Hi all,

How does the term 'crypto wallet' sound to you? If you're already familiar with Bitcoin, Ethereum and other cryptocurrencies, it will likely sound like freedom and transparency. If you don't know much about crypto, you may only remember headlines about scams and criminals using Bitcoin to sell drugs.

In reality, crypto wallets are both of these things – and much, much more. If you want to explore what's known as 'digital assets', you need such a wallet. And don't worry, it doesn't have to be complicated. If you're as careful as with your online banking, you may not even lose your assets to scammers.

So what’s up?

Most people who are not familiar with crypto at all think it's complicated. We'll change that perception today. We'll explain:

• What is a crypto wallet?

• How does a wallet work?

• How do you find the best one for yourself?

Let’s get started! 🤓

Cryptocurrencies have become something of a buzzword in recent years. If you're still new to this strange digital realm, understanding the basics is crucial. One fundamental concept you'll encounter when you want to interact with public blockchains is the "crypto wallet."

We'll unravel the mystery behind these wallets, giving you all the background you need before starting your journey without any prior crypto knowledge.

What is a crypto wallet?

Simply put, a crypto wallet is a tool that allows you to securely store and manage digital assets which are transferred on a public blockchain. The most important use case are cryptocurrencies such as Bitcoin, Ether or Solana.

Unlike in a regular wallet, these are not physical currencies. Instead of coins and banknotes, cryptocurrencies only exist in a virtual form, either online (in a so-called hot wallet) or offline (in a cold wallet).

Most people are very familiar with virtual money. When you are managing your bank account online, for example, you don't have to touch physical money to receive payments or pay your bills. Crypto wallets can be a lot more powerful than online bank accounts but at the basic level, managing financial assets from your computer – or even your smartphone – is not an outlandish idea.

Hot and cold

Unlike your bank account, crypto wallets can be something which is physically removed from the internet. Those are also called cold wallets.

A cold wallet can have different forms. Physical devices in the shape of a USB stick are common but even paper prints are possible (at least in theory). Overall, cold wallets provide a very simple way to enhance security against online threats – they're not online at all.

If you believe in the future of cryptocurrencies, a cold wallet is ideal for long-term storage of significant amounts. It's the equivalent of an investment account. You can add money regularly but you only dip into your funds on very few occasions.

Hot wallets are closer to a traditional current account. There are popular browser extensions such as Metamask, Rainbow or Phantom. Mobile apps for your smartphone are another alternative.

Overall, hot wallets offer convenience and quick access to your digital assets. They are also more susceptible to online threats so you should be careful using them. And while it's similar to online banking, it's not quite the same so you should familiarise yourself with a hot wallet before using it to handle more value.

How does a crypto wallet work?

Every crypto wallet consists of a public key and a private key. The public key serves as the receiving address for cryptocurrencies and can be shared with others. That's not really different from sharing your IBAN so that you can receive money in your bank account.

The private key, on the other hand, must remain confidential. It grants access to the funds stored in the wallet. That's just like the login data for your online banking.

In practice, using a crypto wallet shouldn't be a major challenge when you've already been using money in a digital format. There are some important differences when it comes to the background though.

When you open a new bank account, you will have to share a lot of personal information. In contrast, setting up a new crypto wallet is completely anonymous.

When you are then using a public blockchain to transfer digital assets, all transactions with your public key can be seen by everybody. Without any additional information, these transactions can't be traced to your name though. In addition, various privacy tools are available to allow for completely anonymous transactions.

Picking the best alternative

Selecting the right wallet depends on your needs and security preferences. For everyday transactions, hot wallets are usually a good choice. When you want to store larger amounts of cryptocurrencies for a longer period, a cold wallet (and preferably a hardware wallet) is the best option.

There are various alternatives in both areas. By and large, it is impossible to say that one particular wallet is better than others. The best alternative is usually based on personal requirements regarding functionality, design and other aspects.

Summary

 A crypto wallet is your gateway to the world of digital assets, ranging from cryptocurrencies to the so-called non-fungible tokens. Wallets offer a secure space to store and manage these assets. 

As a beginner, understanding the fundamentals of different wallet types is crucial for making informed choices and ensuring the safety of your assets. The importance of private keys shouldn't be underestimated. You should really guard your private key like a treasure. Losing it means losing access to your funds. It shouldn't be shared with anyone and you should embrace the secure backup methods that wallet providers have on offer.

That’s the end for today! 😢