By Michael Moskie
A wallet (often referred to as a cold wallet) is the bedrock of your crypto investing
infrastructure. If you don’t use a private wallet to store your crypto currency, you don’t
really own the crypto. Many investors purchase crypto on exchanges and leave them on
the exchange’s wallet believing they are safe. Unfortunately, these are custodial wallets,
and they don’t have private keys. As they say in the crypto community “not your keys,
not your coins”. If you don’t have a private wallet, you have to trust that the exchange
can keep your coins safe. When you do this, you relinquish control of your money. So,
the answer is YES you do need a wallet for your crypto.
Table of Contents:
- Intro
- The Wallet
- Wallet Capabilities
- Wallet Security
- Conclusion
Intro:
The most important tool for any cryptocurrency investor is the personal wallet. Think of the
wallet just like the physical wallet a man carries daily to hold money and credit cards. After
purchasing your crypto, your private keys must be physically hidden somewhere only you know
about. Investors find amazingly creative ways of hiding their private keys knowing full well that if
they lose it, they lose all their crypto.
Wallets are just software developed to protect your crypto and store your private keys
which are the only means of access to your cryptocurrency which is stored on the
blockchain. Wallets are simple interfaces with the blockchain and DO NOT store coins
locally.
It is advised that anyone holding cryptocurrencies download a compatible wallet and start using
it as soon as possible.
There are multiple forms of wallets, each with their own unique features. Now we will explore
wallets in more detail. Exchanges are not considered wallets and will be excluded from the
discussion.
The Wallet:
What is a crypto wallet?
Cryptocurrency wallets are physical devices or apps (mobile or desktop) that interface with the
blockchain and “store” coins in addresses which can only be deciphered using your private key.
They are a means of storing crypto away from exchanges which can be prone to fraud, failure
and loss of funds. Always remember a wallet DOES NOT physically store crypto and is solely
an interface with the blockchain.
What does a crypto wallet do?
Cryptocurrency wallets protect the user’s coins by encrypting them with and behind a private
key. This encryption process protects your crypto but still allows full control of the coins. Without
a wallet, coins are usually left exposed on exchanges where they may potentially be frozen, lost
or stolen.
Are crypto wallets safe?
Yes, crypto wallets are safe and necessary when working with cryptocurrency. As a matter of
fact, we consider them “best practices” methodology. There are many options to choose from to
create your wallet. From desktop and mobile applications to browser extensions, you should find
and use the one that suits you best. There have been problems in the past with fraudulent or
fake apps, so you have to be careful and do your due diligence before choosing which one to
use.
Is it good to have multiple crypto wallets?
The answer is yes, and, in some cases, it is necessary to create multiple wallets. There are two
types of wallets 1) Single coin wallets that store only one type of coin and 2) Multi coin wallets
that store many different types of coins.
Depending on your needs, you may need a combination of different types of wallets for your
portfolio.
Using multiple wallets also can act to cloak your crypto activity for greater security. By not
having too many transactions in one wallet you make it seem like you are just a small investor.
Wallet Capabilities:
How does a crypto wallet work?
A crypto wallet is first downloaded and opened like any other application. The app will have an
option to enter a currently existing wallet or create a new one. When creating a new wallet, the
user is prompted to write down in secrecy a 12- or 24-word seed phrase. Once complete users
have access to the wallet where cryptocurrency is stored. Funds are added via public
addresses and may interact with Dapps (Decentralized Applications).
What is a crypto public key?
Public keys are addresses that allow crypto users to receive crypto payments. Similar to routing
numbers from a bank they are long strings of characters that tell the funds where to go. They
are very safe in questionable environments. This means you may post public addresses at will
because they only allow payment. It is also one half of the overall encryption process for
securing and sending messages.
How do I find my wallet address?
The easiest way is to open the wallet application and find the receive tab. Addresses should be
stored under receive with multiple choices available. Common wallet apps today are very simple
and easy to handle.
Can I lose a crypto public key?
No, public keys cannot be lost or misplaced. These keys are “disposable” meaning they are able
to be used as much or little as desired. It is potentially possible depending on which blockchain
you use to trace public addresses to specific individuals.
What are crypto private keys?
Private keys allow the user of a wallet to claim ownership of the subsequent funds available
associated with those keys. This key allows users to create digital signatures which are the
basis for sending currency and messages securely. Private keys are protected by seed phrases
which restore wallets that have been deleted or logged out.
Which crypto wallets give you private keys?
All personal wallets hot or cold provide private keys protected through the natively generated
seed phrase. Before establishing a wallet remember to verify a new wallet provides a new seed
phrase. DO NOT use a wallet that has been generated by a third party. Exchange wallets are
NOT personal wallets because they offer no way to access personal private keys..
Wallet Security:
How do crypto wallets get hacked?
The most typical way people lose funds is through human error. The majority of Crypto losses
are people being duped into actually sending coins to a third party on the promise of “amazing
returns”. Wallets are also often phished through very clever means. There have been all kinds
of fake wallets and bugs attempting to take users’ funds.
Is it possible to hack a crypto wallet?
Yes, however a hack does not have to be very complicated. Hacks come commonly from users
giving their private keys away. This is through fake web wallets, fake web support and
potentially a physical breach of private keys. It is very possible to hack exchange wallets and
put users’ funds at risk.
What is the most secure crypto wallet?
Cold wallets and paper wallets are considered the best, most secure wallets available to the
public. This is because these wallets DO NOT allow the associated private keys to “touch” or
link to the internet. This gap affords users the safety that the private keys can never be
tampered, exposed or stolen via online.
How do I store crypto private keys securely?
When creating a new wallet be sure to be as discreet as possible to increase chances of both
privacy and security. Here are some tips to stay as safe as possible:
- Use an empty room
- Avoid letting anyone see your screen or what’s written down
- Stay away from cameras of any kind
- Avoid speaking any words aloud (Microphones)
- NEVER take photos of phrase words
- NEVER store phrase on mobile, desktop files or notes
- Duplicate seed phrase
- Use a book of choice to highlight phrase
- Use a private safe or bank to store
- Consider steel billfold wallets (Cryptosteel)
Where should I store my crypto keys?
Private keys may be stored anywhere safe that you can remember. This general answer
changes very often as people find new and clever ways to keep away from prying eyes.
Common ways are storing it in safes, banks, highlighted in books, entered steel billfold wallets
to name a few.
Conclusion:
Creating a cold wallet is “best practices” for every single crypto user. There are many wallets to
choose from as well as multiple components for each wallet. These wallets allow users to store
their crypto and claim it as their own personal funds. It also allows users to link to Dapps or
decentralized applications for DeFi as well as gaming. Public keys allow users to receive funds
and the private keys allow users to sign transactions and send their funds. Wallets have always
been important and will continue to be used through the course of crypto history.