This chapter will cover which digital wallets to use and how to use them securely. There are two types of digital wallets: Hot wallets are created through the internet. In a single click, anyone can approve transactions on hot wallets. Think of this as 1-factor authentication. In contrast, a cold wallet is created on a physical device. Only you can authorize a transaction by unlocking your device. Think of this as 2-factor authentication.
Important Note: “(V)” indicates that there is a video turorial on the topic at hand.
In Lesson 1, Chapter 1, we talked about hot vs. cold wallets. For the security of your digital assets, a cold wallet (aka: hardware wallet) is recommended. They can range from $50 to $200. Below we have listed the best ones on the market.
How hardware wallets work
You can create a digital wallet for any crypto coin (BTC, ETH, LUNA, ADA, etc.). You can send your assets to your wallet via the wallet address. While depositing assets are simple, transferring them out of a cold wallet requires an extra step. This step will confirm the transaction directly on the hardware device, eliminating the possibility of a hacker remotely authorizing transactions. It does, however, open up the possibility of forgetting your password and losing access to all your assets.
Quick Tip: A seed phrase is like having access to a bank account. A private key is the pin to that account to approve transactions.
All hot and cold wallets come with seed phrases or 24 randomly generated words. Anyone with your phrase can download your wallets onto any other cold wallet and access the funds. Thus it’s crucial to store the seed phrase of your computer as securely as possible.
Private keys are derived from your seed phrase. They are used to authorize all transactions in your digital.
Hot wallets store your private keys on a computer. As a result, anyone that maliciously gains access to your computer can access your private keys fairly easily and move your assets out within seconds.
Cold wallets, on the other hand, store your private keys on a physical device. This means that unless the hacker has the deceive in their possession there is no way to see the private keys.
The biggest problem with hot wallets, or wallets created on the internet, is that hackers can remotely trick you into giving up your private keys. While you may think you are cuatious, hackers have came up with ingenious, but malicious tactics. They have managed to deceive the very people that created the digital wallet technology.
Furthermore, hackers have stolen from the hot wallets of many big-name companies. KuCoin, for example, suffered a $300 million attack in 2020.
Hot wallets used on DAPPs have become even easier to exploit. Hackers will write malicious smart contracts disguised as regular transactions. After confirming the transaction, however, the smart contract will automatically capture your private keys and, in a split second, move all your assets out.
Hardware Wallets – Ranked
- Ledger Nano X ($130) – Overall, the best hardware wallet, which can also be used to interact with DAPPs seamlessly. Nano X has wallets for over a thousand different coins. It pairs with a phone app to help manage your assets easily. Furthermore, we will show you how to secure your hot wallets with your hardware device.
- Trezor Model T – Limited number of coins, but very similar to the Ledger in functionality. Its physical design is slightly more desirable due to its larger touch screen. It can also be used to interact with DAPPs.
Hot wallets, or software wallets, are created through the internet. As explained above, hot wallets are highly vulnerable and often get hacked. Their real purpose is to move funds around quickly. Hot wallets are also great to store assets in them temporarily. They cost nothing to create and literally take seconds to set up.
Let’s set up our first Ethereum-based hot wallet, MetaMask, to understand better.
Setting up MetaMask
MetaMask is a hot wallet made specifically to hold Ethereum based tokens. (V) To create a Web 3.0 MetaMask Digital wallet:
- Download the official MetaMask browser extension on Chrome or Firefox
- Open the extension and click set up new wallet.
- Follow the steps, write down your seed phrase, and you’re done!
- Create as many “sub” wallets inside MetaMask by clicking “create account” in the dropdown.
Important note: Your seed phrase applies to all wallets (accounts) created inside your MetaMask. Wallets imported into MetaMask will have different seed phrases. All wallets will have different addresses.
To deposit coins into your account, copy your public Ethereum address located at the top of the wallet and send in assets to that address from any other wallet. Suppose you have $100 of ETH on Coinbase. Copy your MetaMask address and paste it into Coinbase, specify the amount of ETH, and hit send.
Quick tip: You can share your wallet addresses with anyone.
Securing your Hot Wallet
To make our MetaMask hot wallets secure, we need to connect them to our hardware wallet. Technically, we are importing our wallets from our hardware device onto MetaMask. We do this to add an extra layer of security by confirming the transaction directly on the device.
(V) To do this, click on the MetaMask extension and select “import hardware wallet.” Connect your hardware wallet via USB and open the Ethereum App (because MetaMask is an Ethereum-based wallet) on the device. On the device, select any account you want to import into MetaMask.
Quick Tip: You only need your hardware device to confirm outbound transactions.
Using Other EVM Networks:
In an earlier section, we talked about EVM. You can read about it here. In essence, we want to use other blockchains to avoid Ethereum’s high gas fees and slow transaction times.
MetaMask is an EVM-based wallet. To put it simply, this means any blockchain that runs on the EVM can be used with MetaMask. Bitcoin, for example, does NOT run on the EVM; thus, you can not use a Bitcoin wallet MetaMask. Avalanche, for example, DOES run on the EVM; therefore, you can add the Avalanche Network to MetaMask.
(V) Watch our video tutorial on how to add an EVM Network, tokens, and import your hardware wallet on MetaMask.
Wallets For Other Blockchains
As explained above, MetaMask does not support all blockchains. To find the wallets of other blockchains, such as Cardano, Solana, Terra, etc., visit their official website and look for their official wallets. For example, one of Solana’s verfied wallets is Phantom Wallet.
To set up other digital wallets, follow the same steps as in setting up MetaMask. Keep your seed phrases secure and hidden away. Not all wallets will support hardware functionality, so only store limited amounts of money in those wallets.
In the next chapter, we will cover types of DAPPS and which ones you should use. Then we will connect our digital wallets to DAPPs and attempt to make money.
Video Tutorials (Coming Soon)
- Setting up Crypto Hardware wallets to use with DAPPS (p1)
- MetaMask Guide + secure with Hardware Wallets + networks, tokens, private keys, addresses! (p2)