Excerpts from CareYourPresent – a crypto enthusiast
Crypto wallet guide – Understanding and managing it
The definitions and relationships among these terms are often very confusing to everyone.
- Crypto wallet
- Hot wallet
- Cold wallet
- Hardware wallet
- Non-custodial wallet
- custodial wallet
- Public Key
- Private Key
- Recovery seed phrase
Demystify crypto wallet terms
Firstly, how do you keep, send and receive your Cryptocurrencies? In Crypto Wallets! To put it simply, Hot Wallet is a crypto wallet that is connected to the internet whereas a Cold Wallet doesn’t connect to the internet.
Cold wallet are usually considered to be safer as it is not connected to the internet.
Cold wallet examples include Hardware wallet such as Ledger, Trezor etc. Hot wallet example include browser extension wallet such as Metamask, XDefi etc.
Non-Custodial Wallets means you are holding on to the Recovery Seed Phrase (you owned the crypto) whereas Custodial Wallets means you are not holding on the Recovery Seed Phrase (example when your Cryptocurrency are in an exchange).
If an exchange hacked or closed down suddenly, please say goodbye to your coins.
What are Recovery Seed Phrase/Password/Pin?
Whenever you create a crypto wallet, a Recovery Seed Phrase of either 12 or 24 words are automatically generated out of 2048 word from the BIP-39 Word List.
There are so many combinations of Seed phrases that can be generated such that it is basically non-hackable and this makes them very secure.
This is like the master password of your Crypto. Ledger hardware wallet, Metamask hot wallet interface is like the password manager software.
During wallet generation, you will also need to create a Password or Pin for faster access to the wallet when doing any transaction. If you lose this Password or Pin, you can still recover your wallet using the Recovery Seed Phrase.
However, if you lose both the Password or Pin together with your Ledger at the same time to the same person, you have to say goodbye to your cryptos.
What are Private/Public Keys?
Public key are the public address that one use to receive the cryptocurrencies and is in the blockchain. It is paired to a Private key where it is needed to authorized any transaction for the public address.
In short, if you owned the Private Key, you are the owner of the Cryptocurrency. Hence, for every address created, there will be Public and Private key.
Hence, do not share your Private Key. Anyone with this key can access your cryptocurrency. However, do note that the private key are stored in a crypto wallet (such as Ledger, browser extension wallet like Metamask etc).
Always remember that storing your coins in a hardware wallet is the most secure method because unlike browser extension wallet, the private keys never leave the device and thus stay offline.
What are the differences between Private Key and Seed Phrase?
For every Recovery Seed Phrase generated from your wallets, it will always create the same set of public addresses and private keys. Seed Phrases are the mnemonic version of all your private keys.
Thus even if you forgot your password/pin, lose your hardware wallet, you still can get back your coin as long as you know your Recovery Seed Phrase.
One key point to note is that Private key is usually an access key to just one address (account), while Recovery Seed Phrase is an access key to the whole wallet, which can hold multiple addresses. Thus, Recovery Seed phrases can recover all private keys but not vice versa.
Refer to the diagram below for a better understanding.
In summary, after explaining the terms above but if one still have difficulties understanding the terms, just remember these points:
- If you keep your coins in an exchange, generally it should be safe for those reputable and big exchanges but do bear in mind the potential risks.
- Always get a Hardware Wallet such as Ledger and generate your own Recovery Seed Phrase.
- Secure your Recovery Seed Phrase and Private Keys, don’t let anyone know or lose it.
- Don’t lose both password/pin together with your hardware wallet (e.g Ledger) at the same time.
You can view CareYourPresent website here for more details and other crypto guide here
I got the Coinbase wallet. I transferred all my USDT to it(over $170,000 USD). After a a few days I wake up and my USDT was gone. I go into my wallet and I see that it was transferred out… I never gave permission for this, I never gave my recovery phrase for this and I never gave any passwords for this. I contacted coinbase and they did nothing to help. They refused to give me an expiration of what happened and why. They told me it was my own problem because they wallets are user controlled. They did nothing to protect my funds. I was devastated and hurt at the same time, how could my life time investment go so easily this way I kept asking myself with no one to answer me. Luckily for me I got in touch with digitalcurrency14 @ gmailCom whom I had read about on many crypto platform how he had helped them one way or the other in crypto space I explained my problem to him and he assured me he’ll recover my money for me it sounds so hard to believe until I gave it a try and the outcome was incredible, all my ustd was recovered back to my wallets in few days, I transferred it to my other wallet and it was successful