Cryptocurrency Wallets

👛 Where do you keep a digital asset? How do you protect your crypto? Let’s explore an essential part of owning cryptocurrency: storage and wallets!

What is a Crypto Wallet?

💾 A crypto wallet is a digital tool or physical device that helps you store, manage, and use your cryptocurrency, much like a real wallet holds your cash and cards.

It can be in the form of software, hardware, a program, or a system. It stores public and private keys and interacts with a blockchain. To properly protect your crypto, you will need to store it in a wallet, either online or on a physical hardware device.

To the naked eye, a “key” looks like a series of randomly generated letters and numbers. Using these keys, you can send, receive, and check the balance of your crypto.

What are Public and Private Keys?

• 🔐 Private Key: Think of your private key as your secret password to access your cryptocurrency. It's a long string of random characters known only to you. Just like you wouldn't share your bank account password, you must keep your private key safe and never reveal it to anyone else. If someone gains access to your private key, they can control your cryptocurrency.

• 🔐 Public Key: Your public key is like your bank account number. It's a unique identifier that you can safely share with others. With your public key, people can send you cryptocurrency, much like they can deposit money into your bank account using your account number. However, unlike your private key, the public key cannot be used to access your funds or make transactions from your wallet.🤨 

Who Holds Your Crypto?

Depending on the type of wallet, who has custody of your crypto can change! 💳 Wallets are either custodial or non-custodial, here’s the difference:

• Custodial wallets are hosted by a third-party (like a crypto-exchange) that store your keys for you.

• Non-custodial wallets are wallets that gives only you full responsibility and access to your crypto through your own keys.

WARNING! If you use a custodial wallet and the exchange that holds your keys goes out of business, you could lose access to all of your crypto.

Non-Custodial Wallet Types

There are two types of non-custodial wallets you should know…

• Software (aka hot wallets): These are wallets that are connected to the internet and are the less secure option. 🌐 Once you download and set-up your software wallet, which includes creating your private key, you’ll need your private key to access your wallet every time. 🔒 Lose your key and your crypto gets locked in the wallet forever.

• Hardware (aka cold wallets): These are wallets that are not connected to the internet, so they are more secure than hot wallets. 💻 They are basically a USB stick that stores your keys. To access a hardware wallet, you need to use your private key, so make sure not to lose your key! 😱

🙂 Most beginners use software wallets to invest in crypto until they gain enough wealth (or enough money that you’d be sad to lose) to need that extra security a cold wallet offers.

Want to some more details on how to buy crypto, crypto taxes, setting up a wallet and more? 😎 Check out our courses!

⚠️ Important Details…

• Cryptocurrency is stored in a database on a blockchain (ex: Bitcoin is stored on the Bitcoin blockchain). 🔗

• 👋 If you accidentally transfer your crypto from an exchange to the wrong wallet address, it’s gone forever!

• Most major exchanges offer hosted wallets (aka custodial wallets), so when you buy crypto on their exchange, your crypto is automatically held on a hosted wallet. 📩

• 👍 If you forget your password for your crypto in a hosted wallet, you won’t lose your crypto.

We hope your knowledge of wallets has expanded, but let us know if you have any questions or suggestions for the next blog!

_{DISCLAIMER: This is not financial or legal advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions.}