Intro to Green Token Wallets
Before the rise of cryptocurrency, most funds were stored within a bank; whether that be digitally or physically. The bank had permission to move around your funds in any way they pleased as long as they had money to give back to you when you were ready to withdraw. Nowadays, if a bank fails, you are only insured up to $250,000. The money was never truly under your control. With cryptocurrency and crypto wallets this is no longer the case.
What is a Wallet?
The purpose of crypto wallets is to store your private keys, keeping your crypto safe and accessible. They also allow you to send, receive, and spend cryptocurrencies. Every account that can interact with a blockchain has a public key and private key pair. Without the private key, the funds are locked. So it is important to keep the private key safe, but still easily accessible so users can make transactions easily.
Hot and Cold Wallets
There are two main types of wallets: hot and cold. A hot wallet is an online wallet where cryptocurrencies can be exchanged quickly because private keys are stored in the cloud. This makes transactions very convenient. The downside to hot wallets is the fact that they are susceptible to malware, phishing, or other forms of hacking that can steal the private keys and thus access to your funds. A cold wallet is simply any wallet that isn’t connected to the internet. This includes writing your private keys down with pen and paper. More commonly, cold wallets hold private keys in an offline piece of hardware that when plugged into a computer, can interact with a blockchain. Cold wallets are far safer than hot wallets, but at the expense of convenience. Making transactions with a cold wallet takes more time and if you physically lose your cold wallet, your keys and access to your funds are gone forever. Some examples of popular hot wallets include Metamask, Coinbase wallet, Edge wallet, and Trust wallet. Some cold wallets include Trezor, Ledger, and the old fashioned pen and paper.
Wallet Use Cases
Hot wallets are further broken up into web wallets and desktop/mobile wallets. Web wallets don’t require downloading any software. They are solely browser based. They are great when it comes to interacting with decentralized applications (dApps) and are very user friendly. The downside is that frequent use and the nature of hot wallets makes them more susceptible to malware or hacking. Metamask is by far the most popular web-based wallet and has relatively high security. Desktop/mobile wallets require the downloading of software to access and are slightly more secure than web wallets. They are better for holding funds for longer periods of time and for receiving and sending funds between accounts with ease. These wallets have to store a copy of your private keys on your device which needs to be protected as well.
Hardware wallets are the best solution for infrequent use of funds or for holding cryptocurrency or crypto assets for long periods of time. The private keys are not stored in any additional places that need to be protected, making them the most secure option.
Security Best Practices
With total control over your own funds come a few best practices that should be kept in mind to keep your crypto safe. Private keys are meant to stay private and should never be shared with anyone. It is also recommended to keep your private keys written down in a safe place as a backup in case private keys are lost somehow. Don’t write them down in any online or offline documents. This includes in notes on your computer or phone, Word documents, or Google Drive. For maximum security, use a cold wallet to store your keys.
Conclusion
In conclusion, crypto wallets give the user full control over their own funds by giving them a tool to hold private keys to interact with the blockchain in a safe manner. There are different kinds of wallets for different use cases, all with their own pros and cons. Users can choose a single wallet they want to use or choose multiple. Wallets are part of the backbone of what makes blockchain easy to use and are important for anyone looking to get involved in blockchain technology to understand.