and transactions. If you are looking for a secure wallet to get you started, this app from Best Web3 Inc. comes equipped with all the tools and features you need. App wallets are the usual tool for an on-the-go trader to handle multitudes of different currencies at all times.
On the other hand, desktop wallets are computer software with higher levels of control and security. Programs like Electrum and Exodus are among the most popular and do an incredible job on secure computers.
For those traders who want to keep a part of their stash on a very secure device, cold wallets are the best way to do it. Hardware wallets are physical devices on which you can safely deposit your private keys and be sure that no one other than you can reach them. The downside is their somewhat high price. Other options include paper wallets, which are literal printouts of your keys. These are easy and cheap to make but risky to keep.
Blockchains and Keys: How Do They Work?
Unlike their cash counterpart, crypto wallets do not hold your cryptocurrency. Rather, they are a device that stores a pair of cryptographic keys – public and private – that are required to perform any transaction. A private key is a secret code serving as a form of a signature, whereas the public key is derived from it and used to create a wallet address.
Seeing that the cryptocurrencies do not exist inside the wallet but rather are recorded on the blockchain, the interaction of these sets of keys is crucial to making any transaction happen. The wallet’s role in that process is to gather information, validate the transactions, and update records on the blockchain. The biggest upside of this decentralized process is that a wallet will allow you to skip dealing with an intermediary like a bank. This autonomy makes the whole concept very alluring but risky if you’re not thinking about the safety of your keys.
Features and Risks
There are many different aspects to consider when choosing a wallet, so we are going to list some of the most important features you should look for.
Security comes first, so 2FA and multi-signature support are a must. The best wallets are non-custodial, allowing you rather than a third party to control the keys completely. Support for multiple currencies and assets is also great for building a diverse portfolio. Currently, more and more wallets are integrating with dApps and DeFi for wider staking and trading abilities.
The crypto market is a field of high risk but also high rewards. The best way to mitigate those risks is always to keep safety in mind. Choose a wallet developed or produced by a reputable crew with an extensive array of security features. Human error is the most common way of losing money in this game, so always beware of scams and phishing that could deplete your funds. And, if you are handling large amounts, consider cold storage as an option for all the funds you’re not keeping in rotation.
