What is a Crypto wallet? | Part 7

 We explain what a crypto wallet is used for, different types of wallets,  how to properly transfer cryptocurrencies between wallets, and the difference between hot and cold wallets.

A crypto wallet is a device, program, or service that stores the public and private keys for cryptocurrency transactions. Unlike a regular physical wallet, the wallet doesn’t store the actual cryptocurrency. Rather it acts as a gateway to give you the access to communicate to the blockchain. 

A wallet generates a private and public key. Let’s say Tanya  wants to receive Bitcoin, the public key generates a unique Bitcoin address that looks something like this 1BvBMSEYstWetqTFn5Au4m4GFg7xJaNVN2. If Sheila sends Tanya Bitcoin, she will send it to the Bitcoin address. 

Coins never leave the blockchain. They’re just transferred from one address to another. It’s safe to share the public key with other people but you should never share your private keys with anyone. The private keys sign new transactions and provide access to your funds. So even if you lose your phone or computer, the keys can give you access to your crypto assets. It’s safest to have a hard copy of your keys rather than saving it online or even on your computer offline. If anyone has access to your private keys, they can steal your assets. 

Most modern wallets use a seed phrase, which is a random set of words, to generate multiple private keys. So you only need the seed phrase to access all of your crypto assets. 

Sending and receiving cryptocurrencies between wallets

No matter what type of wallet you use, it’s very important that you have the correct wallet address if you want to transfer cryptocurrencies. If you make a mistake entering a recipient wallet address, the asset will be lost because the transaction can’t be recovered or reversed. We recommended that you practice sending small amounts like $20 worth of cryptocurrencies until you get used to the transfer process before sending large amounts. 

Different cryptocurrency assets will have their own unique wallet addresses. You can’t send Bitcoin to an Ethereum wallet address and vice versa. For example, my MetaMask wallet is used to store my Ethereum assets and the address is this 0xC1bKe5BFDBf80A17d9Bpd0EA3T8B82e1be53aE9. But if someone tried to send me Cardano, Bitcoin, or any other crypto to this address, the assets would be lost. 

Wallets usually provide instructions on how to properly transfer cryptocurrencies. Here are some examples from the Shakepay wallet. 

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Hot and cold wallets

Wallets can be defined as hot or cold. A hot wallet is any wallet connected to the internet. An exchange wallet like Binance or Kraken are examples of hot wallets. A cold wallet is a physical device that stores keys offline, which is much safer and more resilient against hackers. Cold wallets are also called cold storage.

The more common types of crypto wallets are:

  1. Software wallets 
  2. Exchange wallets
  3. Hardware wallets

Software wallets

These types of wallets can be a desktop wallet, mobile wallet, and web wallet.  

Web wallets can be used on a browser and there is no need to download or install anything on the computer. Some examples include Cobo Wallet and Exodus.

A desktop wallet is a software that needs to be downloaded and run on the local machine. These are safer than web wallets. Some examples of a desktop wallet are Electrum, Bitcoin Core, and Atomic wallet. 

Mobile wallets are designed as mobile apps. Examples include TrustWallet and Mycelium.

Exchange wallets

When you make an account on a cryptocurrency exchange like Binance, Kucoin, or Coinbase, these exchanges have built-in wallets. Each cryptocurrency will have their own unique wallet addresses. For example in Binance, if you want to receive 2 different cryptocurrencies, the wallet will provide two different addresses. Here are two examples.

Here is the address to receive Cardano and instructions on how to send it properly. 

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Address: 49nneJnjknNkE5bbnEnkjr90303benNKbEkRNKROIuooror43

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If someone wants to transfer me Shiba Inu crypto to my Binance wallet, I would give them this address: 

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Address: 0x58y74803530ided850dc502nrnneePeu737

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It’s important to choose the right network when you send crypto between wallets. Many cryptocurrencies will have more than one network option and usually the exchange will give instructions on which network is recommended. For example, if I want to transfer some Bitcoin from my Kucoin wallet to Binance, Kucoin recommends I use the BTC network: 

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Hardware wallets

These are physical electronic devices that generate random public and private keys that are stored in the physical device without any connection to the internet. This is the most secure way to store crypto, especially for long term holders. Leaving cryptocurrencies on exchanges or hot wallets have a greater risk of being hacked. The most recommended hardware wallet is Ledger. 

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