In our experience, many of the frustrations and complaints about crypto wallets come about from users that don’t understand the basics of how wallets work when it comes to safekeeping and transacting you crypto. So what is a crypto wallet? What does a crypto wallet do? How does a crypto wallet work?
Here, we’ve put together a list of the key facts to make the purchase, set up and use of your crypto wallet as easy as can be.
What is a crypto wallet?
A crypto wallet is a place to safely and securely access, secure and transact your cryptocurrency. Before you dive into crypto you need to understand that it is a decentralised and non-custodial asset – it’s based on the premise of individuals controlling their own tokens and coins. There are no crypto banks like there are fiat banks. The safe storage, management and use of your coins is up to you!
Crypto wallets are widgets that allow you to safely and securely access and use your coins and tokens in a way that is protected from hackers and cyber attacks. There are different types of cryptocurrency wallets and all have different levels of safety to them and features, so to keep your coins safe. Because of this its important you do your research before you buy.
When you start to interact with different types of crypto wallets there are a bunch of terms you’ll read over and over and will need to become familiar with to use the wallet. Terms like ‘public address’, ‘wallet address’, ‘private key’, ‘seed phrase’, ‘recovery seed phrase’…. These are explained in the following FAQs.
What types of crypto wallets are there?
Hardware crypto wallets (cold wallets)
Hardware wallets, also called cold wallets are hand-held storage devices that keep your private keys safe. They are the most secure cryptocurrency wallets because they store your private keys offline so they are not exposed to a lot of the internet based hacking that happens in the cryptoverse. Think of your hard wallet like a bank vault that only you have the keys for. Your wallet is somewhere to safely keep and protect these keys for your coins.
Mobile crypto wallets (hot wallets)
If you own crypto you’ll also come to use crypto wallet apps – also called mobile crypto wallets. These are App wallets and therefore more convenient to transact with daily. Because these are connected to the internet, they are less safe than hardware wallets. Think of your mobile wallet like the wallet or purse you carry in your pocket or handbag every day. You keep less cash in it, but it’s very handy. We’ve researched and reviewed some of the most downloaded and best mobile crypto wallets here.
There are other types of hot wallets that come in the form of browser extensions and desktop wallets. Examples of desktop wallets are Electrum and Blockstream. Other types of hot wallets are crypto exchange wallets which is where your crypto is accessed when you are trading it on exchanges like Binance or Coinbase.
Seed phrase recovery wallet
A seed phrase recovery wallet or seed storage wallet is a must have in your crypto security arsenal. Most wallets, hot and cold, will require you to set up a seed phrase that you can use to recover your crypto on the blockchain should anything go wrong. If you lose this phrase, then the crypto for that wallet IS GONE!. There is no way to recover it.
A seed phrase recovery wallet is basically a physical place where you record the different seed phrases for each of the hardware wallets and mobile wallets that you use to interact in the cryptoverse. You can check out our reviews of the best seed phrase recovery wallets here.
What is a public address?
This is like the public username for your wallet. You use it to send and receive cryptocurrency. This is one piece of information about your hardware wallet that you can safely share with others.
What is a PIN?
Most wallets – hardware and mobile – come with a PIN which you create on first powering up the device or setting up the wallet. You use the PIN code from then on to access the wallet itself. The PIN acts as the first line of defence in your crypto security.
What is a private key?
Private keys are a feature of blockchain assets secured by cryptography. They prove ownership of crypto assets associated with a particular wallet address and allow you to access and spend the assets in that address.
It is like a password to access your coins along with your wallet PIN. It’s pretty important you keep this safe. Don’t give it to anyone. Ever.
Private keys give you access to your coins on the blockchain and in many hard wallets are stored in a highly secure chip that never connects to the internet. You use the hard wallet to sign transactions that are sent to the crypto hardware wallet.
What is a seed phrase?
A seed phrase is a combination of your recovery words, usually 12 to 24 words. Think of it like your spare house key. This is what you use to recover your cryptocurrency if anything happens to your wallet. To be truly secure, you should only ever view and confirm your seed phrase on an air-gapped wallet such as a hardware wallet that is not connected via Bluetooth or cable to the internet. This is why hardware wallets are the safest form of storage for your crypto.
You must NEVER lose your seed phrase or give it to anyone else. If you do, your crypto is gone and cannot be recovered. To keep all of your crypto seed phrases secure for your hardware and mobile wallets, check out our reviews and top picks for the best seed storage wallets.
What is multi signature security?
When a hardware wallet requires multiple keys to authorise a transaction, providing a more stringent level of security for your coins and tokens.
What sort of seed phrase should I use?
Use randomly generated 14 character + passwords. Some wallets will generate these for you and others will allow you to set them yourself. Never re-use the same password with multiple wallets.
Are my coins & tokens actually stored in my hardware wallet?
No. This is confusing for a lot of crypto newcomers. If you think of monetary coins and a wallet, your coins are stored inside your wallet, right? With crypto, your coins are kept on the blockchain. Your wallet contains the keys to access your coins and transact them. No coins are kept inside your wallet.
What is the safest crypto wallet?
As we’ve mentioned here there are are lots of types of crypto wallets – mobile wallets, web browser extension wallets, wallets held in cryptocurrency exchanges and hardware wallets. Without question hardware wallets are the safest crypto wallets to keep your coins secure. This is because the built in technology designs to provide an ‘air gap’ between access to your coins and the internet. It is connectivity to the internet that represents the largest attack risk (hacking etc) for your coins.
This is not to say that other types of wallets are unsafe – there will be times when you interact with the crypto verse that you will probably need to use all of these types of wallets. Wallets are the keys to your crypto transactions. That’s why at Crypto Wallet Reviewer we are focussed on helping you understand the best and safest wallets across all types and uses.
What features should I look for in a hardware wallet?
Screen – a screen allows you confirm and verify transactions off line (not connected to your internet). Your wallet air-gapped — which makes it harder for security to be compromised.
Secure element chip – traditionally used to protect data for high security need finance products like credit cards, you should look for a secure element chip that stores your critical keys, codes, phrases air gapped (separate from) internet connection.
A good native app – the best hardware wallets also have the best native apps with super convenient functions that allow you to transact with your crypto just like you need to transact with your fiat money. The basic functions are send and receive. The better hardware wallets will have apps that allow you to buy, stake, lend and borrow seamlessly either through their native app platform or via integration with third party services and decentralised apps. The very best hardware wallets will offer integrations that help you to avoid large on chain transactions fees like those that tend to occur on the Ethereum network because of network congestion.
After sales service – when things go awry or the device doesn’t work as described (which lets face it happens with even the best tech) – who ya gonna call?
What is a brute force attack?
It’s where your PIN is compromised by software that keeps trying combinations of numbers automatically until it hits on the right combination.
What happens if you lose your hardware wallet or it is stolen?
You can recover your coins in any compatible hardware wallet using your seed phrase. A compatible hardware wallet is one that is BIP32 BIP39 and BIP44 (a technical standard) compliant. You should do this quickly to make sure no one else has time to hack into your lost hardware wallet to access the keys to your coins.
What is tampering?
Tampering with wallets can happen during the manufacturing process or en-route to you receiving your purchase. Tampering is designed to steal your coins. Open source standards can protect against tampering during the manufacturing process – a so called ‘back door’ attack. Anti tamper seals and packaging such as holographic stickers are there to protect against tampering in the supply of your product, although counterfeiting of these types of seals also occurs. If you are worried about tampering, check out our review of the Ledger Nano, which is the only crypto hardware wallet to offer software validation of the authenticity of their hardware wallets.