Do you need a crypto wallet?
Do I need a crypto wallet? A question that many newcomers to crypto might ask. And a quick answer to that question would be, Yes. But why and how is a bit more complicated than that. So that’s why in this blog we take a look at why you need a crypto wallet or don’t need one. Because the crypto world starts with having access to it, via a crypto wallet. Besides that we answer some of the most asked questions about crypto wallets, to help you get a better understanding of how crypto wallets work.
What is a crypto wallet?
At first, we have to take a look at the simplest form of what a crypto wallet actually is. To break it down. A crypto wallet is a place where you store the private key of your Bitcoin/Ethereum or any other blockchain account. A private key works as the access code to your funds. So having the private key means, having access to the crypto and tokens on that account.
So what a wallet really does is hold your private key. Because with this you can then transact with your account. Your crypto wallet will thus hold access to your blockchain account and provide you with an interface that lets you easily transact/use the blockchain you choose.
This makes your wallet the place where you can store your cryptocurrencies. But also the software that lets you use your crypto account at the same time.
The difference between an exchange crypto wallet and other crypto wallets
When you create an account on platforms like Coinbase, Binance, or FTX, you have your crypto in your Coinbase crypto wallet. But there is a big difference between an exchange wallet and a “normal” crypto wallet. Because on exchange platforms, or sometimes even banks you do not have access to the private key. Meaning you do not really have control over the crypto. No, on a centralized exchange like Coinbase, Binance, Kucoin, and many more, they hold the private keys. So what you really have is an account with them. Because of this, you can use all of their services with a good UX & UI. But you do not hold control over your crypto till you take it off the exchange.
For some people, this is totally fine. They just want to trade and hold their crypto. If you are like this, a centralized storage place might be the best option for you. But it comes with the simple fact that you don’t have direct control and can not use your crypto on the blockchain.
Why you want your crypto on your own wallet
When you hold your digital tokens/coin, on your own crypto wallet, you and only you have control over it. This way you can avoid having to give your finances to a specific entity. But you can also start to participate in decentralized communities and applications. And you would want this as they bring many benefits. Currently, the highest yields/APY (interest on your money) can be earned in Defi. Defi AKA decentralized finance gives you access to global money markets. Because these on-chain markets are controlled by the people and not governments. No one can fake or adjust the amount of interest you will earn. Because of this, the interest rates on the blockchain are so much higher than at the bank.
Besides finance, an on-chain wallet will also allow you to collect and use blockchain collectibles. Also called NFT’s. These NFT’s can have value inside of games but also represent the music of videos of artists. So to collect and trade in these NFT’s will require you to have your own wallet.
Offline crypto wallet vs online crypto wallet
The difference between an Online crypto wallet and an offline crypto wallet is quite simple and is already in the name. An offline crypto wallet also sometimes revered as a cold wallet, keeps your crypto stored offline. Usually on a separate device. We call these types of devices “hardware wallets“. Because they have their own piece of hardware. Usually, when people talk about the safest way to store your crypto they will start talking about hardware wallets. This is understandable as you can store them away safely and they can not be hacked as they are not connected to the internet.
On the other end, an Online crypto wallet is a bit riskier. Because these types of wallets will have a constant connection to the internet. Meaning they are more vulnerable to hackers. But you can use these just as well as long as your keep your device virus and hacker-free.
Big exchanges usually use both types of wallets to store your crypto. Because they want to keep your crypto offline and safe but also a part online so you can withdraw your crypto at any time.
The (only) downside to a crypto wallet
Having your own crypto wallet with your tokens on it also means holding the custody yourself. To be in control has many, many benefits but also brings a bit of risk with it if you don’t know what you are doing. Because if you were to lose your wallet or the device that it is on. You would also lose your funds/crypto. No one wants this of course, and because of that, we should always make a backup for our blockchain wallet. Luckily most wallets make you write down a backup code when you set up a new wallet.
The 2 most common forms of backups that we see, come in the form of a 12-word phrase or the complete private key. Both of these will give anyone who holds it access to that blockchain account. So be careful and don’t show this backup to anyone. In case you would ever lose your wallet or your device that has the wallet on it. You could use your backup code on any other device to gain back access to your funds. Because of this, you should always have a backup code written down somewhere, in case something happens. But please be careful and keep it safe from other people their eyes.
How to open a crypto wallet?
So now that you know why you should use a crypto wallet. We take a look at how to open one. And this part is very simple. When we download a mobile, web, or computer wallet. The software will automatically generate a random private key. This private key will be unique and yours. Because of the almost endless number of addresses that can exist, yours will be unique and secure. You really do not need to do anything else to open a crypto wallet account. Just make sure you make a backup of the wallet. And you can start using your new crypto wallet.
Do I need a different wallet for each cryptocurrency?
That highly depends on the cryptocurrency we are talking about. You see we have 2 different types of cryptocurrencies. We have coins that have their own blockchain and tokens that exist on top of an already existing blockchain. But if you would ask do I need a different wallet for each blockchain. The answer would be yes.
Technically speaking each blockchain runs its own system, requiring you to create a wallet on that blockchain. But luckily we have many multi-chain wallets that give your access to different blockchain wallets within the same app/wallet. This way you can use more than one crypto wallet with the same interface. So you do not have to switch apps every time you want to use another blockchain. And depending on the wallet you can usually also create one backup phrase that works for all the different blockchain wallets within that multi-chain wallet.
Get your own crypto wallet
Now that you know why you should use a crypto wallet and the difference between some. It is time to get your own. Which type of wallet do you prefer? We no matter what type of wallet you would like, you can find them all on our wallet finder page. Here you can filter for any type of crypto wallet, custodial or non-custodial, and also filter for many different types of blockchains and tokens.
We hope you now understand crypto wallets a bit better and we hope your question “Do you need a crypto wallet?” was answered. If you are still stuck with some question, need help understanding, or starting with Bitcoin, Ethereum, Solana, Binance Smart Chain you can always ask a question on our social channels on Facebook and Telegram!