What is a crypto wallet?

In this guide, we will introduce different types of crypto wallets and their protection methods. Crypto wallets are the foundation of Web3, and understanding how they work is essential for protecting NFTs and cryptocurrencies.

Before that, you may need to familiarize yourself with key terms related to NFTs and Web3. Let's get started!

What is a 【wallet】?

"Wallet" is an imperfect metaphor for describing a cryptocurrency/NFT wallet. The term "wallet" might make people think that protecting a crypto wallet is the same as protecting a wallet in one's pocket. Most importantly,one might think if you own a crypto wallet, others cannot own it.

A wallet is a private key.

So, what is a private key?

A private key is like a personal signature. In the real world, people usually use personal signatures to authorize documents or contracts. In the Web3 space, only you can generate this personal signature (private key), but the whole world knows how to verify your personal signature by looking at your wallet address.

More precisely, both public keys and private keys are composed of random strings of letters and numbers that are directly related to each other. Each public key can verify a private key, and each private key can generate a message that can be verified by a public key.

In Web3, the public key refers to the wallet address. Ethereum wallet addresses are composed of random strings of letters and numbers and start with "0x." Everyone can know your wallet address, but knowing your wallet address does not mean they can control your wallet.

In summary, only the private key can authorize others or yourself to have full control of the wallet. Mnemonic phrases are usually composed of 12 words and are shortcuts to access the private key and the wallet itself. That's why protecting mnemonic phrases is so crucial.

Wallet types

There are two main categories:

1.Custodial wallets

2.Non-custodial wallets

Custodial wallets are fully managed by a third party and usually do not support NFTs. Non-custodial wallets are directly maintained and protected by individuals, including hardware wallets and software wallets.

Non-custodial wallet section

Protecting anything on a computer is very difficult, especially crypto wallets. You need to consider two aspects:

1.Mnemonic Phrase: Never digitize the mnemonic phrase as an image or text file on a computer or mobile device. The mnemonic phrase is equivalent to the wallet, and anyone who knows the mnemonic phrase can fully control the wallet. It's best to write down the mnemonic phrase on paper (or metal) and store it in a safe place in the real world.

2.Private Key: Do not directly access the private key. The private key is stored within the wallet application, and the best protection method is to choose a well-known wallet application. MetaMask is a popular browser extension wallet application, while Trezor is a popular hardware wallet application.

Recommended wallet protection methods

The more often a wallet is used, the greater the risk of theft. Therefore, we recommend using at least a dual-wallet system, with a hot wallet for daily transactions and a cold wallet for long-term storage of crypto items.

Hot Wallet

In real life, people do not keep all their money in one wallet; similarly, do not store a large amount of cryptocurrency in a hot wallet in the digital world. Therefore, only keeping enough cryptocurrency for purchases in a hot wallet or storing recently purchased or planned-for-sale crypto items is the best option. The hot wallet is an everyday wallet; even if it's lost, the loss is not significant.

Cold Wallet

A cold wallet is a wallet that is not used often. It can be a hardware wallet or a software wallet stored in written form in a safe deposit box or a laptop, only used when you need to activate the cold wallet. This wallet should store all your high-value items or a large amount of cryptocurrency.

Please store your wallet properly

We recommend that you carefully read our security guide to learn about how to protect NFTs and tips for protecting your wallet when using it. Afterward, you can check the blockchains and cryptocurrencies compatible with UBOX and learn more about how to buy cryptocurrencies.