What is a crypto wallet and how does it help store cryptocurrency?
You've taken the time to determine which cryptocurrency you want to buy. After hours of painstaking research and deliberation, you've finally made your choice. You navigate to a crypto exchange that supports your digital asset and buy some. You are now the proud owner of cryptocurrency.
But now what? The recommended next step is to get your crypto into a cryptocurrency wallet. Why? Whether you're storing Bitcoin (BTC), Ethereum (ETH), or some other altcoin, a crypto wallet keeps your digital assets safe and protected. More importantly, it gives you total control of your funds.
So, what is a crypto wallet, and how does it work? Keep reading to find out.
What is a crypto wallet?
A crypto wallet is a device, program, or service investors use to send, receive, and store their digital currency. There are many different types of cryptocurrency wallets, many of which we'll discuss throughout this post. Some of the more popular crypto wallet types are hardware wallets, cold wallets, and desktop wallets.
Many crypto wallets support iOS and Android smartphones, so you can take your crypto with you wherever you go. This type of convenience also allows users to pay for goods and services with crypto on their mobile devices.
How does a crypto wallet work?
A crypto wallet is a program that communicates with the blockchain to determine which private and public keys have control over certain digital assets. Your wallet address is a set of randomly generated alphanumeric characters that act like your bank account number. It's okay to give someone your wallet address in much the same way you give your company your bank account information to transfer funds into your account.
The same applies in the world of crypto. If someone wants to send you cryptocurrency, you only need to give them your wallet address. No two wallet addresses are the same, so you can create as many as you want without worrying about someone else accessing your funds.
Public and Private Keys
Often, people confuse their public key with their wallet address. However, these two things are not the same. Every cryptocurrency wallet address has unique public and private keys. Your public key allows you to receive digital currency. This cryptographic code is directly tied to your private key, which is directly tied to your seed phrase. This is a set of 12-24 randomized words you use to access your funds.
Anyone can send funds to your public key, but you need your private key to unlock the transaction. The private key shows you're the owner of the cryptocurrency sent to the public key. Never share your private key — it gives you the ability to prove ownership of your funds.
Your private key is stored in your cryptocurrency wallet, which is why many people prefer to move their digital assets off a cryptocurrency exchange and into a personal desktop or hardware wallet. If you keep your crypto on an exchange, the exchange owns your private keys. However, when you move your funds to a non-custodial wallet, you are in control of your keys.
One thing to keep in mind is that when you control your own keys, you’re also responsible if they are lost or stolen. Unfortunately, there’s nothing you can do if that happens. Your funds are not recoverable. That’s why it is critical that you store your keys in a secure, safe place where you won’t lose them.
Types of crypto digital wallets
When it comes to storing cryptocurrency, there are several different types of wallets. For example, you can use a hardware wallet or a desktop wallet, store it on your smartphone or offline, or create a paper wallet and keep it in a bank deposit box.
Let's take a closer look at some of the best crypto wallets available, along with a few examples of each.
01-Hardware Wallets
A hardware wallet is a type of digital wallet that stores your private keys on a physical device. These devices often look like a USB drive and are considered by many to be the most secure crypto wallets available. Using a physical wallet is considered one of the best ways to store digital assets for crypto investors, especially those with larger portfolios.
Hardware wallets are also called cold wallets because they store your crypto offline. While you need to be online to send or receive digital assets to your hardware wallet, you can hold your crypto in cold storage on your device without connectivity, making them less likely to be hacked or compromised.
Trezor
Hardware wallets like Trezor provide great security measures to protect your crypto against malware. These cold storage wallets are developed by SatoshiLabs and provide a touchscreen interface. In addition, users can store many different cryptocurrencies on their Trezor wallet, including Bitcoin, Ethereum, Dash (DASH), Dogecoin (DOGE), and more.
Ledger Nano X
One of the cool features of the Ledger Nano X is that you can connect it to your computer or mobile device via Bluetooth. In addition, many other exchanges and wallets integrate directly with Ledger devices, so you can easily move your crypto whenever you want. Finally, Ledger hardware supports multiple cryptocurrencies outside of Ethereum, so you can keep your favorite digital assets safe and secure in one place.
02-Desktop and Mobile Wallets
Desktop wallets are just what they say they are: wallets you install on your computer's desktop. Many desktop wallets work with popular operating systems like Windows, macOS, and Linux. Several popular options also offer mobile apps so you can have your digital assets with you wherever you go.
While desktop wallets are considered more secure than web or mobile wallets, your crypto isn't as protected as it would be in a hardware wallet. Still, there's plenty to like about desktop wallets. For example, many are multi-currency wallets so you can store Bitcoin, Ethereum, Litecoin (LTC), and many other crypto assets in a single wallet.
Similarly, many mobile wallets are multi-currency wallets so you can take all your digital assets with you on the go. These wallets work with iOS and Android devices, allowing you to track, manage, and trade your favorite cryptocurrencies from the comfort of your smartphone.
Exodus
One of the most popular desktop wallets on the market is the Exodus app. However, Exodus is more than just a Bitcoin wallet — it supports more than 100 different digital assets. Plus, users have access to the platform's built-in exchange, so they can easily trade crypto without the need to visit centralized exchanges like Binance or Coinbase.
Mycelium
Mycelium is a mobile-only, open-source crypto wallet. When you're using Mycelium, you have access to control your transaction fees. So, if you're willing to wait a little longer for your crypto, you'll pay less in fees. However, Mycelium only supports Bitcoin, Ethereum, and ERC-20 tokens, so if you want to hold more cryptocurrencies, you may have to consider another mobile wallet.
03-Web3 and DeFi Wallets
Web3 and DeFi wallets are designed to provide security and privacy while offering a single login for decentralized applications or dApps. In addition, these software wallets are non-custodial, which means you store and manage your digital assets without an intermediary. Up to this point, banks and other financial institutions have controlled your funds. DeFi wallets aim to disrupt that industry.
DeFi wallets set themselves apart from other wallets by providing anonymity. To set up their wallets, users aren't required to go through KYC (Know Your Customer) or AML (Anti-Money Laundering) processes. Additionally, nearly all non-custodial DeFi wallets are capable of handling multiple stablecoins and tokens. That means you might only need one wallet, even if you want to hold multiple digital assets.
Many Web3 and Defi wallets are designed with simplicity in mind. User interfaces are easy to understand and navigate, so even if you're just getting started in the world of decentralized finance, you'll be able to find what you need without much difficulty.
Despite all their advantages, these hot wallets also have a few drawbacks to consider. For starters, they are always online, which means they are susceptible to being hacked. These wallets also don't typically support security features like two-factor authentication or multi-signature.
Metamask
Metamask might be the most well-known Web3 wallet on the market. This online wallet touts itself as the gateway to decentralized apps. You'll launch Metamask primarily through a web browser extension, which makes it easy to access the wallet app through any browser. In addition, Metamask supports both ERC20 and BEP-20, so you can hold both Ethereum and Binance tokens.
Imtoken
Imtoken is a multicurrency wallet that supports a wide range of cryptocurrencies. Users have the ability to interact with Ethereum’s decentralized applications through the wallet in a reliable, secure, and seamless trading experience. Plus, Imtoken supports stablecoins like USDT, PAX, USDC, DAI, and many others. Whether you’re storing your digital assets for the long haul or trading your favorite ERC-20 tokens, Imtoken has you covered.
Own your digital assets
As you can see, there are plenty of choices when it comes to storing your digital assets. You can keep them in a desktop wallet, a hardware wallet, or a Web3 wallet. It's ultimately up to you. There is no right or wrong answer, although you should always take the necessary steps to protect your wallets as well as you can.
If you're interested in exploring the DeFi world a little more, but need a simple and straightforward way to do so, check out Unagii. It integrates seamlessly with MetaMask or Ledger wallets, so you don't have to waste time trying to figure out how you're going to get started.
With automated vaults and staking, you can start earning returns on your digital assets right away. Take a look if you want to learn more about decentralized finance and how it all works.
