Hopewell T Muchemedzi
By: Hopewell T Muchemedzi
Worth Noting:
- With this type of wallet you don’t own the crypto, the private keys are owned by a third party. Examples of custodial wallets are crypto exchanges which are prone to cyber-attacks and have a higher risk.
- Just like your bank account number, the Public key becomes your address in the network when receiving crypto. Therefore, people can share public keys when intending to receive crypto, as no hacker, even with an army of super-intelligent AI can generate the corresponding private key. To be able to unlock the crypto received, you need the private key.
- If you think it’s “save the best for last”, well yes! I am a huge fan of mobile wallets. This type of wallet is installable on your phone.
Almost similar to its Web2 cousins apple pay and google pay, crypto wallets are the new dawn in the web3 phase of the internet. Whether you are a cryptocurrency trader or a Holding on for dear life (HODL) saving for retirement. The safety of your coins needs to be the crux of your investment strategy in the cryptocurrency space. Every trick in the book will always be used by hackers and scam artists to try to reap off unsuspecting victims. There are many ways to store your crypto, depending on the amount of crypto you have stashed up and your investment strategy.
Crypto wallets
A crypto wallet is software or hardware that is used to validate transactions and protect cryptocurrencies. They’re two main types of wallets, namely custodial wallets and non-custodial wallets.
Custodial Wallet
With this type of wallet you don’t own the crypto, the private keys are owned by a third party. Examples of custodial wallets are crypto exchanges which are prone to cyber-attacks and have a higher risk.
Non-Custodial Wallets
Non-custodial wallets which I will dwell upon. The user has the keys and does not rely on any third party to manage to fund or transact. For one to receive and own crypto one needs to own the Alphanumeric Identifier or an address. With crypto wallet-generated seed phrases, a crypto wallet user is issued keys. There are two keys: private keys and public keys.
Seed phrase
If crypto software malfunctions or losing your wallet, you can recover your crypto wallet using the seed phrase. The seed phrase or mnemonic phrase is made up of a sequence of random words that keeps data used for cryptocurrency recovery on the blockchain. You should safeguard your recovery phrases and never share them with anyone.
Public Key
Just like your bank account number, the Public key becomes your address in the network when receiving crypto. Therefore, people can share public keys when intending to receive crypto, as no hacker, even with an army of super-intelligent AI can generate the corresponding private key. To be able to unlock the crypto received, you need the private key.
Private key
The private key is algorithmically made from the seed phrase and serves as a password to manage your crypto funds. It is unique to your account and is used to prove you own the cryptocurrency associated with the public key. Let me say an important thing, NEVER SHARE YOUR PRIVATE KEY. Anyone with access to that private key can access and move your crypto from your wallet. Also, no one, not even Binance or Kucoin support agents, will ever ask you for the private key.
Types of Wallets
There are various types of cryptocurrency wallets. Depending on the investment size, strategy, and choice of crypto. There are 2 main categories for wallets which are cold and hot.
Cold Wallets
With cold wallets, they keep digital assets on a platform offline. Also known as cold storage, cold wallets have two main types, which are hardware and paper.
Hardware Wallets
If you still remember the days before cloud storage, when we used to store and transfer files on a USB. Well, that’s the same idea with hardware wallets. These are physical hardware devices that are used to keep crypto. They handle both public and private keys and can connect to computers (image). This type of wallet is best for the long-term storage of cryptocurrency, also they are the most secure in the cold wallets category. The cost of purchasing a hardware wallet in South Africa, for instance, is about R2000 equivalent to USD 110.
Paper wallets
Similar to hardware wallets, they store paper wallets in a physical form as a QR-coded form of wallet. This is similar to sending mail in 2023. While from a developed world perspective, it seems primitive. It’s another option you could take. There’s zero hacking risk unless thieves steal the printed QR code. However, if the ink of the printed keys fades over time, one could lose their crypto. Also, it’s time-wasting and prone to risks, hence could be undesirable for some
Hot Wallets
These are virtual wallets that operate online to facilitate crypto transactions. They use private keys stored on a program connected to the internet in sending different cryptocurrencies. Desktop Wallets, web wallets, and mobile wallets are the types of hot wallets.
Desktop wallets
You can access the installable computer wallets offline with your keys kept on the computer. They are built to work on massive operating systems such as windows, Linux, and macOS. That comes with better features, increased safety, and easiness of doing transactions.
Web Wallets
These come as browser extension wallets. The Software for transacting cryptocurrency and storing them is installed on the internet browser. To perform crypto swaps you visit the protocols site and connect your wallet. The confirmation of the transaction is done on the wallet but set using the protocol. This type of wallet requires a healthy computer to avoid malware. Since it’s always connected online, it has a high risk of being hacked. It is a fast and user-friendly way of transacting crypto.
Mobile Wallets
If you think it’s “save the best for last”, well yes! I am a huge fan of mobile wallets. This type of wallet is installable on your phone. It uses a QR code, hence the convenience of transacting anytime. However, like desktop wallets, they are prone to virus attacks and if you lose your phone, there’s a risk of losing your crypto. Having extra security features and a safekeeping seed phrase in cloud storage is a requisite.
Conclusion
All investment strategies have one common goal, asset value appreciation. The volatility of the cryptocurrency market can trigger impromptu buy or sell decisions. Therefore, a cryptocurrency wallet should be able to provide security and guaranteed accessibility at any time. Hence having a mobile wallet is the most convenient way to keep cryptocurrency. The investment in secure wallets such as hardware wallets depends on the context of the value of the cryptocurrency. For instance, it’s absurd purchasing a 300 USD hardware wallet to store 100 USD worth of crypto. In general, for those believers in cryptocurrencies’ future, the use of hardware and mobile wallets is imperative.
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