This article will help you understand what a crypto wallet is, as well as its components, how it works, and how crypto wallets are categorized.
What is a Crypto Wallet?
A crypto wallet is software that stores public and private keys on the blockchain, while also providing an interface that allows users to access, manage, and track their cryptocurrency balances. In other words, a crypto wallet is software for users to interact with the blockchain network
However, in reality, crypto wallets do not store the user’s assets (coins/tokens) inside them. Instead:
- Cryptocurrency remains on the blockchain network.
- The wallet is merely a tool that allows users to access and use the cryptocurrency they hold, through a pair of keys: the public key and the private key (or passphrase).
The following section will explain these components and how they work.
Components of a Coin Storage Wallet
When a user sets up a crypto wallet, the blockchain system generates a pair of keys linked to the wallet, including a public key and a private key. Additionally, some wallets will provide users with a passphrase, also known as a secret recovery phrase, seed phrase, or mnemonic.
These pieces of information are immutable and cannot be changed.
Public Key & Wallet Address
A public key is a string of alphanumeric characters encrypted based on cryptographic technology. Users can share it publicly and receive crypto assets to their wallet through the public key. No one has the right to access the wallet and use the assets inside unless they have the private key corresponding to that public key.
However, a typical public key is very long and complex, causing inconvenience for users. Therefore, when applied to crypto, they have been shortened into a more concise version called a wallet address.
Thus, a public key is often seen as the user’s identifying address on the blockchain network, corresponding to their wallet address.
For example:
- A public key has the format: 0x04345f1a86ebf24a6dbeff80f6a2a574d46efaa3ad3988de94aa68b695f09db9ddca37439f99548da0a1fe4acf4721a945a599a5d789c18a06b20349e803fdbbe3
- It will be shortened into a wallet address in the form of: 0xd5e099c71b797516c10ed0f0d895f429c2781142
Private Key
A private key is a string of alphanumeric characters used to decrypt the public key and access the wallet address. This means that:
- Each public key comes with a unique private key.
- Only the person who owns the private key can decrypt the public key and access the assets inside the wallet.
- A user who holds the private key can retrieve the public key, but the reverse is not true. This means that if a user only has the public key, they cannot retrieve the private key.
A private key typically looks like this: 5Kb8kLf9zgWQnogidDA76MzPL6TsZZY36hWXMssSzNydYXYB9KF
Therefore, the private key is considered the “key” to the crypto wallet and is often required to be kept carefully and securely. At the same time, avoid sharing or showing the private key to others as they will be able to access the wallet and use the assets. Losing or revealing the private key means losing the money permanently.
To put it simply, if we compare a crypto wallet to a bank account:
- The public key acts as the bank account number.
- The private key acts as the password to log in to the account. The difference is that the bank password is created by the user and can be changed, while the private key is generated by the blockchain and is immutable, unchangeable.
Passphrase (Seed phrase)
A passphrase, also known as a secret recovery phrase, seed phrase, mnemonic, etc., is a set of English words (12 or 24 words) that allows users to access or restore previously created crypto wallets.
Typically, a passphrase will be provided when creating a multi-chain wallet, and it acts as a “master key” for multiple private keys.
To explain this, a multi-chain wallet is a collection of multiple crypto wallets on different blockchains. They may have the same wallet address, but in essence, they will have different public keys and private keys (corresponding to each wallet on each blockchain). For convenience of management, multi-chain wallet applications will provide a common passphrase for all the wallets within it.
In other words, the wallet will use the passphrase to generate multiple private keys, corresponding to the wallet addresses on different blockchain networks. Through the passphrase, users can unlock and access multiple different wallets at the same time.
For example, a passphrase will have the following format: convince between inside solve into slam labor warfare demand song october tram.
Therefore, the passphrase usually acts as a backup or recovery mechanism for the user’s crypto wallet, in case they lose access to their device.
However, depending on the decryption mechanism in different wallets, the passphrase will produce different wallet addresses.
For example, with the same passphrase above, but:
- Entering it into Trust Wallet will produce the wallet address: TPza8tkcTfGa4XzyZoMbGEjpuyaBUJBsN9
- Entering it into Coin98 Super Wallet will produce the wallet address: PLza5cklTfGa4XzyZoMbGEjpuyjshfkHFHS9N9
Because the two wallets have different decryption mechanisms, they will produce different wallet addresses, which means that the public key and private key will also be different. This can lead to users not accessing the correct wallet and their assets. Therefore, an important note is to remember or carefully note which wallet your passphrase was generated from.
The advice is to store both the passphrase and the private key to guard against all possible situations. Currently, most coin storage wallet applications allow users to view their passphrase and private key when needed.
Learn more: How to Store Private Key & Passphrase Safely.
How Crypto Wallets Work
The main purpose of a crypto wallet is to provide users with a more user-friendly interface to connect with the private key. Furthermore, as mentioned earlier:
- Crypto wallets do not store crypto assets.
- Crypto assets reside on the blockchain network.
Essentially, a crypto wallet only stores the private key to authenticate information about which public key address on the blockchain network the cryptocurrency is located on. Accordingly:
- The crypto wallet stores the private key and user information.
- While the public key resides on the blockchain. Therefore, anyone can use the public key to check the balance and all related information. However, the private key is required to access and use the assets.
Through the encryption and decryption mechanism of the public key and private key, crypto wallets can operate securely to authenticate balances or perform signing transactions to send and receive cryptocurrency.
Accordingly, when a user wants to send cryptocurrency, the wallet will usually require a digital signature (sign transaction) to complete the transaction. In essence, at this step, the user is using the private key to prove the transaction is valid and confirm that they are the sender of the crypto assets.
After that, the nodes on the blockchain will verify and record the transaction information on the blockchain. At this point, the cryptocurrency will be located on the public key of the recipient’s wallet.
Read more: Guide to checking crypto wallet transactions on the blockchain.
Types of Crypto Wallets
Based on how the private key is stored
Based on how the private key is stored, crypto wallets are classified into two main types:
- Hot wallets: Store the private key in an online environment, meaning an internet connection is required to access the wallet and use the assets. Hot wallets can be web extensions, mobile apps, or desktop applications. Additionally, hot wallets are more convenient because they can easily interact with decentralized applications (dApps), smart contracts, etc.
- Cold wallets: Store the private key in an offline environment, without the need for an internet connection to access the wallet and manage assets. Cold wallets are typically physical devices such as hardware (also known as hardware wallets), paper documents, CDs, etc. Cold wallets cannot directly interact with dApps or smart contracts, but they offer much higher security compared to hot wallets.
Hot wallets are further divided into two types based on the control of the private key:
- Custodial wallets: The private key of the wallet is managed by a third-party service provider. Examples: wallets on Binance, Bybit, Crypto.com, etc.
- Non-custodial wallets: The private key of the wallet is managed by the wallet creator. Examples: Coin98 Super Wallet, Metamask wallet, Trust wallet, etc.
In addition, there are also Social Login wallets in the market – a type of non-custodial wallet that allows users to create and access crypto wallets more conveniently, by using their social media login information such as Facebook, Gmail, Apple ID, etc. However, because of the involvement of a third party, which is the social platform, the security of Social Login wallets is often more limited.
Some examples of Social Login wallets include Ramper Wallet, Pulse Wallet, Torus Wallet, etc.
Based on Supported Blockchains
Based on the number of supported blockchain platforms, crypto wallets are divided into 2 types:
- Multi-chain wallets: Support multiple different blockchain digital assets simultaneously. Multi-chain wallets make it easier to manage crypto assets because they only require storing 1 passphrase for multiple wallets. Example: You can create and manage multiple multi-chain wallets on the Coin98 Super Wallet.
- Single-chain wallets: Can only store, send, and receive coins or tokens of a specific blockchain. More secure than multi-chain wallets. Examples include Viction Wallet, Bitcoin Core, etc.
How to Create a Crypto Wallet Easily
Hot wallets are often convenient, easy to use, easy to access, and cost significantly less than cold wallets, so this section will guide you on how to create a crypto wallet on a hot wallet.
However, for those new to the crypto market, accessing the Web3 world often faces many difficulties because it is still quite unfamiliar, especially from the first steps of creating a crypto wallet.
Therefore, users can:
- Use a Social Login wallet like Ramper to gradually get acquainted with Web3. After getting used to using a wallet in Web3 with Ramper, gaining more knowledge about the market, and becoming aware of security-related risks, users can restore the wallet from Ramper to another non-custodial wallet like Coin98 Super Wallet to enhance their experience in Web3 with a variety of features and applications integrated across multiple chains (multi-chain).
Note: Regardless of the wallet, in essence, they still have a pair of public and private keys. Users must store the private key carefully to be able to restore the wallet, in case of phone hacking, social media account hacking, etc.
Creating a Crypto Wallet Using a Social Media Account (Social Login)
Let’s take Ramper wallet on mobile as a specific example.
Step 1: Download the Ramper wallet from the App Store (here) or Google Play (here).
Step 2: Register the wallet using your Gmail, Facebook, Apple ID, or email account. Here, I choose Gmail.
Step 3: Set up a Passcode to enhance wallet security. Users can set it up immediately when creating an account or set it up later
Additionally, users can enable/disable the Passcode according to their security needs by selecting Discover, then selecting Security & Privacy, and checking the Passcode box to enable/disable.
Read more: How to Revoke Crypto Wallets to Avoid Losing Money Unnecessarily.
Top Reputable Crypto Wallets
Hot Wallets
1. Metamask Wallet:
Metamask Wallet is developed by ConsenSys Software and is widely used as a browser extension, integrated with almost all dApps in crypto. The downside of Metamask is that the token standards supported for storage are not very diverse.
2. Binance Exchange Wallet:
Binance is the world’s leading cryptocurrency exchange founded by Changpeng Zhao. The exchange supports trading of many tokens and most token standards such as ERC-20, BEP-20, SPL, etc. Besides, it is also a pioneer in providing Proof of Reserves (PoR) to increase transparency, ensuring that user assets stored on the exchange are 100% guaranteed and not used for the exchange’s own purposes.
Cold Wallets
3. Ledger Wallet:
This is a type of cold wallet that accounts for the majority of the cold wallet market share in the cryptocurrency market. Ledger provides the Ledger Live application, allowing users to connect to the cold wallet and buy and sell crypto assets directly on the wallet. It also integrates with many other decentralized applications for more convenient use.
However, the disadvantage is that the cost of purchasing a Ledger wallet is often higher than other types of cold wallets, and the wallet’s custom operating system is not open source.
4. Zen Card:
Zen Card is a storage solution that combines a hot wallet and a cold wallet, developed by the Ninety Eight team. Zen Card exists in physical form and looks like a bank card, with the following operating mechanism:
- Zen Card encrypts the seed phrase/private key data and divides it into two parts, one part stored on the Zen card, and one part stored on the Coin98 Super Wallet hot wallet.
- Users can only make transactions when they have both devices at the same time.
- In case of losing the card or the phone, i.e., losing 1 of the 2, the user’s assets can still be preserved because no one can access the wallet.
With Zen Card, the storage, management, and security of users’ assets will be upgraded. At the same time, it still ensures a certain level of convenience as it can be easily stored in a wallet and carried around.
However, Zen Card has only been released as a gift in The One event. It is expected that in 2024, the Ninety Eight team will officially launch and sell the card on the market.
Read more: Pocket These 4 Tips to Keep Your Crypto Assets Safe.
