In this guide, we’ll explain the different types of crypto wallets and recommend ways to secure them. Crypto wallets are the basis of web3 and understanding how they work is essential to protecting your NFTs and cryptocurrencies. Please note, OpenSea is not a wallet provider, and users are solely responsible for keeping their wallet secure.
Let’s get started!
What is a wallet?
“Wallet” is a pretty poor metaphor for a crypto/NFT wallet. The word “wallet” makes you think that securing a crypto wallet is the same as securing the wallet you keep in your pocket. Most importantly, it seems that if you have your crypto wallet then no one else can have it at the same time. Unfortunately, this is far from the truth.
Since we are stuck with the term, what exactly is a wallet?
A wallet is a private key.
Well then… What is a private key?
Private keys are like a personal signature. In the real world, it’s common to use your personal signature to authorize documents or contracts. In the web3 space, only you can produce this signature (the private key), but the entire world knows how to check it by looking at your wallet address.
To get slightly more technical, both public and private keys are a string of random letters and numbers that are associated directly with each other. Each public key can verify one private key, and each private key can produce a message that can be verified by one public key.
In web3, the public key is the wallet address. The wallet address on Ethereum is the string of random letters and numbers that starts with “0x”. Everyone can know your wallet address, and knowing your wallet address does not give any control over your wallet.
In summary, the private key grants full control over the wallet. The seed phrase, usually 12-words long, is a shortcut to the private key and to the wallet itself. This is why it is so important to protect your seed phrase.
There are two main types of wallets:
- Custodial wallets
- Non-custodial wallets
Custodial wallets are managed entirely by a third-party and generally do not support NFTs. Non-custodial wallets are maintained and secured directly by you; they include both hardware and software wallets.
Parts of a Non-custodial Wallet
Securing anything on a computer is difficult, and a crypto wallet especially so. You’ll need to think about this in two parts:
- The seed phrase. The seed phrase should never be stored digitally as a picture or as text on a computer or mobile device. The phrase is equivalent to your wallet, and anyone who has it has complete control of your wallet. The best thing to do is write it down on paper (or metal) and store it in a secure place in the real world.
- The private key. You should never need to have direct access to your private key. Your private key is stored within your wallet application and your best protection is to select a well known one. MetaMask is a popular browser extension wallet application and Trezor is a popular hardware wallet application.
Recommended Approach to Securing your Wallet
The risk of having a wallet stolen increases the more that it is used. Because of this, we recommend using a two wallet system at a minimum, with a hot-wallet used for every day transactions and a cold-wallet for long term storage of your crypto items.
Just as your real life wallet wouldn’t have all your money in it, your hot wallet should not have a large amount of cryptocurrency in it. Therefore, you should only have enough cryptocurrency for purchases and only crypto items that you have recently acquired or are planning on selling. This is your day-to-day wallet that you can afford to lose.
A cold wallet is one that is not easily accessible to you. It could be a hardware wallet, but it could also be a software wallet that is stored on paper in a safe deposit box or a laptop that is only used when you need to interact with your cold wallet. This wallet should store all of your high-value items and any significant amounts of cryptocurrency.
Now that you know how a crypto wallet works, check out the full list of compatible wallets with OpenSea here.
In the future, we will be making additional posts about NFT security, transaction security, and the risks of signatures. You can also follow our Support Twitter for NFT tips & tricks. Stay tuned and stay safe!