To interact with the different app, Dapps, and services in the Web3 universe, you'll need to use cryptocurrency and other tokens.
Cryptocurrency and tokens need to be stored somewhere you can access and manage them, and that's where wallets come in.
These wallets can also feel pretty gnarly and scary to someone new to them. But it's super important you get comfortable with these concepts because it will help you manage your assets securely (and not accidentally lose access to them).
What are wallets?
Wallets are just software that store your public and private keys, facilitate transactions, and can show you the balance of different assets.
Your wallet is not unlike the accounts you hold at your bank, it's just managed by YOU and the UI is much less intuitive because it hasn't been built out by a central authority with nearly unlimited resources!
There are several different types of wallets of varying sophistication and security, which I'll detail below.
Your wallet holds the Public and Private Keys to access your cryptocurrencies and other tokenized assets, such as NFTs.
Wallets are designed for specific types of cryptocurrencies and blockchains. An Ethereum Wallet does not work for the Solana blockchain and vice versa. The cryptocurrency you want to store (or the associated token) will determine the wallet you need to use.
NFTs are built on top of a specific blockchain protocol – an NFT using an ERC-71 token will need to be managed using an Ethereum crypto wallet.
What are keys?
Keys are randomly-generated strings of numbers that are associated to one particular source. Every wallet has its own unique Public Key and Private Key.
Some wallets also utilize a Seed Phrase for an additional level of security and authorization.
Your Public Key is what you share with others. You can safely share this key with as many people as you want – all they can do with it is send you cryptocurrency and tokens.
I have a wallet just for myself. Here's the Public Key:
You can use that Key to send me cryptocurrency or an NFT you no longer want. Or nothing at all. Whatever floats your boat!
To take this a step further – since these Public Keys are nearly impossible to remember off the top of your head, services are emerging to map these machine-readable keys to human-readable names.
On the Ethereum Blockchain, ENS (Ethereum Name Service) sells domain names ending in .eth to map to Public Keys.
I have an ENS domain:
Anything sent to jayclouse.eth will have the same result as sending to the full Public Key shown above.
Your Private Key is top secret and needs to be kept securely. Think of your Public and Private Keys as two halves of a best friend necklace. Together, through cryptography, you sign off on transactions by using your Public and Private Keys together.
That means that if someone has both your Public and your Private Keys, they can sign off on transactions involving assets in your wallet (and that's a bad thing). More on keeping your Private Key secure below.
Seed Phrases and Secret Recovery Phrases
Some popular Wallet technologies actually allow you to create multiple accounts within them – i.e., you can have multiple sets of Public and Private Keys within one Wallet.
These wallets are usually built to be a little more user-friendly – but with improvements in user experience, sometimes things can get a little less secure. So Seed Phrases (also called Secret Recovery Phrases) are used as sort of a master-password to access a Wallet (which may contain multiple sets of keys).
This is explained by MetaMask, one of the most popular Digital Crypto Wallets:
Seed phrases as we know them today were codified for usage in Bitcoin, according to a standard referred to as Bitcoin Improvement Proposal 39, or BIP-39. In simple terms, a series of words are selected with a high level of randomness from a specific list of words.
In MetaMask and many other Ethereum-compatible technologies, there are 12 words in a seed phrase. Some older seeds generated by the Brave browser, and some hardware wallets, use 24-word phrases. Each one of these words corresponds to a series of numbers, and when placed in a specific order, represent a much more user-friendly way to remember a very, very long number. That number is the private key to your accounts.
An example seed phrase may look like:
witch collapse practice feed shame open despair creek road again ice least
It's like the trigger words used to activate Bucky Barnes as the Winter Soldier in the Marvel Cinematic Universe.
Now let's talk about the different types of crypto wallets available to you.
Digital Wallets are popular because they're easy to setup and use online in any Web3 ecosystem. They may be Desktop (Browser) Wallets or Mobile Wallets.
One of the most popular here is MetaMask (this is for the Ethereum blockchain and is what I use). You can create a MetaMask account, attach it to your browser as an extension, and it will be easy to connect to the different apps and services that need to interact with your crypto.
Digital Wallets are also frequently referred to as Hot Wallets because you can very quickly utilize the crypto within them.
Hardware Wallets store your keys on a thumb-drive or other physical device that can be kept in a safe place offline.
You have full control over when (and if) you ever connect this hardware wallet to the internet, making it much more secure. Less convenient, but more secure.
The two most popular brands are Trezor and Ledger.
Paper wallets don't quite feel like a "wallet" at all...because it simply refers to storing your Keys on a physical medium like paper and storing that in a safe place like a safety deposit box, safe, or underground bunker.
This is certainly the least convenient, arguably the most secure against malicious attacks, but also can be easily lost or destroyed.
Sometimes you'll hear the phrase "cold storage" or "cold wallet" used. This is simply referring to either a Hardware or Paper Wallet. It is the opposite of a Hot (digital) wallet.
If this all makes you nervous about security, do some research on the recommended best practices for the type of wallet and blockchain you're interacting with. It's always a good idea to use some "pilot" transactions (moving very small amounts of cryptocurrency between wallets) to ensure you've used the correct wallet addresses.
If you try to send crypto and use the wrong wallet address (say you try to send Bitcoin to an Ethereum Public Key) then you will lose it. It's brutal, but that's just how it works.
So always, always double-check and use a test transaction before sending any large amount of currency!
Another route you can take is by managing your cryptocurrency through a third-party custodian that you trust. That custodian could be a financial advisor or even software like Coinbase.
When you purchase crypto through Coinbase, they'll manage your assets for you. You can always transfer your crypto into a wallet that you manage as the custodian, but Coinbase makes it easy to buy, sell, and convert crypto without worrying about your own wallet.
Of course, that comes with its own level of risk, as Coinbase is an organization and you're once again leaving your assets to a central authority. But I personally still personally manage a lot of my cryptocurrency investments within Coinbase.
More to come on security later, but for now, read this thread:
If you're venturing into the world of Web3 and especially NFTs, you will need your own wallet. Managing a wallet puts you in total control of your cryptocurrency and tokenized assets, but you need to be comfortable with the protocols and best practices in order to operate successfully and securely.
As you get more sophisticated with your crypto, you may find yourself with several digital wallets and hardware wallets. You can create and manage as many wallets as you like – no account fees from a bank! But the more complex you make your system, the more important it is that you keep great records and think about security.
In the beginning, if you're looking to just invest in cryptocurrency, consider using a managed wallet through a service like Coinbase.
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