A blockchain wallet is a cryptocurrency wallet that allows users to store, secure, and manage different kinds of cryptocurrencies. You can receive and send out crypto assets like bitcoin, USDT, and Ethereum from your blockchain wallet.
Blockchain wallets are important because they are the only storage portal for crypto assets. This means you cannot buy or own any crypto without first opening a blockchain wallet. In this article, we will explain how blockchain wallets work and recommend the best ones to use.
- A blockchain wallet is a crypto wallet that allows users to buy, sell, secure, and manage multiple crypto assets.
- A blockchain wallet has two major components – the public and private keys.
- The best crypto wallets to use include MetaMask, TrustWallet, Trezor, and Binance.
- Blockchain wallets can be broadly classified into two categories – Hot storage wallets and cold storage wallets.
- Major benefits of blockchain wallets include zero financial intermediaries, borderless settlements, superfast transactions, and privacy.
What is a Blockchain Wallet?
A blockchain wallet is a digital wallet that enables users to buy, sell, store, and secure different kinds of crypto assets. This wallet allows for the smooth exchange of crypto while securing your transactions through cryptographical signatures. You can access your blockchain wallet from all web devices and manage assets like Bitcoin, Ethereum, Solana, USDT and other cryptocurrencies.
Here are some of the unique features of a blockchain wallet;
- Public-Private key – The public-private key is what makes the crypto wallet so unique. When you open a crypto wallet, you get a public key that serves as your blockchain identity. All your transactions are recorded on the distributed ledger using this key. The private key is your password and most times, it can be recovered using a mnemonic code. We’ll talk more about this later in the article.
- Faster settlement – You cannot send a million dollars from a US bank account to say Europe or Africa without triggering some major security protocols at your bank. This process is not bad since it safeguards the owner of the funds. However, it can slow down settlements for businesses. You can send $10,000,000 worth of bitcoin from your crypto wallet and the other party will confirm it in minutes.
- Available on all devices – Blockchain wallets can be opened and accessed on your PC, phones, tablets, and other web devices. Once you open a blockchain wallet, you can manage it like you manage your bank account on your preferred device.
- Low transaction cost – Bank charges come in droves these days. You don’t have to deal with repeated charges when using a blockchain wallet. All you need to do is pay affordable transaction fees per transaction.
- Built for multiple cryptocurrencies – Blockchain wallets are designed to hold multiple cryptocurrencies. The most popular cryptos (Bitcoin, Ethereum, BNB, Solana), can be stored in almost all crypto wallets.
How Does a Blockchain Wallet Work?
A blockchain wallet has two major components – The public key and the private key. When you open a new crypto wallet, you get these two keys.
The public key is similar to a bank account number or email address. It is your blockchain wallet address and you can use it to receive crypto assets from your clients and other business parties.
The private key is similar to a high-encryption password. If the public key is like an email address meant for everyone, the private key is the password that you use to access the email. Without your private keys, you cannot open or access your funds or send them out of that wallet.
Over $140B worth of bitcoin has been lost over the years and it’s mostly because investors lost their private keys and forgot the seed phrases.
Are Blockchain Wallets Safe?
As long as nobody gains access to your private key and seed phrases, your blockchain wallet is safe. However, over 4 million bitcoins worth $140B have been lost over the years and that is a cause for concern. While some of it is due to lost private keys, other losses were caused by safety lapses of blockchain wallets.
Blockchain architecture is generally considered to be strong and secure. However, we want to know if it is 100% safe by looking at security features and common loopholes exploited by online fraudsters.
Blockchain Wallet Safety Features
The private key feature on blockchain wallets makes them almost impossible to hack.
Once you open your wallet, you are given a list of Mnemonic codes or seed phrases which will serve as the recovery password for that wallet’s private keys. If you open the wallet on a centralized exchange, you will be required to do a KYC registration.
Your wallet has more protection thanks to Biometrics and other security measures put in place by the CEX. However, you have to give up anonymity to get this safety feature. Also, you no longer have control over your private keys which makes your crypto assets vulnerable (Think FTX).
Popular Blockchain Wallet Problems
Scammers know that the only way to gain access to another person’s blockchain wallet is by getting their seed phrases. Seed phrases are the only way to get your wallet back if you lose access.
Crypto investors who have fallen prey to online fraudsters mostly blame it on phishing sites. Web wallets are the most susceptible to phishing scams.
The scammers will build a whole new website looking exactly like a popular crypto website. They then lure the users of that crypto website to their look-alike site and ask them to reinput their seed phrases and regain control of their private keys. These private keys are harvested and used to log in to the original wallet of the user.
Be careful of phishing sites and always check twice before typing your seed phrase on any site.
Best Crypto Wallets to Use
There are many types of blockchain wallets available today. While decentralized wallets give you full access to your private key, centralized exchanges only allow for partial or shared access. Some blockchain wallets are better on mobile phones while some work best on systems. We also have hardware cold storage wallets and online hot storage wallets. Here are the best crypto wallets to use;
1. Binance – Best for Traders
Binance blockchain wallets are best for crypto traders looking to store and trade bitcoin and altcoins. The wallets are hosted on the Binance Smart Chain (BSC) and you can buy and sell thousands of tokens using the BNB token. Binance wallets are hot storage custodial wallets. This means your crypto assets are saved online and your private keys are kept by Binance on your behalf.
2. MetaMask – Best for DeFi
MetaMask blockchain wallets are non-custodial wallets which mean customers have complete control over their crypto assets and private keys. The wallet is easy to install, navigate and use. It is a secure decentralized wallet that allows you to exchange ERC-20 tokens without visiting any DEXs. The simplistic web extension feature makes it the perfect wallet for Web3 soldiers.
3. TrustWallet – Best Hot Storage Wallet
TrustWallet is backed by Binance and it is considered one of the best crypto wallets in the world. This hot storage blockchain wallet is decentralized, non-custodial, and allows for multiple cryptocurrencies and NFTs. It is supported by over 69 blockchain systems and it has a fully functioning web3 browser on the platforms.
4. Trezor – Best Cold Storage Wallet
If you are ready to invest huge amounts of capital in bitcoin or any other cryptocurrency, it’s best to get a cold storage wallet. Trezor hardware blockchain wallet is the perfect option. Even though it is expensive, it comes with mobile app management options and other advanced security features. The wallet itself is not connected to the internet and therefore immune to cyberattacks and other such vulnerabilities. We’ll take a closer look at cold storage wallets later in the article.
5. Phantom – Best for Solana
The phantom wallet was created to make it easy for you to buy, sell, receive, send, swap, and secure crypto tokens and NFTs on the Solana blockchain. Phantom crypto wallets are designed as a browser extension and they provide a secure way for interacting with different blockchains in the Solana ecosystem. This wallet is non-custodial and all your assets and keys are directly managed by you.
Crypto wallet vs fiat wallet – What is the difference?
A crypto wallet is built for crypto assets while a fiat wallet is used for legal tender. A fiat wallet is an electronic wallet used to store fiat currencies. Fiat currencies include the US Dollar, British Pound, Japanese Yen, and so on.
Fiat wallets are closely related to bank accounts because you can store, send and receive money. Most Centralized crypto exchanges have a fiat wallet where you can deposit currencies and trade cryptos seamlessly. Fintech companies also use fiat wallets for saving and investment schemes.
Here are some of the major differences between crypto wallets and fiat wallets;
Fiat wallets use high-level cloud security to secure their systems and customers. Most fiat wallets also have facial, biometric, and password protections to protect customers from theft and online scammers.
Crypto wallets are secured by blockchain technology. As long as nobody has access to your private keys and seed phrases, your crypto assets are safe.
Crypto wallets are built on blockchain technology. They are self-managed and decentralized and all transactions are recorded on a distributed ledger across the chain.
Fiat wallets are built by highly skilled software developers and administered by financial institutions. Fiat wallets are not always as reliable as crypto wallets and customers often need customer service to help sort out issues.
Fiat wallets require a government license or a partnership with a licensed financial organization to be able to operate. Fiat and all its components (fiat wallets) are subject to the government.
However, any blockchain enterprise can allow users to open crypto wallets on their platform without much regulation. The crypto market is mostly run by traders, speculators, and big money players.
You don’t need any KYC or identity verification before you can open a crypto wallet.
However, you need to verify your identity if you want to open a fiat wallet. Fiat wallet administrators are required by law to ‘know their customers’.
Crypto wallets hold crypto assets like Bitcoin, Ethereum, and other Alts. You can buy, send, receive, and store crypto assets with your blockchain wallet.
Fiat wallets are used for legal tender currencies like US Dollars, Pounds, and Euros.
Types of Crypto Wallets
There are two major categories of blockchain wallets – the hot wallet and the cold wallet.
All other types of blockchain wallets can be found under these 2 categories. Here are the most common types of blockchain wallets available.
Hot wallets are blockchain wallets connected to the internet. Some examples of hot crypto wallets include web wallets, mobile wallets, and custodial wallets. Since hot wallets are connected to the internet, they make it easy for crypto investors to buy and sell cryptos. However, they are susceptible to online attacks.
Cold wallets are blockchain wallets not connected to the internet. Cold wallets include hardware wallets, paper wallets, and Desktop wallets. The major benefit of a cold wallet is safety. They are ideal for storing large amounts of crypto assets.
Custodial wallets are wallets that help you safeguard your private keys. The private keys are maintained on your behalf which means you don’t have complete control over your crypto assets. Custodial wallets are common on centralized exchanges.
Non-custodial wallets are wallets that give you complete control over your private keys and crypto assets. Crypto assets in non-custodial wallets can only be moved by the owner except in cases of private key theft.
Hardware wallets are devices used to store your private keys. These devices mostly come in the form of a USB flash drive and are almost impossible to hack. Without your hardware wallet, nobody can access your funds. Centralized exchanges use hardware wallets to safeguard customer assets.
Paper wallets are physical copies of your private and public keys – the baby boomer way. You can make your keys into a QR code and print them out for safekeeping. If you are thinking of adding a crypto portfolio to your children’s inheritance, this might be the perfect way to do it. However, anyone with this paper can access and steal all your funds.
Web wallets are software blockchain wallets that allow for easy communications with blockchain systems. You still have full control over your private keys. However, they are stored online and you can easily log in to the website wallet and carry out transactions.
The web wallet is perfect for crypto traders because of its speed. However, it is advisable to only store small amounts of crypto on this wallet at any time. Web wallets are the most susceptible to phishing attacks. Examples of web wallets include MetaMask and Phantom.
Mobile wallets are blockchain wallets installed on your phone from Google, Apple, and other online stores. A good example of a mobile wallet is TrustWallet. Mobile wallets are relatively safe from online attacks. However, if you lose your device to scammers, they may be able to find a way around your password. Centralized exchanges can be classified as mobile wallets.
Benefits and Importance of Blockchain Wallets
Blockchain wallets are important to all Web3 participants and they also come with a lot of benefits. Here are some of the advantages of using a blockchain wallet;
Financial regulations prevent banks from transferring or receiving large sums of money from personal accounts. However, blockchain wallets have eliminated the need for third parties in a financial transaction. You can send any amount of money in crypto from one wallet to another. There are no processes or intermediaries which makes it super convenient.
Borderless Financial Transactions
If you are a multinational professional or a regular immigrant, you already know how difficult it is to send money across countries and continents. Financial transactions from one country/continent are usually put through a long process (and rightly so for security reasons!). Blockchain wallets have simplified cross-border transactions. You can render services to companies across the ocean and get paid bitcoin or other valuable Alts.
Low Transaction Cost
Bank charges on transactions and account maintenance fees can quickly add up. This is why crypto-savvy folks prefer to spend and get paid in cryptocurrencies because transaction cost is low. You don’t have to pay maintenance charges to keep using your blockchain wallet. If you have 2 bitcoins in your wallet, it will still be 2 bitcoins in 20 years.
Superfast and Reliable
Blockchain technology is a superfast cryptographical architecture. Once you send crypto from one blockchain wallet to another, it will reflect in the receiver’s wallet in minutes (sometimes seconds!). With the Ethereum blockchain, developers suffered network congestion and slow settlement. However, the recent merger gave investors a newer and more reliable network.
Blockchain wallets have advanced security frameworks. When you open a blockchain wallet, you get both the public and the private keys. The private keys give you complete access to your wallet and they must never be shared. Once your private keys are safe, your wallet cannot be hacked. Centralized exchanges often operate custodial wallets which means your private keys are maintained by the provider. Make sure you research thoroughly before choosing any CEX.
Easy to Install and Use
You don’t need to answer questions or go through a rigorous process before you open a blockchain wallet. You could search the internet and have one open in the next five minutes. Blockchain wallets are easy to install and even easier to use.
Low barriers to entry
There are no gatekeepers in the crypto industry. The architecture itself is decentralized and investors can buy and sell as they like. Consequently, there are no regulations and this attracts online scammers to the crypto space.
Blockchain Wallet Problems
Blockchain wallets are not perfect. They have flaws just like any other system. Here are the common blockchain wallet problems we have today;
Online scammers are the greatest threat to your blockchain wallets. They use tools like Phishing sites and corrupt web links to gain access to your private keys. The best way to protect yourself is to store the bulk of crypto assets in a cold wallet.
Low Government Approval
Most central banks in the world are yet to fully understand the blockchain industry and the best way to regulate it. This makes it almost impossible to use blockchain wallets for everyday transactions. You need to always search out merchants that use bitcoin or other Alts as payment.
Limited Adoption Rate
Most businesses have not adopted crypto as a means of payment. If you want to shop with your crypto wallet, you need to find businesses that accept bitcoin as payment.
Blockchain wallet is an essential part of decentralized finance and the Web3 Industry. With crypto wallets, you can buy, sell, send, and receive crypto from anywhere in the world. If you are picking your first blockchain wallet, we have outlined the different types available along with recommendations. Your blockchain wallet is your crypto bank and your ticket to the Web3 universe.