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Defining Web 3 Terms: Crypto Wallets

28 Jul
2022
4
MIN READ
By
Brian Wong
Defining Web 3 Terms: Crypto Wallets

Photo by Max Saeling on Unsplash

Personally, I see crypto wallets and the wallets we are using right now have various similarities. Like a normal cash wallet we carry in your pocket, our wallet is ours and until someone steals it. And, just like that cash wallet that you guard safely while moving through a busy city, your crypto wallet must be stored with care. A crypto wallet is computer software or physical hardware that you use to access your cryptocurrency. 

Crypto wallets allow you to interact with your funds on the blockchain. Your funds are not stored inside the crypto wallet—they’re on the blockchain, and you need your wallet to access them. A crypto wallet is a fully decentralized application used to interact directly with the blockchain. Crypto wallets are not Coinbase or Binance accounts—those are what we call centralized exchanges where a single company controls your crypto for you. Instead of keeping your funds on a centralized exchange, you can create a crypto wallet and hold the crypto yourself, which is called self-custody. 

The Different Kinds of Wallets

When choosing which wallet to use, you have two main categories to pick from: a hot wallet or a cold wallet. 

  1. Hot Wallets

A hot wallet is a browser extension. It’s called a hot wallet because it’s always connected to the internet. 

  1. Cold Wallets

A cold wallet, or cold storage, is a piece of hardware that looks like a USB drive. This cold wallet is not connected to the internet, and you need to plug it into your computer in order to use it. Cold wallets are more secure than hot wallets, but using them requires a few extra steps. 

Crypto wallet usage and safety is very different from other digital applications you’ve probably interacted with. It takes some getting used to, but soon you’ll be a pro at understanding and using your crypto wallet. 

Keys To your Wallets

Every crypto wallet has a public key and a private key. 

  1. Public Key

Your public key is like the address to your house—if you want a package to go to your house, you type in your home address. Your public key is a short string of numbers and letters that is probably listed at the top of the wallet’s web page, depending on the wallet you use. It will have a “copy” button next to it, to make it easy to share without getting wrong. 

  1. Private Key

Your private key, however, is something that you should never share. Think of a private key as a house key. You’d give the delivery driver your home address, or public key, but never a copy of your house key, or private key, because then that delivery driver could get into your house and steal your stuff. 

Unlike your public key, you don’t have easy access to seeing exactly what your private key is. It would just look like a long string of letters and numbers. But, it’s important to keep your private key somewhere, so you can access your cryptocurrencies if something happens to your wallet. 

Instead of writing down a long string of gibberish, crypto wallets give you something called a “seed phrase.” The seed phrase essentially acts as your private key, but the difference is that a seed phrase is human-readable. 

The seed phrase is a series of 12 to 24 normal English words that you should write down on a few pieces of paper and store in safe places. This is how you get access to your funds in case you lose access to your wallet. Never store your seed phrase online—it should only be written down on physical paper. Seed phrases are an essential element of self-custodying and staying safe when dealing with crypto.

How do you Find a Crypto Wallet To Use?

You may notice that many crypto applications have a button that says “sign in with your wallet.” That’s because your crypto wallet is kind of like your digital identity. In Web3, you can use your wallet to sign into applications instead of signing in with a Google account, Facebook account, or login and password. Your wallet is like your Web3 identity and password all in one.

To set up a wallet and get access to all these exciting new applications, you’ll need to download the wallet’s browser extension. It’s important to be very careful during this step, because there are many fake wallets impersonating real ones. It is essential that you download the correct wallet extension. The best way to download the correct extension is to find the wallet protocol’s official Twitter account and click the link in their bio. 

It’s not recommended to simply google the wallet name and click on the link that looks correct, because there are tons of scammers who try to impersonate wallets and post malicious links. When downloading the extension, double-check by making sure the application has a high number of users. If there are only a handful of users, then you probably have the wrong wallet. Wallet safety starts with downloading the correct browser extension.

Start your journey in wallet security on the right foot! There are a few more steps you should take to keep your digital life safe, especially as someone who interacts with cryptocurrencies. Learn how you can set up a wallet with our "wallet basics" course on our app right now!