Crypto Wallets for Beginners

Everything has a unique role to play… For example, for fiat money, there is a wallet into which you can fold up and put banknotes. With digital money (aka cryptocurrency) this scheme does not work. Unfortunately (or fortunately), you can’t “stack” bitcoins. But where to keep crypto? And, more importantly, where is it safe?

If the answer immediately comes to your mind in the form of “exchanges,” we have something to share with you. How about “swapping” the exchange for a crypto wallet (spoiler: it is safer)? If you are just getting into the topic of crypto or have already taken your first practical steps, the comprehensive guide prepared by OneArt can help you master another concept — a crypto wallet.

Quick Take:

  • What a crypto wallet is and how it functions
  • A private key, public key, address and seed phrase — what’s it all for?
  • Cold and hot wallets have their own pitfalls
  • What are they like, feature-rich present-day crypto wallets?
  • Which wallet is best for you
  • How to protect a crypto wallet up to 100%.

Crypto wallet: a place for secure crypto storage

Definition: a cryptocurrency wallet is a place to hold your public and private keys, which, in turn, provide a gateway to your crypto assets. In addition, they enable you to send, swap, and receive cryptocurrencies. Notice that a crypto wallet does not deposit your savings, but rather the keys with which you can access your assets kept on the blockchain.

To refresh: Blockchain is a highly secure open ledger that keeps track of all cryptocurrency transactions, i.e., sent, received, exchanged crypto, and also current balance.

How does this non-bank system operate?

For clarity, we can draw an analogy with an ATM. An ATM is an intermediary between you and your funds stored in the bank, which are available to you after you enter your password. If we put this into a crypto-theme, it means that your wallet is also an ATM — a portal to blockchain-driven funds.

The blockchain keeps a record of all transactions, balances, and data about who holds the key to a particular blockchain address. The wallet itself only acts as the custodian of your address with all the info. But unlike an ATM and your savings, which are controlled by the bank, you manage your wallet and assets by yourself.

To securely and conveniently control your digital money, as well as to send and receive crypto from other users, there are the main wallet instruments: a private key, public key, address, and seed phrase.

The main components of a crypto wallet

In most cases, when you create a wallet, the following irreversible algorithm is automatically activated: seed phrase → private key → public key (address). Now let’s go over everything in order.

Private Key

This is your coveted key to the chest with your gold. If you give the key to someone, you can forget about the gold. And this is not a fairy tale, it’s reality.

A private key is the only way to keep your crypto holdings within your reach. If you lose it, you lose access to your savings, and therefore the savings themselves.

You can compare it to the password you enter to display a balance on your card. However, to authorize any transaction (sending crypto, for example), your wallet uses a private key, not a PIN. It’s a set of random symbols that the wallet leverages to approve the transaction. With the key, you theoretically sign the transaction, which is then documented in the blockchain.

Such a login scheme is more secure than a password-based one. So, hackers can’t get your secret key by breaking into the websites you visit. However, they can gain your password with which you log in to the site.

Note: When you create a wallet, you may be asked to create a PIN. It is the password to activate the wallet (app, for example), but not access your funds.

Public Key

The public key (open) can be seen by everyone — it’s the address to which money is sent. Technically, it is also a random symbol string, generated through a special algorithm involving the confidential key. However, if you can decrypt the public key with the secret one, the reverse scheme does not pan out. So, you can distribute your public key to hackers without fear of them decrypting your private key (but it’s better not to).

Together, the keys are used to decrypt or encrypt data regarding any transactions on your address (account).

The difference between a public key and a private key in carrying out a transaction.

The open key encrypts the message, while the closed — decrypts it.

The process of launching a transaction begins with its encryption, where a public key is mainly involved. The encrypted transaction is then verified by the network manager, which checks for a digital signature before approving the transaction. The private key is used to create the signature, decrypt the message, and “approve” the transaction.

Address

Your crypto address is your identity in the blockchain network. It is like an Instagram username or an email address: you can have as many as you wish.

An address is the third string of characters generated from a public key via the hash feature. Therefore, we can say that an address is a public key that has gone through a simplification and shortening procedure. It helps to identify your account. For example, if you send cryptocurrency to another user, your address informs validators from which account the cryptocurrency is sent. In addition, the address is also used to get crypto.

Seed phrase

Again, once you set up your wallet, you will receive a recovery phrase or seed phrase (in most cases). This is your “fallback” that you can utilize to re-access your account at any time.

This is a sequence of chance words produced by your wallet. Being a lifeline in case you lose your wallet or your device breaks it also enables you to reach all the cryptocurrencies in that wallet. As long as you possess this phrase, you can’t lose access to your wallet.

Note: A private key is usually a gateway to one address only, while a seed phrase — to the whole wallet, which may contain a number of addresses.

Crypto wallet types

Hot crypto wallets

The main difference between hot wallets and cold wallets is the connection to the Internet: the first one works online, while the last one does not require access to the network.

Examples of hot wallets:

  • Mobile app
  • Web (browser extension)
  • Desktop.

Blockchain is still considered a technology with increased security due to decentralization and consensus. However, like any technology, it is also susceptible to security attacks. Network vulnerabilities are quite common. Since hot wallets store and encrypt your keys online, funds stored in such wallets are more accessible to hackers, who can use hidden network vulnerabilities and malware to compromise the application. It’s easier for them to gain access to your profile compared to cold ones.

Such widely used browser wallets as MetaMask and Phantom have not escaped the vulnerability, while users of the no less popular TrustWallet have also become victims of fraudsters. Losses from the hacking of more than a thousand Solana wallets amounted to about $8 million. To solve this problem, wallet providers need to add additional security layers and techniques, which we, at OneArt, are doing.

Nevertheless, hot wallets continue to be in demand because of their mobility and ease of use, especially for frequent transactions.

Pros:

  • Easy to jump into
  • The possibility to regain access to savings
  • Easy to do trading and access to funds
  • Low cost (most are free).

Cons:

  • Attack exposure
  • Partial control over savings
  • Higher probability of losing access to funds.

Cold crypto wallets

As mentioned above, cold wallets run offline.

Examples of cold wallets:

  • Paper
  • Hardware

A piece of paper or metal is much safer to store your assets (keys to them) than if you store them online. Given the frequent attacks on hot wallets, more and more users are opting to use cold wallets, particularly hardware ones.

A hardware wallet is an external device (such as a USB) that keeps your keys. The transaction is signed by pressing a button on the handheld device. Thus, only you have ultimate control over both your keys and your holdings. The security of your savings is now solely your responsibility.

The global hardware wallet market is reported to have reached a value of about $252 million in 2021 and is expected to hit $1.1 billion by 2027 or show a CAGR (compound annual growth rate) of 27.2%. The surge in demand for handheld wallets was especially felt amid the recent crypto winter, which forced some crypto-related platforms and exchanges to suspend withdrawals.

The increasing interest is also observed in the investors’ activity. For example, hardware wallet maker Ledger plans to raise $100 million. “Ledger’s business is still growing at a time when lenders and exchanges are having well-known liquidity issues”, as per the source.

Cold wallets are more appropriate for storing large amounts of assets, but they can be inconvenient to use when making regular trades, so it’s better to prefer hot wallets in that case.

ProTip: It is more convenient to have both a cold wallet and a hot one, as they are suitable for different purposes. However, in any case, it is better to keep the keys off the Internet or use a safe to hold the hardware for increased security.

Pros:

  • Safer
  • You are in complete control of your savings.

Cons:

  • Costly
  • Harder to use when trading
  • Not user-friendly.

Custodial and non-custodial

The wallet in your exchange account is also a custodial wallet. The main reason they are chosen by users is their easy-to-use nature. On top of that, it’s simple to regain access to the wallet account. However, with such a type of wallet, you lose full control over your keys (and thus your money), since the confidential keys are provider-controlled. Besides, being connected to the network makes custodial wallets more attack-prone.

At the same time, hot wallets are often non-custodial like the OneArt Wallet, which means you are in full control of your funds.

Crypto wallets tend to be feature-rich

A standard wallet allows you to do three main things: store keys, send and receive cryptocurrency. But the lightning-fast development of the crypto-industry encourages companies to build more versatile solutions. For example, some wallets even allow users to purchase and sell crypto. Some crypto wallets offer token swapping, staking and access to dApps (decentralized applications) powered on different networks.

What can present-day crypto wallets offer?

  • Keep all keys in one place
  • Manage all your crypto assets
  • Trade crypto
  • Engage with other wallet owners (aka users)
  • Browse dapps
  • Create, store, and share NFTs.

At the dawn of Web3, some wallets, like OneArt’s one, have gone even further: the team plans to add so-called social features to the standard wallet functions. For example, creating a crypto profile, following profiles based on interests, converting fiat money into crypto and back, and tools for Influencers to generate a simple format of interaction with the audience.

However, with already more than 80 wallets on the market (and counting), users still face several wallet-related problems. We have a separate guide to some of the most significant issues with wallets, where our team suggested ways to solve them.

Therefore, the problem of a straightforward user interface is still uncovered, and the lack of customer support only fans the flames. After all, if a wallet does not provide a marketplace overview, multi-blockchain support, security, and interoperability, then having customer support will hardly help matters.

Choosing the best wallet for You

Since the market is swarming with wallets, it doesn’t get any easier to choose the best one. And while over time, hot wallets are becoming increasingly multi-functional with multiple coin support, each is designed for a specific purpose. Before settling on a particular wallet, ask yourself the following questions:

  1. Does the wallet handle the coins that interest you?

More and more wallets are becoming multi-coin and multi-network, but it’s not unreasonable to check if the wallet you like supports the coins you own (or will own).

2. Do you want to store currency or to trade?

For storing large amounts of assets, it would be safer to use a hardware wallet. If you are going to make periodic payments and drop assets into circulation, an online wallet would be more convenient.

3. How much are you willing to pay?

Mobile wallets are often free, but the price range for USB wallets starts at $50 and up.

4. What do you want to do with your wallet?

Only store keys? Only make transactions? Or both? Today, the functionality of some wallets goes beyond just holding and performing transactions. It’s a portal into Web3 — a world where users control their data and integrate with the cryptocurrency communities of interest.

The OneArt wallet iOS version has already been out this summer. Multiple network compatibility, enhanced security, crypto and NFTs storage, sharing, and creation are some of the wallet’s basic features. This is a kind of foundation, on which the team plans to build a portal to Web3: social features with a crypto profile as a central node.

OneArt tips: how to secure your wallet up to 100%

As of July 2022, hackers had stolen $1.9 billion worth of cryptocurrencies, up from about $1.2 billion in 2021, as per Chainalysis. Indeed, most wallets aren’t safe.

The problem of wallet security is still one of the most significant. “Crypto-purse sharks” like TrustWallet, MetaMask, Solana, and others are also falling under the wave of insecurities. However, it is your prerogative to ensure security as well. How can you protect your funds as much as possible? Here are a few minor tried-and-true tips:

  1. Remember about VPN

Before logging into your wallet or making a transaction, it’s best to use a virtual private network. Avoid connecting to public Wi-Fi.

2. Protect your wallet from all sides if possible

2FA (two-factor authentication), additional passwords, or the use of “multisig” wallets (wallets with multiple signatures) will help enhance security.

3. Copy and double-check the address

When sending or receiving crypto, copy the address, if possible, rather than entering it by hand. Otherwise, human error (or wrong address) can cost you a financial loss. Once a transaction is made, there is no way to get it back.

4. Don’t keep everything in one place

Use multiple wallets and don’t keep all your savings in one. It is better to pick non-internet-accessible wallets for safekeeping.

5. The backup may one day save your money

Make copies of keys and passwords and put them in the safest place. And, of course, never show your private key to anyone.

Is your safety in your hands?

That’s partly true, but if your wallet providers haven’t taken care of enhanced security and a “contingency plan” from the start, then the 2FA you set up may not save you from loss in the case of a cyberattack.

More than 97% of respondents to the OneArt survey said they would use a new wallet if it was secure in the first place. That’s why we emphasized not only convenience and cross-blockchain support but also security in our branded OneArt wallet. And that’s just the beginning.

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