“I don’t carry a wallet. I keep my cards in my pocket and cash in my boots.”
- Jackson Rathbone
In the traditional digital world, a ‘wallet’ is owned and controlled by a central payment entity which has your funds like the PayTM, PayPal, AliPay, etc. The central entity has funds which are stored with the entity in their bank account which is used when you use the wallet to pay.
In the crypto world however, a wallet does not hold your funds. The term ‘wallet’ is confusing, and people bring a lot of assumptions about this word depending on their experiences inside and outside the crypto-space.
“At a high level, a wallet is an application that serves as the primary user interface. The wallet controls access to the user’s money, managing keys and addresses, tracking balance, and creating and signing transactions”
What does a wallet do?
Your wallet in to crypto world don’t store any money but instead store your ‘private key’. A private key is essentially a signature that is used to ‘sign’ transactions on the blockchain.
Here is how a bitcoin private key looks like
When a user wants to transfer tokens from one wallet to another, the wallet interface uses
- the APIs extended by the core blockchain protocol
- your private key
- the address you want to transfer too
- your address
and submits a transaction to be written on the blockchain. Without a wallet, you can’t receive, store, or spend your tokens
You can think of a wallet as your personal interface to the blockchain, similar to how your online bank account is an interface to the regular monetary system.
How can i get a wallet?
“One can understand a person by the way he uses his wallet and takes money out of it“
- Boman Irani
Getting a wallet is step 1 in getting a cryptocurrency. For most users their first wallet is created on the exchange they first buy their cryptocurrency from. However, as described here, storing your tokens on an exchange is not the best idea. Fortunately, there are multiple options available for users to create wallets across different platform. A few options are:
- Online wallet: Online wallets are the simplest way to store your tokens but also it’s least secure of them all. When ever you register and trade on an exchange, the exchange by default creates a wallet for you.
- Mobile wallet: Mobile wallets are app-based wallets which are easy to use and always accessible. In most cases, mobile wallets can also be restored even if the phone is lost/reset. These wallets typically ask you to store a ‘seed’ which helps in regenerating your keys
- Desktop wallet: Just like a mobile wallet, desktop wallets are applications you can download on your computer.
- Paper wallet: A paper wallet is probably the easiest way of storing your keys and keeping them safe at the same time. Simply take a is a piece of paper and write down you private and public keys on it store it in a locker. You can use a few online tools to send and receive tokens using both keys.
- Hardware wallet: Hardware wallets are small computers or smartcards built with the sole purpose of generating cryptocurrency private keys offline. Hardware wallets securely sign transactions in the same offline environment. Using them for generating, storing and using your keys is one of the best ways to keep your tokens safe.
Here are some popular wallets for various currencies
- Bitcoin: Trezor, Keepkey , Ledger , Case, Blockchain, Jaxx, Mycelium, breadwallet, Electrum
- Ethereum: MyEtherWallet, Ledger , Jaxx , MetaMask, Shapeshift, Mist, KeepKey
- Ripple: CoinPayments, Ledger ,BitGo, Toast Wallet, Exarpy, Rippex
- Stellar: Stellarterm, Ledger, Astral, Stellar desktop wallet
How do you keep it safe
In order to keep your wallet safe you need to limit access to it and follow basic safety measures to keep you account from getting compromised.
Broadly there are 3 ways you can lose your tokens:
- Account hacked: The most common way in which you can lose your money is if you yourself unknowingly give away access to key information related to your account. This is true not only for crypto-tokens but more so for fiat account.
- Exchange hack: Not all crypto-exchanges are secure. Not all of them are out there to keep your money safe. Few of them actually even know how to. As centralized exchanges become bigger and bigger, the chances of them being hacked keep increasing.
- Lost keys: James Howells of Wales is one of the Bitcoin community’s most tragic figures and for a good reasons. Howells inadvertently tossed a hard drive containing 7,500 bitcoins, which he had mined back when they were worth very little. His bitcoins today are worth ~$75 Mn.
Interested in knowing more about keeping your tokens safe? Continue to read on the link below!