What is a Crypto Wallet?
|— A crypto wallet is an interface that lets you interact with your blockchain assets and keeps them safe.|
— But the type of wallet you’re using impacts how much control you have – and how secure those assets are
— Crypto wallets are broadly classified as hot wallets and cold wallets. Hot wallets store the keys to your cryptocurrencies on an internet-connected application while cold wallets keep them offline, disconnected from the internet.
— You may also be using an exchange wallet – which is simple to use, but doesn’t give you any control of the private keys, meaning your assets aren’t truly yours.
If you’re thinking of buying some crypto – or even NFT’s – you’ll need a wallet to keep your assets safe. But just what is a crypto wallet? And how does it work?
If you’re new to crypto and you’re wondering how crypto wallets work – and why you need one – you’ve come to the right place. Crypto can seem like a steep learning curve, but trust us – doing this essential groundwork, and properly understanding how blockchain assets work, will set you up for success (not to mention security) as you embark on your crypto journey.
So let’s get back to basics and keep things simple: what is a crypto wallet?
What is a Crypto Wallet?
Crypto is simply a form of value, and it exists on the blockchain – you can get into the nitty gritty of blockchain right here, but the main thing you need to know for now is that blockchain is a digital ledger that keeps track of value. And it hosts your crypto.
Within this network, the thing that ties you to your specific, owned crypto is something called private key. This private key corresponds to your address within the blockchain, and gives you control of that address and the value stored there, and spend or exchange it when you want.
So your private key is a bit like the key to your secret safe. For obvious reasons, it needs to be kept secure and never shared with anyone. This is where a crypto wallet comes in.
Home of your Private Key
Despite the name, a crypto wallet does not contain your coins or tokens – those are always on the blockchain. Rather, its purpose (in crypto) is to secure your all-important private keys that allow you to access your blockchain address, and everything stored there.
The wallet also acts as a sort of control panel, showing you exactly how much crypto you have, and allowing you to communicate with the blockchain to send or interact with that value. You might say that your crypto wallet is the bridge between you and your crypto funds on the blockchain.
Primarily, there are two types of cryptocurrency wallets: hot wallets and cold wallets. Let’s go over them now.
Hot wallets or online wallets are a type of software that exists digitally, and secures your private keys within its interface. Since they are software-based and exist on your device (be that a computer or phone), they are always automatically connected to both the internet and the blockchain at all times. This makes them very convenient, because you the user simply need to log-in and you can easily begin interacting with online applications via the wallet interface on your computer. Easy, fast, convenient.
But there’s also a downside. When you use a hot wallet, your private keys to access your cryptocurrencies are stored on an internet-connected application – this is dangerous because the #1 way scammers access your valuable cryptocurrency is by deploying hacks via your internet connection to access your private keys. So having a hot wallet might be easy, but it actually does not perform the key function of a wallet, which is keeping your assets safe.
Exchange Wallets – A Hot Wallet Subcategory
There are both custodial and non-custodial hot wallets. A custodial wallet does not give you full control over your funds, because it never lets you have the private key to begin with.
You might be wondering what we mean by this – all crypto has a private key, right?
Well, yes. But if you bought your crypto on a crypto exchange and you’re currently keeping it there, you might be surprised to realise how little control you really have. Exchange wallets are custodial, which means that instead of trusting YOU with your own private key, the exchange itself holds it on your behalf. Instead, what you’ll get is login credentials for the platform and this is how you’ll access your wallet.
Not your Keys, Not your Coins
Storing your cryptocurrencies in a custodial crypto wallet is like parking your car in someone else’s garage. Even though you own the car, the key to the garage is with the garage owner. In case, when the garage owner doesn’t share his key with you, you’ll not be able to drive your car around despite owning it. This is a pretty accurate analogy for exchange wallets.
So in short, although hot wallets can be both custodial and non-custodial, making sure you control your own keys is the only way of actually “owning” your assets.
With that in mind – how exactly DO you keep those keys away from hackers dwelling online?
If you have heard of too many instances of hacks and thefts related to cryptocurrencies, we know exactly how overwhelming all that news can be. While hot wallets help you instantly transact using your cryptocurrencies, it’s not necessary nor recommended that keep all your funds connected to the internet.
Hardware to save you the anxiety of having your funds exposed to cryptocurrency hacks and thefts by doing something really simple – they keep your private key offline.
A hardware wallet is a device that stores the private keys to your cryptocurrency funds in a more secure manner, away from the internet. Even if you make transactions from it, the wallet confirms the transactions in an offline environment. This process helps keep your private keys away from the risks of the internet at all times.
All hardware wallets are non-custodial wallets, i.e., you are the only one who owns access to your private keys and funds. Thus, when you use one, you own the private keys associated to your cryptocurrencies. If you take crypto security seriously and understand the novel risks faced by this type of asset, you’ll know that this type of storage is the only truly safe option.
There are different types of hardware wallets, but among them, the Ledger Nano is by far the safest device. Apart from giving you full control of your funds and keeping your keys offline, our hardware wallets secure your keys using a chip called Secure Element (SE) – a component used in a variety of secure environments such as credit cards, passports and payment systems, and is renowned for bringing the highest level of security to any system where sensitive data is managed.
This means that, beyond keeping your private key offline and away from hackers, the Ledger Nano device itself is also completely impenetrable from external threats, thanks to the state of the art components inside.
The Safest Crypto Wallet
If you actively trade cryptocurrencies, you may want to store a part of your crypto funds on an exchange wallet. However, if you are holding one or more cryptocurrencies for the long-term, you should prefer to store your funds in a cold wallet for safety and ownership. If you want the speed and flexibility of hot wallets and the security of cold hardware wallets, Ledger can be your best choice: the most trusted hardware wallet on the market combined with Ledger Live, a software that enables you to easily manage your assets from your desktop or mobile. Ledger is the gateway to all your crypto needs, safely.
The Safest Crypto Wallet
Hey – your crypto is precious, and your trusted wallet is the only thing standing between those assets and clever digital thieves. Here we explain how it works, and why using a hardware wallet is so vital.