*obligatory not financial advice*
Hi,
In this series I want to explain some terms that are relevant to the amazing world of cryptocurrencies to help newcomers understand it better. Today I want to talk about Cryptocurrency Wallets.
Previous Parts:
Crypto Basics #1: What even is a Blockchain?
Crypto Basics #2: What are Smart Contracts?
What is a Crypto Wallet?
As you probably already guessed, a wallet is a place where you can store your cryptocurrencies. You need one to send and receive your coins and tokens.
However, what most people don't know is that your crypto isn't downloaded into your wallet directly. Every wallet has a public key, which is the address where you can send crypto to and from, and a private key that is basically a password for the public key. Cryptocurrencies are just a variable on their blockchain and if you own some then that means that their blockchain knows that a certain amount belongs to your address. A wallet only holds a private key or password to access the crypto of an address and uses it to inform the blockchain that you are making a transaction.
Using a wallet is nowhere near as complicated as this makes it sound. You only need to download the software of a wallet and import your private key, or create a new one, and then you can send crypto to and from this wallet.
There are different types of wallets that you can use. A Browser Wallet, like MetaMask, can be downloaded as a browser extension and allows you to interact with various dApps and applications on a smart contract blockchain like Ethereum. A mobile wallet, like TrustWallet, can be downloaded as an app on your phone which would allow you to make payments with your crypto while you are going out and some of them can also be used to interact with dApps.
Browser and mobile wallets store your private key directly on your computer or phone, which can be a risk because someone could drain your funds if they hack your device. That’s why the safest way to store your crypto is with a hardware wallet, like a Ledger. With them you can store your private key on a separate device that is much harder to attack. However, it is also more difficult to use dApps and quickly send funds from it, which is why they work best for a long term "hold and forget about it" strategy.
Regardless of which wallet you choose, you have to make sure that it is non-custodian, which means that only you have its private key and only you control it.
Your private key can take the form of 12 or 24 seed phrases and it is absolutely important that you write them down and store them somewhere safe because you would need it to restore your funds on a new device should you lose your wallet. For the same reason you should never share it with anyone because they could use it to access the funds on your address. You can safely share your public key, in fact you need to share your address so that other people can send you crypto, but your private key is a private key for a reason.
I hope that short explanation was helpful for some newcomers. I will keep writing more such short articles about various crypto terms. Feel free to follow me if you are interested.
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