Crypto Wallets 101

Introduction

As Crypto and NFTs continue to skyrocket, those on the outside can often be left asking questions such as ‘why’ and ‘what’, perhaps ‘when’ and even ‘how’. From the surface, the NFT world seems complex, technical, and difficult to navigate, especially for beginners. In fact, even trying to set up an account to buy and sell may seem daunting.

Consequently, it has left many feeling reluctant to enter the NFT space. However, if you take the opportunity to learn the basics, it can soon become second nature!

With the increased ease of access to the crypto world, new projects are hitting the market at a rapid pace. Understanding some basic concepts is important to make informed decisions about what products to use and where to invest.

Join us in this series of articles as we demystify the intricacies of the NFT space, and will hopefully provide you with a better understanding of the future of the internet!

So what is a Crypto Wallet?

Cryptocurrencies have evolved since their inception in 2009. The industry has adapted to suit the varying needs of its growing user base, and just as the traditional financial industry has multiple ways of owning assets and controlling wealth, so does crypto.

It would be difficult to store a digital asset under your mattress therefore we use cryptocurrency wallets to communicate with blockchain networks allowing us to safely access, send and receive crypto funds or assets. Simply put, the software stores your crypto just like traditional wallets store your cash and credit cards.

The storage mechanism is where things get interesting. Unlike fiat money (GBP, USD) which you store in a bank, virtual assets are stored on the blockchain. Just like you use your debit card to access your physical money at an ATM, you use your crypto wallet to access your crypto on the public ledger. The crypto wallet does not actually hold physical items — instead, it holds unique digital passwords or “private keys” which allow you to transact on the blockchain, similar to how your debit card does not contain the funds within yet allows you access to make transactions with the account.

“Not your keys, not your crypto.”

If you have come into crypto through a promotion or advert you may have purchased crypto using a “Custodial” wallet. Most centralised cryptocurrency exchanges like Gemini, Coinbase, Binance, Robinhood and Paypal are all considered to be “Custodians”. These third-party services offer to protect your crypto assets for you, but by doing so you relinquish control over these assets, you are trusting the platform with the responsibility of keeping your crypto safe and secure.

Any crypto veteran will have heard the old custodial cliche “Not your keys, not your crypto” a million times, seasoned users often argue with new users about storing crypto on custodial, third-party providers over key ownership. But many first time users will make their first crypto purchases on centralized exchanges. These are online marketplaces where you can buy, sell and store a variety of cryptocurrencies are a convenient gateway into the crypto world.

Custodial wallets onboard large amounts of users due to their convenience. It’s as simple as signing up for a Coinbase account with your email address, verifying your identity with a photo ID and linking your credit card or bank account to start buying and trading crypto.

These custodial wallet providers often also provide the high-quality UI/UX that Web 2.0 users are already familiar with when they use other banking applications. It’s hard to stay away from custodial solutions, especially for those who are brand new to crypto; but the reality is that the user relies on that third party to responsibly manage their assets and provide their funds back to them when they request to move them from their platform.

So what other options are there?

A self-custodial wallet allows users to own their private key giving them full control of their funds. For new users, several different types of non-custodial wallets could be recommended based on your technical level, security consciousness and net worth; 3 basic types would include:

• Hardware Wallets: A physical device similar to a flash drive that is disconnected from the internet.
• Web-Based Wallets & Mobile Wallets: An online wallet that can be accessed from any device with a private key login.
• Desktop Wallet: A downloadable piece of software that resides on a desktop or laptop device.

Fair warning though, taking custody of your crypto isn’t for everyone. With non-custodial wallets, you’re liable for holding and preserving your crypto wealth. If you lose access…it’s gone.

But for those brave enough to take the leap, this step unlocks a world of opportunity. With a crypto wallet, you get to directly interact with Ethereum and tap into some of its potential by:

• Collecting the next big NFTs
• Earning DeFi yields that dwarf anything found in traditional finance
• Diving into the future of work by joining a DAO.

Your self-custodial crypto wallet is your key to accessing these opportunities.

Let’s get into more detail with various types of wallets, explain how to set up these wallets and then finally answer some common questions.

Types of Wallets

Hardware Wallets

Hardware wallets like the Ledger Nano X are specialized devices offering “cold storage” for users to secure their crypto. These wallets keep your private keys underpinning your crypto offline when not connected, ensuring that a hacker can’t easily sweep your funds from your computer or phone. These are also known as “Cold Wallets”.

Hardware wallets can also be used in tandem with other wallet services, e.g. the MetaMask browser extension, for improved and streamlined UX when interacting with the Ethereum network.

Web-Based Browser & Mobile Wallets

Two of the easiest ways to interact with DApps are browser wallets and mobile wallets. These apps come with “DApp browsers” that can be used to interact directly with popular Defi and NFT projects.

Using an app like Coinbase Wallet or MetaMask gives you easy access to your crypto holdings. You can:

• Manage all your digital assets in one secure place
• Control your own private keys
• Send and receive cryptocurrency to and from anywhere in the world
• Interact with usernames rather than long, hexadecimal “public key” addresses
• Browse DApps (decentralised finance apps)
• Shop at stores that accept cryptocurrency

Multi-Signature Wallets

Multi-signature or “Multi-sig” wallets are a more advanced, secure wallet as they require a minimum number of addresses to approve transactions. Such “Multi-sig” systems are ideal for groups, whether they be businesses or DAOs, and individuals who want superior security since these special smart contract wallets require multiple sign-offs.

Self Custody Wallet Setup

Desktop Metamask Wallet Setup

Here we will run through the steps of how to create a MetaMask desktop wallet via the Chrome extension. Note this method also works for other browsers such as Brave and Firefox. Make sure you always download software from the official MetaMask site, this is very important as a fake piece of software could easily steal your funds with no recourse.

1. Go to MetaMask.io
2. Click either of the “Download” buttons on the homepage.
3. Click “Install MetaMask for Chrome.” and you will be automatically taken to the Google Chrome web store.
4. Click “Add to Chrome” and add the extension. Once installed, you will be able to view the MetaMask fox head icon in the top right corner of your browser by clicking on the puzzle piece icon.
5. Click “Get Started” and choose between importing an existing wallet or setting up a new one. Let’s assume you don’t have an existing wallet and need to create one. Click “Create a Wallet.”
6. Create and confirm a unique password according to MetaMask’s guideline of 8 characters minimum. Agree to the terms of use and hit “Create.”
7. Once you’ve created your wallet, you will be able to view your seed phrase (the 12-word sequence used to recover and backup your wallet). Always keep this hidden and never shared it with anyone, never take a picture or screenshot of your seed phrase or save it in a digital way, especially in Cloud Storage, having your Seed Phrase on iCloud for instance is looking for a security breach. Instead, write it down immediately on a piece of paper and put it in a safe location. Even better, split the phrase into multiple pieces of paper and store each in a different location. Alternatively, you can download the seed phrase and keep it offline on an encrypted hard drive. Having multiple backups of your seed phrase is good practice just in case one copy is ever lost or destroyed. After documenting your seed phrase, click “Next.”
8. Confirm your seed phrase by clicking on the correct words in the correct order of your 12-word sequence and click “Confirm.” Welcome to Web 3.0! You are now the owner of a MetaMask wallet.

Your personal MetaMask wallet is now accessible via the fox icon in your browser and you can begin purchasing and receiving crypto!

Mobile MetaMask Wallet Setup

For mobile users, MetaMask also offers a mobile wallet option for IOS and Android devices. Here are the steps required to use MetaMask on your phone if you’ve already set up the desktop extension:

1. Go to MetaMask.io
2. Click either of the “Download” buttons on the homepage.
3. Click “Install MetaMask for x.” where “x” is your device type and you will be automatically taken to the correct store.
4. Download the MetaMask app to your smartphone (App Store for iPhone or Google Play Store for Android).
5. Click “Get Started”
6. Click “Sync with MetaMask extension”
7. Open your MetaMask desktop extension, go to Settings > Advanced, Click on “Sync with Mobile” and enter your password.
8. Using your phone’s camera, scan the QR code to start syncing.

Now you should be able to access your MetaMask account from either your desktop or your phone! If you do not have the desktop extension and wish to create your first MetaMask account on mobile, follow the same steps above, but click “Create a new wallet” instead of “Sync with MetaMask extension.” Then, follow the rest of the steps to choose your password and see and confirm your seed phrase.

If you prefer to keep your digital assets in cold storage, then you can easily connect a hardware wallet like Ledger to MetaMask. This gives you the security of a hardware wallet with the ability to connect with any MetaMask/web3 enabled sites.

Now everyone is onboard let’s answer some common misconceptions and technical questions, We’ll make a full article for this, as well as our FAQ but for any further questions please consult the Strictly Drip Discord.

Common Misconceptions

Q1 — Are my NFTs stored in my crypto wallet?

No! This is a big misconception, the NFTs are tokens stored on the blockchain, the image behind the NFT is hopefully stored on a decentralised storage system like IPFS or Arweave, your wallet contains the private key linked to the ownership of the NFT, which in turn links to the location of the image.

Q2 — Can I share my Public Key and Wallet Address?

Yes! Your public key is used to generate your ETH Address when combined with your private key, the best analogy for a public key and wallet address would be a username and email address, share these out to receive things but unlike an email account, the contents of your wallet can be seen by everyone who knows the public key. Your Private Key could be analogous to your email password, having the private key will allow you to make transfers and sign messages. A seed phrase is a group of 12 or 24 words usually generated within the wallet software that can be used to derive your private key, this would be similar to the password recovery process on Web 2.0.

Seed Phrase > Private Key > Public Key > Address

Q3 — What’s the difference between the Coinbase app and Coinbase Wallet?

The main Coinbase app is a custodial service and crypto exchange that allows you to buy and sell crypto or exchange it for fiat currency and transfer it to a bank account thus can be used as a fiat on/off-ramp.

“Coinbase Wallet” is a separate app that allows you to store your private keys and to send, receive, and spend digital assets; browse and use Defi applications, and more. This app comes with a “DApp Browser” that can be used to interact directly with popular Defi and NFT projects. You don’t need a Coinbase account to use Coinbase Wallet.

For further reading I recommend checking out; how to manage your wallet like a pro by bankless and this Twitter thread by Punk 6529.