In this article, OpenWorld Academy will give you some basic guides about crypto wallet and how to use it to store your crypto safely.
Objectives
After reading this article, people will be able to
Understand what is a crypto wallet
Categorize crypto wallets
Use some criteria when choosing a crypto wallet
Apply some vital rules to keep crypto safely when using a crypto wallet
What is a crypto wallet?
A crypto wallet is a tool that stores private keys with which you can use it to create public keys, public addresses, and having interactions with blockchain via sending and receiving coins or tokens.
You should differentiate between a wallet and private keys. One wallet can contain multiple private keys for multiple corresponding public keys and public addresses. It is important when you make backup for your wallet. If you backup a whole wallet, you will have a full backup of all things inside. However, if you decide to backup a specific private key in that wallet, later you will be able to use the backup for recovery of a specific private key and related public key, public address only.
Imagine a crypto wallet like a building and a backup is a full construction drawing for that building. So if you have its backup, later you can reconstruct a new similar building.
However, if you only have a backup of a specific apartment inside that building, later you can not reconstruct a whole building. What you can do is limited to that apartment only.
How many types of crypto wallet?
There are many ways to categorize crypto wallets: hot wallets vs cold wallets; software wallets vs hardware wallets; and paper wallets.
Software wallets are web wallets, desktop wallets, and mobile wallets and also called as hot wallets. They are free to use, convenient to use but less secure than hardware wallets. These wallets are web wallets, desktop wallets, and mobile wallets.
Web wallet: is a third-party web browser so it is convenient to use and free. However, the risk is private keys will be co-owned by that third-party site and you. That means you are not the only owner of wallet private key. “Not your keys, not your coins” as the saying goes. Use it with risk!
Desktop wallet: is a software and you must download, install it on your computer to create your wallet to use. It means you are the only one who own your keys so if you don’t back up your wallet, you will lose your coin forever in case your computer is broken. Another risk is your computer must be clean, without virus, malware, trojan, etc. You are the only one will secure your computer, wallet and coin inside.
Mobile wallet: is a software for mobile device. Basically, it is similar to desktop wallet but more convenient because you can use your crypto everywhere with your mobile devices.
Hardware wallets are also called as cold wallets. They are physical devices with which you can generate and store your keys without connections to the Internet. All things are created offline and store in your hardware wallet. You only need to connect it to the Internet when you want to use your crypto for transactions, purchases, etc. It is very strong against hacking and stealing because even when you connect it to Internet for transaction, your private key will never leave your device so nobody can steal your coin. It is designed to protect your crypto even you plug it in an infected computer, your private key will still not be leaked. However, you will have to spend cost to buy a hardware wallet. They are not free like software wallets.
Paper wallets are wallets with which you will have private key and corresponding public key, public receiving address and probably QR code. In case you use a paper wallet to generate your keys totally offline, it is a kind of cold wallet. However, there are lot of drawbacks with them: physical damages (water, fire, explosions, etc.) and risk that you can not recover your wallet with minor damages on that piece of paper.
Another way to classify crypto wallets are custodial wallets and non-custodial wallets.
Custodial wallets are the ones you don’t own private keys or mnemonic seeds. It is wallets provided by centralized platforms such as centralized exchanges, crypto payment platforms, etc.
Non-custodial wallets are the ones you have full access of your wallet, from private key/ mnemonic seeds to public key and addresses.
Some criteria when choosing a crypto wallet
There are some criteria
Reputation of that wallet: data leak, hack, etc. Especially if you want to use a web wallet, pay attention on their reputation. However, we don’t recommend to use web wallet.
Prioritize non-custodial wallets than custodial wallets. Because “Not your keys, not your coins” and with non-custodial wallets, you are free on how you broadcast your transactions: changed address, fee rate, replace/ cancel transactions, etc. You can not do such with custodial wallets.
Open-sourced: It means community can check code and verify it. It does not mean an open-sourced wallet will always better than a close-sourced wallet. However, if you have two options between two almost similar quality wallets, one is open-sourced and another one is close-sourced, you should chose the open-sourced one.
Easy to back up and recovery
Vital rules to keep you crypto safely when using a crypto wallet
Always buying hardware wallets from official sources, not from secondary market.
Always downloading wallets from official websites. DON’T search it on search engines!
If you want to find a wallet for your mobile, go to their official website, and click on given link to download from either Apple Store or Google Play. DON’T search to find mobile wallet because there is risk to find fake ones.
Verify a wallet you downloaded. This step is important to make sure you download a legit wallet, not fake one.
Always back up your wallet, and try to recover it before using it to store your crypto. Why? If there is mistake in backup process such as typos when writing down mnemonic seeds ie., you won’t lose your coin
When you create a wallet (after installation), make sure you do it offline. Software wallets are not cold wallets but this step increases safety for your coins.
Set up a strong password for your wallet. It’s important to prevent unnecessary access to private keys of your wallet.
Keep your keys, your wallet password safely and secretly. If you lose keys, wallet password can not save you!
DON’T store private key, mnemonic seed, wallet password online (in email, cloud storage, whatever online platform)