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January 11, 2022

How crypto wallets work and which one is best for you

How crypto wallets work and which one is best for you.

Although they are called wallets, crypto wallets are more like your bank account. And like that bank account, they allow you to accept transactions from anyone using the same blockchain, meaning you will need a different wallet for Bitcoin than Ethereum and so on.

Let’s understand what these wallets actually do: They are essentially nothing more than what is called a public address and a private key. Think of those as the same as your account number, and your online banking password: People can send money to your address or account number without your permission, but in order for funds to leave your account, you’ll need your private key or password.

Ever heard of those people who lost Bitcoins worth a fortune? You guessed it: They lost their wallet, and in it their private key.

So how do you choose a wallet you can’t lose? There are many options.

You could simply print out your address and private key and put it into a safe location - that’s called a paper wallet, but isn’t very practical for most people and the information is easy to steal if you leave it out in the open.

A variation of the paper wallet is a hardware wallet: A little USB device that saves those keys, but can be locked with a password or fingerprint. But you have to carry that with you wherever you want to use it.

Another option is a little program, such as Metamask, that works directly in your browser. It’s a good middle-ground: Operated by you, but on your computer and ready to use when you need it.

And lastly, the most popular wallet is the online wallet, often provided by an exchange. They will create and operate your wallet on their servers. That’s very convenient, but the risk is that they can get hacked, or even just take your money and run.

And now you know more about wallets: Just make sure you don’t lose them!

Disclaimer: This podcast references our opinion and is for information purposes only. It is not intended to be investment advice. Do your own research and seek a duly licensed professional for investment advice.

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