Cryptocurrency wallets are a fundamental part of the cryptocurrency world. As their name indicates, and in the same way that a wallet is used to store your money, in cryptocurrency wallets, their main function is to securely store your cryptocurrencies.
Although this is their main function, they have other uses, and are indispensable in the DEFI space. You can find cold wallets and hot wallets, although we will focus on hot wallets, as they are the most used and easiest to use. Cold wallets are ideal for adding an extra layer of security if you want to keep your cryptocurrencies as safe as possible.
Different wallets
Before we go into more detail about wallets and aspects you should be aware of, it’s important to mention that there are a variety of different wallets, and not all of them are compatible with every network. If you have used any wallet or have seen anything related to cryptocurrency wallets, it is very likely that you have heard of metamask. Metamask is the most used wallet, with compatibility with many different networks, secure and easy to use.
Despite being the most used, it is not compatible with all networks, although it is compatible with most of them. For example, if you want to use the Solana network, you will have to use another wallet, as metamask is not currently compatible with this network. Below, we leave you with guides on different aspects of the wallets so that you can go deeper with the aspect that interests you the most.
How to choose the best wallet
Choosing a good wallet is very important, because it is where you will have your cryptocurrencies. Therefore, always look for reliable wallets and try to avoid wallets that are new or little known. My recommendation is to use metamask as long as you find the network you want to use.
In case metamask is not available, my recommendation is to look for the most used wallet in that ecosystem. Also, you will see that there are usually several wallets of a network that are used, and it is best to use the simplest and most intuitive one, especially if you are new or have little experience in DEFI. For example, in the case of solana, there is sollet extension, but if you are looking for a wallet that is really easy to use and also reliable, it is best to use phantom.
The most important aspect of a wallet is security, but it should also be intuitive and easy to use. To be able to move tokens and understand all transactions smoothly.
Parts of a wallet
If you are new and have never used a wallet, I recommend you to see the metamask guide you can find above to get started and learn how to use a wallet without problems. The best way to understand how they work is to use them.
Let’s see the main parts you should know about a wallet to avoid mistakes and losing your cryptocurrencies. The most relevant parts you can find in most of the wallets are:
Seed phrase or recovery phrase: The seed phrase is the only way to recover your wallet and the most important aspect that you should never share with anyone. They are unique words for each wallet, that you will receive when you create your wallet and you must keep in a safe place. You will need the seed phrase if you want to use your wallet on another device, in addition to the password you have entered.
Address: At the top of most wallets you will see your address. This is like your bank account, since it is a set of unique numbers and letters, which you must use or share to receive the cryptocurrencies in your wallet. Usually wallets already have functions to easily copy your address. Keep in mind that each address is unique and a mistake in a letter or number can cause the funds you send to not arrive. Therefore, always check that you have entered the correct address when sending cryptocurrencies to your wallet.
Network: The network in some wallets you can configure different networks, as is the case of metamask. Above you can see the network and you can change the network to another one, to be able to use the same wallet in different networks. There are other wallets, such as terra station, that are only compatible with one network, and therefore you will not find options to change the network.
Adding tokens: Wallets usually come with a token or few tokens added. You may have sent a cryptocurrency to your wallet and can’t see it. In many cases, it is because you have not added the token. Each token has a contract, which you must copy and paste into your wallet so that it detects the token, and you can see the amount you have of that token in your wallet.
Send: In the same way that you can receive cryptocurrencies, you can send them from your wallet to another address. In the wallets you will always see a send button, to indicate an address, either another wallet or an Exchange, and you can withdraw the cryptocurrencies from your wallet to another place.
These are the main parts of a wallet that you should know and know how to use. So you can keep your tokens safe, send them to your wallet for more security and withdraw them whenever you want to another wallet or an Exchange.
Risks of wallets
One of the main advantages of wallets is their security, as you have control of your cryptocurrencies. Even so, there are associated risks that you must take into account and be aware of to avoid losing your cryptocurrencies.
One of the main risks that happens and will continue to happen is self-inflicted errors. Unlike centralized exchanges, wallets, if you make a mistake, you are not going to be able to contact support or someone to get your tokens back. The main mistakes are:
- Entering the wrong address when sending cryptocurrencies.
- Sharing with someone the seed phrase or recovery phrase
- Sending cryptocurrencies using a wrong network.
To avoid this risk, the only thing you can do is to educate yourself and understand well how wallets work, the different networks and confirm the information before sending any information or cryptocurrencies. One way to avoid this type of error is to first send a small amount to check that you are doing it correctly, and if you see that they have reached where they should, then you can send a larger amount.
Another mistake is people pretending to be support, asking you for the seed phrase or recovery phrase. Especially in telegram or discord groups if you comment something in relation to a problem, you will see that you get messages from scammers. NEVER share your seed phrase, because the support platform will never ask for it.
Another risk is to lose the seed phrase or recovery phrase, and have no way to access your wallet. Therefore, always keep a copy of this phrase in a safe place, and you will be able to avoid this kind of problems.
Another risk if you use your wallet on DEFI platforms is to sign contracts and give access to your wallet to an untrusted platform. If you access unreliable and little known platforms, always check when you are going to approve any contract in your wallet what it says, to avoid giving access to your funds to the platform, and that they can steal your tokens and disappear. This is not very common, and only happens in unreliable platforms that are not really well known.
