What is a Crypto Wallet, and How To Use Them
To explore the blockchain universe, it all starts with one crypto wallet. One key to access 100s of apps and networks. But not all crypto wallets are the same.
Depending on your goals, the right wallet could be a browser extension, a hardware device, or even a piece of paper. And if you don’t know the difference, your crypto could be at risk. By the end of this guide, you’ll also know the exact wallet you need to optimize speed, fees, and token selection for your portfolio.
What Is A Crypto Wallet?
Crypto wallets are so essential for blockchain that some utility tokens are based on them. Outside investing, many payment-service providers now accept crypto for everyday purchases. So what’s a crypto wallet, and what’s so different from a digital one?
Simply put, crypto wallets are any software that supports cryptocurrency storage:
- The account balance of a crypto-fiat exchange
- Flash drives and similar storage devices
- Browser extensions
- A Bitcoin ATM
- Mobile apps
Regardless of the crypto wallet you use, they all have these components:
- A public key: This is a public long alphanumeric code you can share to receive payments
- A private key: This is a secret alphanumeric code used to access your wallet. Each network has the same private key. To keep your wallets safe, never share this code.
In public blockchains, wallets don’t actually store tokens (not even hardware devices). It’s a proof-of-ownership model. These codes that those token amounts belong to you, so you have the right to use them without anyone’s intervention.
As long as you have both keys (even on paper), that’s enough to access your wallet from any platform. The private key has alternative formats such as QR codes and 12-word seed phrases. The latter is the most popular, as it instantly recovers all private keys across all wallet networks.
These “networks” are one reason crypto wallets are different from digital ones.
Crypto Wallet vs Digital Wallet
Depending on the wallet, you might have one or multiple balances:
- Digital wallets (or e-wallets) typically have a single currency and financial network (“ACH” for the USA, “SEPA” for the EU…). There’s also a central authority that controls and provides the wallet (banks, institutions)
- Simple crypto wallets refer to all variations excluding WEB3 dApps (more on that later). These don’t belong to any particular blockchain ecosystem. Instead, you get an index of cryptocurrencies approved by the company behind the wallet. The tokens you’ll find are probably CoinMarketCap’s Top 50 coins, Bitcoin-Ethereum forks, and sub-projects.
- Decentralized crypto wallets (crypto wallets) allow users to switch among multiple networks. Even though there are 1000s of utility tokens, many cryptocurrencies are exclusive to their native blockchain. Decentralized wallets are somewhat like having balances from different banks, except they’re all on one platform.
Unlike bank balances, crypto wallets can be non-custodial. That means you can create an account and start making payments without intervention. There’s no central authority to regulate your payments or restrict your account.
When it comes to the most popular cryptos, wallets often support multiple chains. That means, for example, that you could have:
All at the same time.
It might sound complex at first, but it’s easier to set up a crypto wallet than a digital one.
How to Get a Crypto Wallet?
The easiest crypto wallet you can get- and the most — is a WEB3 wallet like Metamask. It’s only a few steps, takes minutes, and anyone can do it:
- Get Metamask. If you’re on a computer, find the extension (supported by most browsers). If you’re on mobile, download it from the app store.
- Open the app and click on create a new wallet.
- The app will generate the private keys in the next few screens: a seed phrase, a private key, and a QR code. Save the seed phrase and key somewhere safe offline, like a paper. You can use the QR to log in from different devices faster.
- The app may ask you to re-enter the seed phrase as a security check.
- Choose a username and PIN code.
- Re-enter the PIN code to complete your registration.
The process is instantaneous, requires no ID verification, and is available worldwide. You can create as many wallets as you want, and the same goes for adding custom networks. It’s also possible to import balances from other wallets from the same network in your main account.
The previous steps work for any WEB3 wallet (which is essential for blockchain applications). If you need another type of wallet, things change.
Types of Crypto Wallets
While there are two types of crypto wallets, there are several classifications:
- Format: Software or hardware? Web-based or desktop/mobile?
- Authority: Custodial or non-custodial?
- Connection: Online or offline? Hot or cold?
- Generation: Web2 or Web3?
Since crypto wallet security is extremely important, let’s start with the hot-cold concept.
What Is a Hot Wallet?
Hot wallets are the most popular because they’re convenient and always connected to the Internet. It can be a downloadable desktop wallet, a mobile wallet, or a web-based wallet. Web3 and exchange wallets are web-based variations.
If you’re looking to invest in cryptocurrencies long-term, only using hot wallets is a bad idea. Online connection means they’re more susceptible to cyberattacks and 3rd-party disruptions.
Think of these as physical wallets. They’re easy to use, but you wouldn’t carry your life savings while walking on the street. Instead, you’d use a savings account, a cold wallet.
What Is a Cold Wallet?
Cold wallets prioritize security over convenience. They’re only connected to the Internet when you use them, which makes them the safest of all wallet classifications. While they’re free, you could buy a cold hardware wallet to almost guarantee your security.
For example, the hardware company Ledger had a cyberattack in 2020. The hack exposed the personal data of +1M users (name, email, phone). As for the wallets themselves, no one lost money (not even compromised accounts).
If it were a hot wallet instead, things might turn out differently.
Cold wallets can be hardware devices or private keys printed on paper. You still need a platform where to enter these, which is why these wallets also have online apps and integrations.
You should never rely on a single cold wallet, as these can still be stolen, broken, or lost.
Software vs Hardware Wallets
Software wallets are digital keys used to access your crypto address (desktop, mobile, web). Hardware wallets are physical keys. It can be a dedicated device (e.g., Trezor), a flash drive, or a second offline mobile phone.
Neither software nor hardware wallets store cryptocurrency. Only the blockchain does, which needs Internet connections to run. These wallets are different ways to access your blockchain address.
You could consider paper wallets as hardware since it’s an external, offline key. Some companies like Bitcoin ATMs and Ledger sell these as well but don’t get confused. To get a paper wallet, you just write the public and private key on any paper (if you want it to be machine-readable , you can instead print it along with QR codes).
Custodial vs Non-Custodial Wallets
Here’s the most crucial feature in blockchain security.
If your crypto wallet is custodial (or 3rd-party custody), you’re sharing admin permissions with the platform. Only the company has your private keys, which means that any platform cyberattack will compromise your wallet. It also means the company can “spend” your crypto the same way banks leverage people’s savings to lend more.
Since regulated companies provide custodial wallets, you’ll need to verify documentation (KYC) to get one.
Non-custodial wallets are the safest for long-term investing, and they’re required to use decentralized applications (dApps) like Liquid Loans. AKA self-custodial, these wallets will generate and display your private keys upon registration. As long as you save those codes and don’t share them, you keep 100% control of your wallet. This means:
Self-custody wallets can be:
What Is a Web3 Wallet?
Web3 wallets are foundational DeFi dApps. Following the classification, they’re software, online, non-custodial, hot wallets. Ever since the DeFi boom, they’ve become broadly used because of their accessibility:
Note that many non-custodial wallets are Web2 (desktop, mobile, and hardware wallets). For example, you can’t connect Trezor or Ledger to Liquid Loans. But you can connect (integrate) the hardware to Metamask, and to Liquid Loans.
What Are the Best Crypto Wallets?
The best crypto wallet, hot or cold, should bring the best of both worlds. Web3 wallets are the best hot wallets, and hardware devices are best for cold storage. So your best choice is to use both.
Note: If you don’t want to buy hardware, the bare minimum would be a Web3 and self-custody wallet. For example, you could get a desktop wallet (e.g., Exodus) and import keys to Metamask, or the other way around. It’s not recommended to keep your portfolio in a single wallet.
Trezor: Best For ERC-20 Tokens
Trezor is a touchscreen device that supports over 1500+ tokens. Many are ERC-20, including Uniswap LP tokens. It’s possible and easy to add coins manually from Trezor Suite on mobile.
You still need to keep your device in a safe place, as professional hackers can read hardware wallets.
Ledger: Most Convenient
Ledger is the most popular hardware wallet. Compared to Trezor, it’s slightly cheaper, has a built-in exchange, and offers an extra ~200 coins. Adding custom tokens isn’t as intuitive.
Ledger is a convenient cold-storage device for those who don’t have computers always available. You can use the mobile app or connect the hardware to your phone.
Ledger is closed-source while Trezor is open-source. Other than that, both are just as effective.
Metamask: Best Overall
Metamask is the most used Web3 wallet with +21M users and an estimated $7B+ in holdings. It was created by ConsenSys in 2016 and popularized in 2019. Metamask can connect to several networks, import keys from other wallets, and connect to 100s of verified dApps.
If you ever need help, Metamask has Twitter Support (@MetaMaskSupport), Community Forums, and Live-Agent Chat Rooms. Metamask will never private-message you on social media or email.
How To Setup a Metamask Wallet
If you followed “How to create a wallet,” you should have Metamask by now (if not, feel free to go back). Once you have it, the next step is adding networks.
Ethereum Mainnet is the default, but many great projects live in BNB Chain, Solana, and Pulsechain. To add custom networks, you click on Ethereum Mainnet (top-right corner) > Add Network and fill out the fields. You can find these on Google from the official websites (for example, you can add these to link Pulsechain right now).
Once you add networks, decide which one to use based on your investments. If you want to buy an exclusive ERC-20 token, you’ll have to send ETH to your Ethereum Mainnet balance. If you want to use PancakeSwap, you send BNB to your BNB Chain balance.
To avoid confusion, beginners should know:
If your native token runs out (e.g., ETH on Ethereum Mainnet), you won’t be able to use any funds (not even converting to ETH).
Common Metamask Questions
Here’s a quick-fire Q&A for common Metamask issues:
You manually have to add their contracts from databases like CoinMarketCap. The same token has different addresses for each network. When reimporting wallets, you have to add everything again.
From Metamask, click on the three dots in the top-right corner. Go to Account Details > Export Private Key and enter your password to reveal it.
Yes. The official support website is metamask.zendesk.com .
You can only add Ethereum-Virtual-Machine compatible blockchains (which is most). You can find out in a quick search (e.g., Solana isn’t EVM-compatible). When adding networks, make sure it’s from a trusted website, as there might be fraudulent networks.
The most popular networks have dozens of bridge dApps you can use. If you can’t find the right one, you could send the funds to a regulated exchange. From there, convert to the 2nd native token and send it back to Metamask on the right network.
How to Connect to Pulsechain Mainnet
Pulsechain Mainnet has all tokens Ethereum has in PR-20 format. That means investors can use the same dApps with far lower gas fees and 4x faster block time. It’s a high-performance blockchain with a lot to offer to developers and traders.
The Mainnet isn’t live yet, but you can connect to the Testnet here . You can then add ERC-20 tokens as in Ethereum. Once the Mainnet launches, you’ll get a free copy of your Ethereum network holdings on Pulsechain.
Originally published at https://learn.liquidloans.io on September 13, 2022.