You have discovered Bitcoin (BTC) and cryptos recently, and you want to invest some savings by buying cryptocurrencies ? Good idea ! Before getting started, we believe it is essential to inform you of the best practices specific to this area. Indeed, if the use of digital assets offers a certain freedom, it implies a great responsibility to avoid losing everything. In this case, one of the first concepts to master is how to store and manage your cryptocurrencies safely with a wallet . If you’re staring at your old leather wallet wondering how to fit your crypto into it, this guide is for you.
In the contents of the Crypto Wallets folder:
- What is a crypto wallet?
- How does a crypto wallet work?
- What is a private key?
- What is a public key?
- How do you keep your recovery phrase safe?
- Here are some suggestions for securing your seed phrase
- Proof of Keys Day
- What are the different types of wallets?
- Hot wallet
- Wallet mobile
- Desktop wallet
- Online Wallet
- browser extension
- Cold wallet
- Hardware wallet
- Paper wallet
- What is a custodial or non-custodial wallet?
- Hot wallet
- Which crypto wallet to choose?
- How to create a wallet? Example with Coinbase
- How to receive cryptocurrencies on your wallet?
- How to send cryptocurrencies from your Wallet?
WHAT IS A CRYPTO WALLET?
A crypto wallet (or wallet) is an application or hardware device for managing transactions and storing digital assets such as bitcoin (BTC) or ether (ETH) in a secure manner. It’s the equivalent of your bank account, except you’re the banker. This function has advantages, but also risks and disadvantages that you should be aware of.
To be precise, your wallet is an interface with one or more blockchains and gives you the possibility to interact with them. It’s a bit like your web browser that translates the languages of the site you are visiting into images. Without this software, you would have to read the entire source code yourself to understand the content of the page.
Now, let’s debunk a preconceived idea that serves to facilitate the understanding of a wallet. Attention ! This revelation may be shocking, even brutal, but is essential for the rest of your experience in the crypto universe:
Your crypto-assets are not stored in your wallet.
But then, where are they? On the blockchain, of course!
On the other hand, your wallet contains something essential: your private key and your public keys .
HOW DOES A CRYPTO WALLET WORK?
We have seen that a wallet is used to read the blockchain and interact with the coins and tokens located on it. When you create a wallet, a private key is generated. Let’s look at this a little closer.
WHAT IS A PRIVATE KEY?
When you buy a digital asset, you fully own it. The private key is the element that certifies this property , when your cryptocurrency is on an associated address (public key).
It becomes obvious that you need to keep and protect this private key like the apple of your eye. If you lose it or someone takes it, you can say goodbye to your funds. Indeed, this key is not saved. There is no “Forgot password” link to retrieve it. In other words, you and only you are responsible for it.
A private key is a very long sequence of alphanumeric characters. It is generated randomly when creating your wallet. To facilitate memorization, it takes the form of a list of 12 to 24 words often taken from the “dictionary” BIP 39 , the Bitcoin Improvement Proposal 39 which contains 2048 of them .
We are then talking about:
- Seed phrase ;
- Backup phrase ;
- Mnemonic phrase ;
- Recovery phrase ;
- Safety phrase ;
- Recovery phrase .
You will encounter these synonyms on all articles dealing with the subject, even in French. You might as well familiarize yourself with these terms. Again, write down all the words in the exact order and preserve this phrase, it’s the key to your vault. If you lose access to your wallet, the seed will be essential to restore it to another medium .
The private key is also used to sign a transaction made from an associated address. A third party cannot move the cryptocurrencies located at this address, because their private key is not linked to your public key. Once the transaction has been initiated, the network will be able to verify the signature, that is to say the association of the public key with the correct private key, and validate it. To summarize, the private key:
- Certify ownership of funds ;
- Digitally sign transactions ;
- Allows to check the validity of the transaction on the blockchain .
WHAT IS A PUBLIC KEY?
We have already mentioned it with the concept of the private key. The public key is in a way the address on which you will interact with your cryptocurrencies . It is qualified as public, because it is what must be communicated to receive transactions. It is the equivalent of your e-mail address or the IBAN number of your bank account.
The public key is generated from the private key of your wallet using the SHA-256 algorithm of the Bitcoin protocol . This algorithm is one-way. This then prevents determining the private key based on the public key. You can create as many addresses as you want from the same seed. A point to which it will be necessary to pay attention: each blockchain requires a specific address format . To summarize, the public key:
- Is derived from the private key ;
- Serves as the starting and ending point for transactions .
HOW DO YOU KEEP YOUR RECOVERY PHRASE SAFE?
When noting the list of words at wallet initialization, it is best to avoid number formats:
- Text file ;
- Screenshot ;
- File kept on a cloud or in an e-mail box .
All are vulnerable to possible hacking and you can lose access in the event of a hardware failure. It is best to write your seed phrase on a piece of paper that you will keep away from fire and water. Some companies, like Cryptotag or Hodlr , even offer metal brackets to engrave yourself.
HERE ARE SOME SUGGESTIONS FOR SECURING YOUR SEED PHRASE
- Divide and rule
Break the list into chunks distributed to multiple trusted people in separate geographic locations. Make sure you can easily retrieve them when you need them. If Uncle André puts your piece of seed in the trash thinking it was an old shopping list, that’s going to be a problem. Make sure you have another backup just in case.
- Cover the tracks
Change the words of your seed, or their order, or use a code to replace letters with numbers. You can even combine all these techniques. The main thing is to remember which transformations you have applied.
- In Memorial
Learn the list by heart if you have an excellent memory. Your carbon footprint will be preserved, but in the event of head trauma, stroke or premature senility, your seed will be forgotten. The damage is less, because at the same time you risk forgetting that you have cryptocurrencies.
- Give me all that!
This may seem like a challenge, even a provocation in the eyes of some, but renting a safe in a banking establishment is a very secure alternative for storing your seed.
It’s up to you to find the solution that suits you best. In any case, discretion will protect you from a lot of covetousness.
PROOF OF KEYS DAY
This is an annual event initiated by Trace Mayer on January 3, 2019 . On this occasion, hodlers withdraw their bitcoins from exchanges to send them to their personal wallets. This is to remind all cryptocurrency holders.
« Not your keys, not your bitcoin. »Andreas Antonopoulos
In other words, if you keep your digital assets on an exchange, they don’t really belong to you since you don’t have the private key. It also makes it possible to verify that the platforms have the necessary funds and that their legitimate owners can dispose of them on demand.
Furthermore, it commemorates Bitcoin’s Genesis Block , i.e. the first block mined in 2009 by Satoshi Nakamoto , which contained BTC’s first transaction sent to Hal Finney .
WHAT ARE THE DIFFERENT TYPES OF CYPTO WALLETS?
You now know the essentials of the theory on how a wallet works . Before looking for the one that will host your cryptocurrencies, we discuss one last important concept to help you in your choice. There are a multitude of crypto wallets. The characteristics of each should be taken into consideration. We can distinguish 2 large families which come in several forms.
On the one hand, hot wallets :
- Connected to the internet;
- Easy to use;
- Relatively vulnerable to hacking risks.
On the other hand the cold wallets :
- Not connected to the internet;
- Require a physical action to validate a transaction;
HOT CRYPTO WALLET
It is an application that you download from the App Store or the Google Play Store on your smartphone. It is very easy to use and more suitable for everyday use. In particular, it allows addresses to be scanned in the form of a QR code to facilitate transfers.
On the other hand, the level of security depends on the measures you put in place to lock your phone. There is a significant risk of your device being hacked or stolen. It is therefore more prudent to keep only a small amount of cryptocurrencies. In this category, the most popular wallets are Exodus , Trust or even Coinbase Wallet , which we will present to you in detail in this article.
Also called desktop wallet or software wallet , it is installed on your computer. It is, in general, compatible with the different operating systems: Windows , macOS and Linux . Your installation should be protected with a firewall, anti-virus and anti-malware to safeguard your funds. In return, the desktop wallet is an intermediate solution between online wallet and hardware wallet. You can opt for Exodus , Jaxx or Electrum , the latter being dedicated exclusively to Bitcoin.
Some sites make it possible to manage cryptocurrency flows, without the user installing an application on their phone or computer. The practical side is to be able to access your wallet from any connected device, by entering your identifiers. On the other hand, it will be necessary to be particularly vigilant to the risks of phishing or phishing . In addition, if the servers hosting your wallet are down, you will not be able to connect to your account. The best known web wallets are blockchain.com and MyEtherWallet.com , which is dedicated to Ethereum and ERC20 tokens.
The development of DeFi has given rise to many dApps, such as decentralized exchanges (DEX). To access these services, it is necessary to use a wallet integrated into the browser. You can add such an extension to Chrome , Brave , or FireFox . The best known is MetaMask . Originally developed on the Ethereum blockchain, MetaMask allows you to add other networks and transfer tokens between different chains.
Take care to check the reliability of the sites to which you connect your wallet. By doing so, you give them access rights to your funds. This can be disastrous if the service is dishonest or has security vulnerabilities.
COLD CRYPTO WALLET
This is the most secure way to “store” your cryptocurrencies. Indeed, the cold wallet is not connected to the internet. It is therefore not very sensitive to the risks of piracy.
Hardware Crypto Wallet
Also called hardware wallet , it is a device protected by a password or a PIN code , easy to connect to a computer via a USB cable. They are chargeable, but it is an essential investment if you own large amounts of cryptocurrencies. It is advisable to buy them on the manufacturer’s site to be sure of their software integrity. Wallets sold cheaper on marketplaces can be corrupted. You risk losing the assets stored on it . The best-known models are the Trezor Model T and the Ledger Nano X and Nano S keys .
It is a printed version that contains your private key and your address with a QR code to receive transactions. Several sites allow you to create paper wallets, in particular bitaddress.org , whose generator is operational offline. All the art is then to keep your wallet safe from water, fire and prying eyes.
WHAT IS A CUSTODIAL OR NON-CUSTODIAL CRYPTO WALLET?
To know the difference between the two, just answer this question: “Do I have the private key of my wallet? » .
The majority of centralized exchanges offer custodial wallets . The advantage is that you don’t have to worry about protecting your seed, since you don’t have one. It also facilitates trading, because your cryptocurrencies are kept by the site. However, if the platform is inaccessible or hacked, your funds will be lost.
Remember the little aside on Proof of Keys: “Not your keys, not your bitcoin”.
WHICH CRYPTO WALLET TO CHOOSE?
If you’ve read the article so far (well done), you already have part of the answer. One of the most important criteria is to have access to the seed phrase of your wallet . The vast majority of crypto wallets provide the recovery phrase upon installation.
Then, find out about the security measures implemented. Is access to the wallet protected by password or PIN code? Can you enable 2FA 2-factor authentication? Are withdrawals and transactions subject to confirmation? Then, define your investor profile and the use you will have of your cryptocurrencies. This will guide your choice. For long-term storage , opt for a hardware wallet .
If you want to test several digital assets, a wallet, such as Coinbase or Exodus , will be particularly suitable. In addition to the basic functionalities, they offer services like purchase (desktop version) and exchange of cryptocurrencies within the application itself. No need to register on an exchange to make your first transactions.
Do you want to specialize in a blockchain? No worries ! Like the wines of Alsace, which are almost all monovarietal, some portfolios only accommodate one family of cryptos. BlueWallet will be the ideal Bitcoin wallet to accommodate your satoshis and transfer them at lightning speed on the lightning network . Are you a fan of Vitalik Buterin ? In this case, MEW will be your Ethereum wallet of choice.
Are you interested in decentralized finance ( DeFi )? MetaMask will be the essential wallet to explore the services developed on Ethereum. To benefit from lower transaction fees on the Binance Smart Chain (BSC), you will install Trust Wallet instead .
In short, there are wallets for every purpose, from the simplest to the most versatile. You can mix and match the solutions to cover all of your needs. A hardware wallet to buy the Lambo or finance children’s studies and a mobile application for your daily transactions. The main thing is to preserve your private keys.
Now let’s get to practice!
HOW TO CREATE A CRYPTO WALLET? EXAMPLE WITH COINBASE
It falls into the category of hot wallets . Its ease of use makes it the ideal wallet for your first steps in the world of cryptocurrencies.
How to create a free wallet easily
- Install the Coinbase Wallet App
Go to the App Store or Google Play Store , and download the Coinbase Wallet app . There is a small risk of confusion with the Coinbase application, which is also offered. This is the exchange. You can install it later if you want.
- Creation of the Coinbase Wallet
- Choose a username
What will allow your friends to send you payments
- Configure app lock
Either by biometrics or by PIN code.
- Save your recovery phrase .
Check the box “I understand that if I lose my recovery phrase, I will not be able to access my account”. Indeed, the seed is the only way to connect to the application. Touch the “Back up now” button . A list of 12 words appears, your “Recovery phrase” . You are going to save it manually “Back up manually” . Write down all the words in order and tap “Next” . Then, recompose your sentence by touching the terms one after the other. Finally, touch the “Done” button .
Congratulation ! You have successfully configured your Coinbase wallet. To view your seed phrase, touch the toothed wheel at the bottom of the screen then “Recovery Phrase” in the “Security” menu .
HOW TO RECEIVE CRYPTOCURRENCIES ON YOUR WALLET?
- On the home screen, tap the “Receive” button .
- Choose the cryptocurrency you want to receive.
- A QR code and your public address appear. Long press on it to copy it. All you have to do is paste it in the “Destination address” field of the platform where you bought your coins.
- The “Share address” function allows you to share it via any messaging application on your mobile.
Before validating the transaction, check that the address corresponds to the correct blockchain.
HOW TO SEND CRYPTOCURRENCIES FROM YOUR WALLET?
- To send crypto-assets from your Coinbase wallet to another address, tap the “Send” button .
- A blue screen appears.
- First , choose your cryptocurrency , clicking on the one listed at the bottom to view all the assets in your wallet.
- Next, enter the amount you wish to send, either in fiat currency or crypto.
- To change from one to the other, click on the 2 arrows on the right.
- The “MAX” option on the left marks the total available balance .
- Then, click “Next” to access the “Send to” page .
- Paste the destination address or Coinbase username, without the “@” in the “Search recipient” field .
- You can also right click on the viewfinder icon to scan a QR Code.
If, by mistake, you indicate an Ethereum public key when you want to send BTC, the application will warn you with an error message.
However, get into the habit of always checking that the pasted address corresponds in all respects to the one you copied. Malware could modify it without your knowledge and divert the transaction to a hacker’s wallet.
- Touch the “Next” button .
- The summary is displayed. By touching the word “Details” , the fees paid to miners who validate transactions appear. They are deducted from the amount you send.
- Finally, click on “Send” .
- The app will ask you to enter your lock code or biometric ID to secure the shipment.
You now have the essential notions to choose the crypto wallet adapted to your needs. This will help you make your first transactions with peace of mind. With experience, you will test other solutions depending on your activity in the ecosystem.