Crypto Wallet Explained
There are a number of variations of wallets. Each will be compatible with one or more of the 4 primary blockchains.
The main two blockchains are Bitcoin on the BTC blockchain and Ether,
which is on the Ethereum blockchain.
While each blockchain will have more or less the same function, they are different and separate networks entirely. The Ethereum network supports Ether and all its associated Ethereum-based assets including ERC20 tokens. All Ethereum assets will therefore reside on the Ethereum blockchain.
As with Bitcoin (BTC), if you purchase this asset, information about it will need to be stored in a dedicated Bitcoin blockchain crypto wallet. It is crucial that when you buy cryptocurrencies, you ensure you send them to the appropriate wallet that will support them. Failure to do so will result in your cryptos being irrevocably lost.
Different Types Of Wallet
These are broadly, four categories of crypto wallets and each will be covered in further separate articles. These are:
Web 3
Software
Hardware
Paper wallet
How Wallets Work
What they all have in common is that they store both your public and private keys. The public and private cryptographic keys are contained within the crypto wallet. The function of the keys is a) to track ownership and b) to receive or spend cryptocurrencies.
What Is The Public Key
The public key is your wallet address which can be seen by anyone and allows people to make or send payments to you, using that address. For example, if you bought crypto on a cryptocurrency exchange, it would automatically be deposited on that platform, into a wallet with an address provided by the exchange.
To take custody of your cryptos and your private keys, you would need to create your own personal crypto wallet. Both the private and public keys are automatically generated during this process, which is as basic as entering a very strong password and clicking on the 'create wallet' button.
When you want to transfer crypto from your exchange wallet to your own personal wallet (whether your personal preference is software, hardware or paper), you would input your public key, which is your address, in order to send the funds. For example, an Ethereum public address would start something like this 0x45............
Purpose Of Your Private Keys
The private key is a very long string of random characters, while the public key (the address) is a shorter combination of both letters and numbers.
As mentioned before, when you create a crypto wallet, you will be requested to create a very strong password and to record a seed phrase, which you will need to keep extremely safe.
The seed phrase is a set of 12 to 24 random words that allows you to restore your private key in the event you should forget your password for accessing your wallet or if you lose your device on which your wallet is stored etc., Your private keys are the only way of proving ownership of your cryptocurrencies and must be kept private and away from prying eyes.
Think about it this way: if your purse is your crypto wallet, the private key is the security LOCK that opens your purse and enables the spending of your cryptocurrency from that address.
Always keep your private key safe and be sure to make back-ups of the seed phrases as without it you will lose access to your wallet in the event you should forget your password. It is recommended that you always use several types of wallets for your cryptocurrency information in the event of one failing or getting hacked, you have a back-up.
What Is Meant by Self-Custody Crypto Wallet
To self-custody your crypto assets, you need to transfer them to your own wallet from the exchange. If you choose to leave them on the crypto exchange, you are in effect giving them custody over your assets. As they say in the business, if you don't control your own private key, you do not own your cryptos. Before doing so, you will need to decide on the most appropriate wallet for your needs. Note: I said 'transfer them'.
You are not in fact transferring your assets because they are not stored within your wallet. What you are transferring is the information about your transactions which are stored in both your private and public keys. It is this information that is in fact stored in your wallet and is recorded on the blockchain. So, cryptocurrency can move around and across the blockchain but they cannot leave it, because they are digital in nature.
3. Web3 Wallets
In a nutshell web3 (or decentralised web) is a parallel internet that runs on a blockchain, and interacts directly with blockchain-powered tokens and/or smart-contracts.
MetaMask wallet describes itself as a "bridge that allows you to visit the distributed web of tomorrow in your browser today." MetaMask is a browser extension that is both an Ethereum wallet and Web3. What this means is that you can interact with DApps right from your browser, just like you are interacting with regular websites.
Web3 wallets like MetaMask is an Ethereum and ERC20-compatible cryptocurrency wallet that therefore interacts directly with blockchain-powered tokens and/or smart-contracts. This parallel network is also home to numerous decentralised applications or DApps.
There are advantages and disadvantages to using online wallets. Online wallets are known as 'Hot Wallets' since the information stored online is prone to get hacked and is a primary concern over using an online wallet.
Remember, always use more than one kind of wallet. They can be used on lots of different devices,
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Exodus Wallet: Multi-Crypto Storage
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