Crypto wallets allow us to interact with blockchains. You’re going to need one if you are to invest in or use a blockchain, and here are the best types of wallets for you to use. I’m going to explain them and who they are for. If you already have a wallet, then you may use Jet-Bot to generate passive income. Jet-Bot copy trading platform supports both spot and futures bots trading on Binance. Every Jet-Bot account includes a free $100,000 virtual portfolio. Check out top traders rating and choose best traders whose deals you are intresten in copy trading crypto. It provides wide range of strategies and indicators to build your perfect crypto trading bot.
Best crypto wallet types
So really there are three main types of wallets and they have different use cases, and you might want to use all three of them in tandem.
The first type is software wallets. Every single time that you want to send transactions or interact with a blockchain in any way, you’re going to have to use some sort of application. That’s what these are. They’re called hot wallets or online wallets, and these are apps. They’re on your browser like Chrome or Brave, or you can download them onto your actual system, so if you have a Mac or Windows, you can actually download the application onto your system rather than using it as an extension in your Chrome browser. Then, of course, you have application versions as well on iPhone and Android. These are usually free and very easy to use. You just download the app and you set up a new wallet. It’s completely free. This is open source software, and these are self-custodial wallets, so you own everything here.
What are hardware wallets? So hardware wallets are called cold wallets for a specific reason. These are actually usually physical devices, so they’re not applications themselves, but they’re a device that holds some very important info. A hardware wallet is known as a “cold wallet” because it’s offline, meaning that the special keys are kept in this device and not connected to the internet. It’s therefore considered safer to use this type of device, but there are some downsides because it’s a hardware, USB stick kind of thing, so it is more secure. The downside is that you do have to buy them from $30 to $80 and you do have to link them up with a hot wallet if you want to actually do something with the blockchain.
The next stage is paper wallets, so just think that essentially every single blockchain will give you a private and a public key, and that is your wallet. You can actually download that and just write it down on paper. That’s an old-school way of doing things. You can even buy a metal sheet if you want to kind of store it properly. These are available for $0 if you just want to write the keys down on a bit of paper. They often use QR codes as well, which you can print out, or you can spend a few bucks and actually get a metal version, or something like that.
The problem is, it’s extremely difficult to use your coins correctly. This is like putting things in a mattress under, you know, six feet under, and you’re never going to reach them again. So why bother with this? Well, these are kind of considered the safest because they never interact with anything online.
How crypto wallets work
This is a very simplified version of how you would create a wallet and then start interacting with the blockchain.
For example, we have the bitcoin blockchain, which is doing its thing every 10 minutes just sending coins amongst wallets that actually want to send coins at that time and keeping a record of all of those transactions. Every single bitcoin wallet is on the bitcoin blockchain, not anywhere else.
Now what we’re going to do is have Sally down here. She’s going to create a bitcoin wallet. Every wallet allows you to do the same thing, which is create another wallet on the chain. On the chain, when you create a wallet, two things are created. Well, three things.
One of them is the public key. As you can see here, this is otherwise known as your address. The public key creates the public address. Think of this as your email address. If you have a wallet, you need an address where people can send you things. This is your email address. This is your address where people can send you coins, so you can give this out to people. When someone says I want to send you coins, you give them your bitcoin address, which is linked to your public key. You can tell people this. People can send you stuff to it, but they can’t control the wallet if they have it right. So it’s exactly like an email address. They can’t actually control the email unless they have the email password, which is your private key.
Your private key is basically your password to control the wallet and all of its contents. The private key is absolutely vital and very important. If you or anyone else has this private key, it’s like having the password to your email account. So it is incredibly important to keep this safe and to write it down. If you lose this and you don’t have access to it, it’s like losing the password to your email address. You’ll never have your email again. And if you’ve got a million dollars in bitcoin and you lose your private keys, you’ve burnt that million dollars.
The public and private keys are linked by cryptography, meaning that they are actually linked up. So whoever has access to the private key can actually have access to the public key. That’s why you have to keep it really safe.
Now, what happens if someone wants to send some bitcoins to you? Well, what they can do is take your public key and send it via a transaction on the blockchain via their wallet. Wallets are always on the blockchain, and people just use wallets to interact with them.
Crypto wallet keys
So here’s a cheat sheet about wallet addresses, public keys and private keys:
A crypto address is simply like your email address or your mailbox. It’s the place where people send coins, and it looks a little bit like this: public keys are the keys that generate the address, but people often intermingle them and say them in the same way.
A public key is literally just your public address where people know this and they can send you coins.
Private keys are the most important thing. This is linked to your public key through cryptography, but because of cryptography, no one can work out your private key through your public key. Because of cryptography, that’s the whole point of what crypto is. This is the password that enables the creation of the public key. It’s so important that it works in tandem, so they are linked. Do not tell anyone this when you get it, because that is essentially giving someone the pin number to your card or a password to your bank account application. Anyone who has that has access to your coins.
Crypto trading is a bearer instrument. If someone has a private key to a wallet, they can log into it and spend everything. That is where your crypto comes from. If someone else has your keys, or if an exchange has the keys to your hot wallet, then it’s not your crypto because someone else has access to your coins.
Crypto wallet NFTs
You might notice that wallet addresses are very long and complex, and that’s obviously because of the cryptography and how they interact with other very long numbers. That’s just the way it is. These days, they have to be long and random to be individual. You can actually get NFT names that you put in the wallet that give you a human readable address. So you have a wallet and you buy an NFT that goes in the wallet. It gives you an address, a bit like a web domain.
You can use special services. There’s also the Ethereum name service, and every single other blockchain will have their own service, but .eth. domains are essentially like web addresses, so you can have decentralized websites built on this. Or if someone wants to send you coins, they can just type in your name .eth. and then that will be routed through the Ethereum network to their wallet address as long as the wallet address holds the NFT domain. So you can see here:
ethereumnerd.eth is actually available right here and you do have to pay a fee for this. Unfortunately, it’s just like registering a domain name on Godaddy. You can register it forever though if you have enough ETH, but when it runs out, you do have to spend the ETH on that again to get that name.
Other services like that which I use, they have different domains like .crypto, .nft, .wallet and you can search for this. They use the Polygon blockchain. You can just link that up once you buy that NFT. There are no renewal fees and it just goes in your wallet. You can search for anything here. A lot of services where you can buy an NFT and then hold it forever and have that domain name that people can send you money to.
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Not for your keys or your crypto, if you hold no coins in your wallet, you just hold the keys, and that’s why there are different versions of wallets to basically make holding the keys as safe as possible. If Binance has your wallet keys, which they do, then that is not your crypto wallet. Okay, you do not own that crypto. So even with Binance, if they’re holding it for you, you don’t have the keys, you don’t have control of that until you send it out to either one of these self-custodial wallets.
Seed phrase
These days, very few people interact with the private key. They’re actually given what’s known as a “seed phrase” when they set up a wallet. If you go to Metamask and you set up a wallet, they will give you 12 to 24 words that are randomly generated and linked to the private key. If you create a Metamask account and have these 12 to 24 words, and then go to Metamask and load a wallet, all you have to do is just press restore wallet, put in these 12 words, and it will load up your wallet and show all of your coins sitting there.
Many modern wallets let you manage many different crypto assets over many different blockchains. So that’s why they give you this because it actually is like a root key that links up to all the other private keys. You can actually write this down or even memorize it, so if you can remember 12 words, you can just keep that in your head and then do anything you want. You’ll always have access to those same coins on any different computer.
Benefits of cold wallets
The benefit of cold storage or hardware wallets is that there is an air gap between your keys and what happens online. Cold storage keeps your keys offline. Hackers can not access your private keys if they are kept on these devices. This is good for your investments and crypto that you want to keep aside and have no use for.
You can also use DeFi and actually invest your coins in the fire and keep them there, but still keep your keys on these devices. I truly recommend hardware wallets. If you’ve got more than a few thousand dollars, they can be a little bit of a pain to access. Like, you’re definitely going to need the wallet with you if you want to transact or spend coins, because you need to actually go onto the hardware wallet itself, look through the transaction, and confirm the transaction by pressing some buttons, but that’s the price you pay for having the safest way to keep your keys.
Benefits of hot wallets
Offline hot wallets are great if you have under a few thousand dollars. Offline hot wallets are great because they’re completely free to use and they’re way better than keeping it somewhere like an exchange where you know you don’t know what they’re going to do with your coins. You need these to interact with FeFi, so what you can do is use Metamask with a wallet. So what that does is it keeps your keys offline, but when you want to interact with DeFi, you can actually link your wallet up with Metamask. That means that all the keys that are on your walet. You’re able to transact on the blockchain with them. So that is why hot wallets and software wallets are often linked up.
Hackers can fish your info with hot wallets, though if you have a browser wallet and you get phished and you click some links you shouldn’t, then unfortunately you may actually get all of those coins drained out of your wallet, which is why so many people need to use a hardware wallet. Soft wallets or hot wallets are good as burner wallets.
If you’ve got some NFTs that you’re playing around with or you’ve just got a little bit of cash that you know you want to interact with some smart contracts, they’re great for that. You can definitely link these with cold wallets for extra security, and you do need hot wallets to be able to interact with DeFi.
Recap
So then wallets just manage your public and private keys. They don’t hold any coins whatsoever. Cold wallets are safer, but they do need to be used with hot wallets to transact with DeFi. All coin wallets are always on the blockchain. Everything is on the blockchain. You’re just keeping those keys. You can buy human readable addresses and then NFT. That’s what I do, and people can send you coins via a cool domain name.
[This article is a transcription of a video made by MoneyZG]
[Original video: https://youtu.be/ywIaGnBEQX8]
