Digital Wallets for Crypto and Web3
Wallets are one of the most important parts of crypto and everyone should understand them.
They let you access, store and transfer all the digital assets you will encounter, from coins to NFTs and much more in future. That’s why we’ve written this short guide to help you make the most of them and to stay safe while doing so.
What is a Digital Wallet?
A digital wallet is just a software system that allows you to store various types of digital assets. In the non-crypto world, common digital wallets that allow you to store fiat currencies in digital form include PayPal, Apple Pay and Google Pay.
In crypto, wallets allow you to access your digital assets that are stored on the blockchain. This is important to remember, as your crypto wallet lets you access the address on the blockchain where your assets are stored, rather than storing the assets themselves.
Digital assets on a blockchain can be accessed and transferred via a process of public-key cryptography. This involves two keys, a public and a private one, and it is these keys that your wallet stores.
You could store your keys without using a digital wallet, by remembering them or writing them down. However, this is risky and that’s why most crypto users prefer to use a wallet.
Different Types of Digital Wallet
There are many wallets available and the market for them is ever-expanding. However, there are essentially two main types worth knowing about.
Hot Wallets
A hot wallet is one that is connected to the internet. They may exist as browser extensions, mobile apps or both. Some well-known examples include MetaMask, Coinbase Wallet and Trust Wallet.
Using a hot wallet has some risk attached to it because the wallet is always connected to the internet. This makes it more accessible to hackers who may not be able to hack into the wallet itself but may be able to exploit vulnerabilities in your computer, operating system or browser to trick you into giving them access.
Cold Wallets
A cold wallet is one that remains offline. It is usually a small USB device, referred to as a hardware wallet. Popular examples include Ledger and Trezor but there are others available.
The main reason why it's a good idea to use a hardware wallet is for increased security. The offline element means the number of attack vectors any hacker can use to steal your assets is greatly reduced. However, this increased security comes at the expense of convenience because there are more steps involved in transferring assets from cold storage.
Using a Digital Wallet for Yourself
Most people keep the crypto they are saving in cold storage and the crypto they are trading in a hot wallet.
This allows them to try out DeFi, NFTs and Web3 with their hot wallet, while keeping the majority of their investments in secure cold storage. Our advice is to start slowly and carefully but don’t be afraid to get to grips with wallets, as they’re a fundamental part of the new crypto paradigm.