Crypto Wallets Explained
https://www.youtube.com/watch?v=AdXpYGnFhs0
Transcript:
If you keep your crypto on a centralized exchange like Coinbase or Robinhood, it’s not safe. At this point, you need to be using a crypto wallet if you want to truly secure your crypto, but where most people get stuck is choosing the right crypto wallet and learning to use it effectively. When I started out in crypto 5 years ago, I had no idea how risky it was to store my crypto the wrong way on a crypto exchange.
And now with over $1 billion of crypto stolen between July and September 2024 alone, you can easily become another statistic. So in this video I’m sharing everything I’ve learned about crypto wallets and exchanges to help keep your crypto safe including how crypto wallets actually work, what the difference is between hot and cold wallets, step by step instructions for transferring crypto, and which features really make a wallet secure, And I’ll also help you avoid common crypto wallet scams from phishing hacks to social
engineering so you can protect your investments for years to come and literally take control of your crypto. So what is a crypto wallet? Well, the funny thing about crypto wallets is they don’t actually store any crypto. Rather, they’re more like tools we use to manage our crypto in a secure way, allowing us to do things like send, receive, store, and track our crypto all in one place.
A crypto wallet creates and securely stores three things. One, your seed phrase, which is a set of words that acts as a backup for your wallet. Two, your private key, which is the master key to your wallet derived from the seed phrase. And three, your public wallet address, which is a shareable address used to receive crypto and is derived from your seed phrase, and three, your public wallet address, which is a shareable address used to receive crypto and is derived from your private key. But let’s break this down even
further starting with your seed phrase, which is what you’ll interact with the most when you create a new wallet or recover an existing wallet. Using a random number generator, wallets create a set of 12 or 24 words that you use to access your wallet.
It’s basically the master password for your wallet but in word form. It’s essential that you protect your seed phrase because you use it to recover your wallet and it can recreate your private key if you need to restore your wallet. Now for the private key, you can think of the private key as the true master key to your wallet. It allows you to access all your crypto and manage your funds.
But here’s where things get kind of confusing. As crypto wallet users, we don’t actually ever see or interact with our private key. Instead, we use our seed phrase to access and recover our wallet, and our wallet kind of takes care of the private key in the background. But as long as our goal is to protect our seed phrase, we’re also indirectly protecting our private key, which is always the goal when it comes to crypto security.
And keep in mind, there’s no, I forgot my password button when it comes to crypto wallets. So if you lose your seed phrase, then you lose your private key and therefore you lose access to all your crypto with no way to recover it. Now let’s talk about the public address, often referred to as your wallet address or your receiving address.
You can think of this like your email address because it’s only used to receive crypto and you also send crypto from receiving address. You can think of this like your email address because it’s only used to receive crypto and you also send crypto from this address. And your public address is derived from your private key and it’s safe to share with others because you’re only using it to receive crypto.
It doesn’t give the sender any access to your wallet by any means. So if a crypto wallet doesn’t actually hold any crypto, then where is our crypto at? Well, all cryptocurrencies live on the blockchain. A blockchain is a distributed ledger that records every crypto transaction. Your wallet acts as your unique address on this ledger, giving you control over your assets by managing any private key that only you can access.
And because of the way crypto works, even if you send your crypto from an exchange to your crypto wallet, its value is always going to reflect its current market price, because your crypto exists an exchange to your crypto wallet, its value is always going to reflect its current market price. Because your crypto exists on the blockchain, it’s not locked into your crypto wallet, so therefore its value is always updated in real time no matter where you store it.
But before you can even send or receive crypto, you need to make sure that you’re sending or receiving the right type of crypto on the right type of crypto address. For example, if you’re sending Bitcoin to another wallet or to someone else, you have to send it to a Bitcoin wallet address. Likewise, if you’re receiving Solana, you have to receive it using your Solana wallet address.
If you send crypto to the wrong type of address, then you could lose that crypto forever. Something equally as important as sending crypto to the right address is using the right type of crypto wallet. Now, at this point, there are hundreds hundreds if not thousands of crypto wallets all with their own list of pros and cons, but to make things simple I want to break it down into two categories hot wallets and cold wallets.
A hot wallet, also known as a software wallet, creates and stores your private key in the software on your internet connected device like your phone or computer. Examples of hot wallets include desktop and mobile apps like MetaMask. While a cold wallet, also known as a hardware wallet, creates and stores your private key offline on a dedicated crypto device, examples of cold wallets include Ledger and Tangium.
Another type of wallet, which I don’t really consider a wallet even though a majority of people keep their crypto here, is a crypto exchange. Popular examples of crypto exchanges include Coinbase or even an app like Robinhood. wallet, even though a majority of people keep their crypto here, is a crypto exchange.
Popular examples of crypto exchanges include Coinbase or even an app like Robinhood. A crypto exchange is different from both hot and cold wallets because they’re custodial wallets, meaning you don’t own or control your private key, therefore you don’t control your crypto. The exchange does. That’s why you’ll find thousands of Reddit threads from users whose crypto exchange accounts were frozen, leaving their funds locked up for various reasons.
And it doesn’t matter if you have $100 or $100,000 on an exchange, if the exchange decides to lock your account, they won’t hesitate to do it. And the worst part about all this is that customer service in the crypto industry is practically non-existent. So if you have a problem, like your account gets locked, it can take literally months or maybe even a year to get your account unlocked.
And by that time, you probably already missed out on selling your crypto for a profit. So that’s why I never store my crypto on an exchange. Plus crypto exchanges are super prone to various hacks as well as malicious actions from the company itself. All that to say, crypto exchanges were never meant to be a place to store your crypto.
It’s fine if you want to use an exchange to buy and sell crypto, but never use it to store your crypto. Hot and cold wallets, on the other hand, are both self-custodial wallets, meaning they give you full control of your private key. Therefore, you always remain in control of your crypto. But only one of these wallets is a secure solution for storing your crypto. Hot wallets aren’t ideal either because they’re still prone to malware.
So if your computer or your phone gets malware, then the hacker could steal your private key and thus steal all of your crypto. And if you lose your crypto, like to a hacker or scam, you’re not going to get it back. There’s just no way to recover it. So that leaves us with cold wallets. And cold wallets are the closest thing we have to a vault in the cryptoets.
And cold wallets are the closest thing we have to a vault in the crypto space. And cold wallets are immune to all types of digital and physical attacks, malware, physical brute force attacks, making them the best and most secure solution for storing your crypto, whether you have just $100 worth of crypto or $100 million of crypto, it doesn’t matter.
A cold wallet allows you to be your own bank. I’ve linked my favorite cold wallets in the description description of this video along with the hands-on review if you want to check them out but before you do that it’s important to understand not only what makes a cold wallet secure but also what makes it user-friendly because i’m not gonna lie i own over 20 different cold wallets and a lot of them are not that user-friendly especially if you’re just getting into crypto so you need to choose user friendly especially if you’re just getting into
crypto so you need to choose the right one if you want to use it to effectively manage and secure your cryptocurrency. When it comes to finding a secure cold wallet this is what I expect at this point from any hardware wallet really. First is a secure element chip. This chip stores your private key and protects it from being hacked. Second is pin protection.
This ensures only you can access your device with your unique pin. Third is firmware audits. Many reputable wallet manufacturers have third-party security firms check their wallets for any vulnerabilities or backdoors. Fourth is a random seed phrase generator or a random number generator. This ensures your key is truly random and not known by anyone but you once you set up your wallet. And last is a reputable brand name.
You don’t want to just buy some random cold wallet on Amazon. Go with names that have a solid reputation. But equally as important as security is choosing a user-friendly cold wallet. I think we can all agree that crypto is already confusing enough. We don’t need our crypto wallets to be confusing too. So here’s what I found that makes for a really user-friendly cold wallet.
First and foremost, this is the very first thing you should do when you’re looking to buy a cold wallet. Always double check that it supports the crypto you plan to secure with it. Every wallet will have a list of supported crypto somewhere on their site. So make sure it supports all the coins you plan to hold.
Second is compatibility. Since cold wallets aren’t connected to the internet, you have to use them with your phone or computer. So if you have a preference, make sure that the wallet you choose is compatible with the device you wanna use it with. Many wallets are compatible with both phones and computers.
Third is the app itself. You still use apps to manage a cold wallet. Now, the app doesn’t store your private key like a hot wallet does, but it’s still used to get your receiving address and initiate transactions while the physical device is used to approve transactions and store your private key offline.
But some cold wallet apps are more complicated to use than others. And if you get a wallet that’s too complicated to use, it becomes a liability because you’re more likely to make a mistake that could cost you your crypto. That said, cold wallet apps that let you buy, sell, swap, and stake your crypto natively in the app is always a huge bonus in my opinion.
That way you’re not transferring crypto between your crypto wallet and a crypto exchange when you wanna do things like swap crypto for fiat or swap one cryptocurrency for another type of cryptocurrency. Some of my favorite cold wallets that allow you to buy, sell, swap, and stake crypto directly from your wallet is Tangem, Ledger, and Trezor, wherever that wallet is.
And the last thing worth considering is discreteness and durability. If you plan to only use your wallet at home on your computer, then a cold wallet with a large touchscreen should be fine if that’s what you want. But if you’re like me and you travel a bit or you live a more active lifestyle and you want to bring your crypto with you on the go but still make sure it’s secure, then you should look for a more discreet and more durable option.
Okay, now before I show you how to set up and use your own crypto wallet, let’s clear up any confusion that you might have about crypto wallets such as what happens if I lose my cold wallet or it breaks? Do I lose all of my crypto? Well since cold wallets don’t actually store any crypto it’s not the end of the world if you lose your cold wallet or it breaks.
Of course you’ll have to buy a new wallet but you can just use your seed phrase import it into a new cold wallet it doesn’t even have to be the same brand of cold wallet and recover your crypto that way. Another common misconception is that cold wallets charge users fees to use them. This is simply not true. The only cost you ever pay for your cold wallet is the initial purchase price, which ranges anywhere from $50 for something like Tangium, upwards of $400 for something like the Ledger Stacks.
Aside from that, any fees you end up paying are directly related to the blockchain or to third party providers like crypto exchanges who partner with cold wallet companies to provide you with the option to do things like swap, sell, buy, stake your crypto directly from your cold wallet app. For example, every time you transact using your crypto wallet, you’re interacting directly with the blockchain network, which is maintained by computers all over the world solving complicated mathematical algorithms
that keep the network secure and up and running. And to do this, people are sacrificing their own computers and their own electricity. So when you transact on the blockchain, you’re basically paying these people for their efforts. And these fees will vary depending on which blockchain network you’re interacting with.
For example, if you transact using the Ethereum blockchain network, fees can range as low as $2 upwards of hundreds of dollars if the network is super congested, such as during the bull run, while other blockchain networks that are more efficient, such as Solana, usually never go over a few cents for a fee.
But crypto exchange fees are separate from blockchain network fees so if you are transacting on a crypto exchange, you are paying the crypto exchange for being the middleman that’s providing you a service that allows you to buy, sell, swap, and stake crypto or whatever you do on there. Now it’s time to bring it all together.
We’re going to set up our own cold wallet and transfer crypto to it from our crypto exchange. Most hot and cold wallets almost have the exact same setup process, which really just consists of generating your seed phrase by tapping a button, writing down your seed phrase, and then selecting which cryptocurrencies you want to manage in your wallet.
For this example, we’re going to set up one of my favorite cold wallets that I’ve been using for well over a year, Tangim. And this is a mobile only cold wallet that works with both iOS and Android mobile devices with NFC capabilities.
And this is by far the best cold wallet for beginners, but it’s also one of the most secure cold wallets because it’s never been hacked. They got started in 2017. So they don’t sacrifice security for user friendliness. It’s the best of both worlds. And I’m going to let my friend from Tangim show you exactly how to set up the Tangim wallet in only two minutes, because he just explains it so well. I mean, I couldn’t do it any better myself.
Here is how to set up the new Tangim wallet with a seed phrase. Open the app, select Scan Card, and tap the first card to your phone. Now select Other Options and tap Generate Seed Phrase. The Tangio map now generates your seed phrase. Write down these 12 words on a paper and keep it somewhere safe, please.
You will only be shown this seed phrase once. Do not take a screenshot or a picture of it. Next, tap continue. Then check whether you have written your seed phrase correctly by entering the words in the correct order. After that, tap create wallet and scan the card. The wallet will ask you to create a backup.
We strongly recommend starting the backup process immediately. Click backup now and tap add a backup. We strongly recommend starting the backup process immediately. Click Backup Now and tap Add a Backup Card. Scan the second Tangent Card. Repeat the process with the third Tangent Card if you have one. Tap Finalize the Backup Process.
Now you have to create an access code to protect your card from brute force attacks. Tap continue and enter an access code. Choose any word, phrase or numbers that you like. You can also set a unique code for each card later. Select continue, enter your access code again and tap submit. Scan all your cards one after the other once more.
You have now successfully set up your Tangent Wallet with a seed phrase. And it’s that simple. If you want to learn more about the Tangent Wallet such as all its security features and how to use it, I’ll leave my full one-year review in the description along with my tutorial and complete user guide if you want to check that out.
Next I’m going to show you how to send crypto from a crypto exchange like Coinbase to your Tangent cold wallet for safekeeping and then after that I’ll show you how to send crypto from your Tangent wallet back to a crypto exchange so that you can cash it out for that real pay-per-pay-per money money.
All right let’s get started. For this video I’ll use several examples that way you can apply these steps to whatever exchange or wallet that you’re using but first I want to send crypto to my Tangent wallet from an exchange. So this first one I will be sending crypto from my Coinbase account to my Tangent wallet.
So first I’m going to sign into my Coinbase account and you can sign into whatever crypto exchange that you’re using because again these are going to be the exact same steps for the most part. On Coinbase you want to go to my assets. This is where all your crypto is held. On other exchanges it might say portfolio or wallet or something like that but I’m going to click on my assets and then if I scroll down I want to send Solana to my Tangent wallet. So I can see I have $20 worth of Solana right here. So I’m going to tap that.
And then if I go up here and I hit this transfer button, this will give me a few options. Send crypto, receive crypto, deposit cash, and withdraw cash. I want to send crypto because I’m sending Solana out of my Coinbase account to my Tangent Wallet. So we’ll tap send. Now you can enter your native currency.
For me it’s USD or you can hit this little button right here and it’ll change it to the crypto price but I like to use my native currency because it’s just easier for me. So I want to send $20 of Solana to my Tangent Wallet and next we need to select the recipient, which is our Tangem wallet. So we’re going to tap that. And here we need to enter our Tangem wallet public address.
So let me show you how to get that. All right. So to get our receiving address or public wallet address, we’re going to need to open up our Tangem wallet app and notice that I do not have Solana listed under my coins section. So we need to add Solana to our homepage here. So to do that, go ahead and tap manage tokens, and whatever token that you’re trying to receive in your Tangent Wallet, you could just search for it right here and enable it.
But since Solana is right here, I’m just going to tap it, and then just toggle this little guy to enable Solana, and then tap save changes, and now Solana is on my home page. Notice I already have $32 worth of Solana but that’s besides the point. What we want to do is get our receiving address for Sol on the Solana network.
So I’m going to tap Solana and you can see here it says Solana. That’s the main network. Now to get our receiving address, we want to tap the receive button. And here is our Solana public address. It is this long string of characters right here. And that’s what we’re going to paste into our exchange or our wallet or whatever we’re sending from. We want to paste this address.
Now you can also do this on your mobile app. So if you’re using say the Coinbase app in your phone, you would just hit copy and then you’d go back over to your Coinbase app and paste it into the recipient address on your Coinbase app. But since I’m doing this from my computer, I’m just going to hit the share button and then share it with my MacBook Air, which is where I’m transferring my crypto.
And once I shared it with my macbook I just go into my files open file and it should be in my downloads so it’s going to be right here this text document I’m going to open that up and this is my Solana receiving address for Tangem I’m going to copy that go back to my Coinbase account where I was doing the transfer and I’m going to paste this address into the recipient spot here.
Okay, just tap that. And then if we hit preview send, this will just give us some details. This is the address that we’re sending it to. This is the network that we’re sending it on. So we know it’s the correct network and the amount of time it’s going to take is an estimated less than one minute.
And then there is, this includes the network fee, which is going to be approximately one cent. So if everything looks good, go ahead and hit send now. And I have this set up on a 2FA. So I had to enter the digits from my authenticator app and that’s it we just sent $20 worth of soul to our Tangent wallet you can go ahead and hit done and then if we go and open up our Tangent wallet we should see that it will arrive all right so I go back to my Tangent wallet here on the Tangent app and as you can see I now have $52.55 which is 20 more dollars than I
previously had that took about I don’t know 10 to 15 seconds to arrive in my Tangent Wallet and it’s literally that easy to send crypto to your Tangent Wallet from any exchange. Okay now I’m going to show you how to send crypto from your Tangent Wallet to your crypto exchange that way you can cash it out to your bank account or whatever you want to do and it’s pretty much the same steps, but kind of in reverse.
So instead of getting our Tangent Wallet public address, we want to get our exchanges public address, which is really just our wallet and paste it into the Tangent Wallet. So I’m going to show you how to do that. But instead of using Coinbase for this example, I’m going to use Kraken and I’m going to send some Solana to my Kraken account from my Tangent wallet Okay, so sign into whatever exchange that you’re using again I’m using Kraken and here I just want to go again to the transfer crypto tab and
I want to do a deposit if I were sending crypto out of Tangent I would hit withdraw, but I’m making a deposit and then of course, I want to choose the correct token I’m sending Solana to my Kraken account. So I’ll tap a deposit and then of course I want to choose the correct token.
I’m sending Solana to my Kraken account so I’ll tap Solana and there is no other network that Sol is on it’s only Solana but for example let’s say we were sending Ethereum to the Kraken account. As you can see here there are a bunch of different networks so you just want to make sure that you’re using the correct network and your wallet the Tangent wallet will tell you what network that your crypto is on. So if it was on ETH’s native network, I would click Ethereum and that would be the address that I’m sending it to.
But I’m sending Solana. So this is our deposit address, also known as the public address, the receiving address. And that’s what we want to copy. And we’re going to paste it into our Tangem wallet. Now what I like about Tangem is that you can just open up the app again and then tap on Solana because that’s what I’m sending.
And then this time we’re going to hit this send button. Now I could paste the address if I wanted to send the address to my phone, but if I just hit this little QR code reader up here and give Tangem access to my camera I can just scan the QR code and then that will get the address so this is my Kraken address and that is where I’m going to send my crypto so I’m going to hit next and you can again choose a sole amount but I want to choose the USD amount so I want to choose the USD amount.
So I want to send $20 worth of Solana to my Kraken account. So I’ll type in 20 and then I’ll hit next. And then this is our network fee that we’re going to pay right here, which is like three cents. So if everything looks good, go ahead, hit send. And I’ll have to scan my card here to approve the transaction and it’s that easy the Solana is on my way is on the way to the Kraken account now again the Solana network kind of sucks sometimes so if your transaction does not go through with Solana only,
then you’ll just have to submit the transaction again. Now the time it’ll take your crypto to arrive in whatever crypto exchange that you’re using will depend on a couple of things. First, it depends on the network you’re using. So Ethereum will take longer usually than the Solana network, for example.
And then it also just depends on what crypto exchange you’re using. So my Solana did not arrive instantly in my Kraken account. It took about three minutes. But again, depending on the network, the type of token you’re sending, it could take upwards of one hour. Bitcoin can be even longer. So don’t freak out if it doesn’t show up instantly.
You just have to wait until it arrives. It’ll get there eventually. All right. So depending on what exchange you’re using, you just want to go to your portfolio or your wallet or whatever. For Kraken, I just hit the home button. And as you can see, I’ve got just about $20 worth of Solana in my wallet. And now what I want to do is cash this out to my bank account.
So before I can do that, I need to convert this into my native currency, my fiat currency, which is USD. So to do that, I want to hit sell and obviously what I’m going to do is sell this for some USD. So I want to sell all of it and the fee is 28 cents and I’ll receive a total of $19.38. That looks good. Go ahead and hit confirm. And it’s pretty much sold instantly.
So I go ahead and close out of there. Now you can see I’ve got $19 and 38 cents in my Kraken account. Now what I can do is withdraw this into my bank account. So I’ll just tap on the US dollar and I’ll hit withdraw and I want to use ACH because I have my bank account hooked up to my Kraken account and I want to withdraw all of it.
I need to select the account that I want to withdraw to so I’ll select my account and then I’m going to go ahead and hit withdraw USD. Again it’s going to come up with all the details, my bank account name, the withdrawal amount, and all of that good stuff. If everything looks good go ahead and hit confirm. And that’s it depending again on the exchange you’re using your withdrawal should arrive in your bank account usually within one to three business days.
So your withdrawal should arrive in your bank account, usually within one to three business days. So just keep an eye on your bank account and you should see that crypto come through. Well, I guess it’ll be fiat, but you get what I mean. And that’s it. Once you do it a couple of times, it’s going to be super easy, just as easy as sending an email and it’ll only take you a couple seconds.
You’ll be a pro after you do it a couple of times. That said, just because you store your cryptocurrency on a cold wallet doesn’t mean that it’s immune to scammers. So let’s talk about that. According to the FBI, a massive 90% of crypto hacks happen because of social engineering and phishing scams.
And here’s the tricky part, even cold wallets can’t fully protect you from these because the real vulnerability is at the user level. That’s right. It’s your fault. And it’s my fault. We always got to go and mess things up. But we don’t have to. So how do these scams actually work? Well, let’s start with social engineering. So scammers don’t actually need any access to your wallet to steal your crypto.
They just need to manipulate you into giving them access. So social engineering is all about building trust or creating fear to get you to hand over information that should stay private, such as your wallet seed phrase. Oftentimes scammers will impersonate someone you trust like a support representative from a crypto exchange or from your cold wallet company.
They’ll send you a message saying there’s an urgent security issue with your account or with your wallet, pressuring you to give up sensitive information like your seed phrase, which they use to steer your crypto and I know it all sounds too obvious but when it actually happens to you because this has happened to me of course I didn’t give up my seed phrase because I was aware of this scam but I had someone from coinbase call me and try to get me to go on a website and enter my seed phrase but it’s a lot different when you’re
actually going through the motions versus just reading about it or me telling you about it in this video. Now let’s talk about phishing scams. Phishing takes social engineering to the next level by tricking you into interacting with some kind of malicious website or any kind of platform that has malicious intent.
One of the more recent twists in crypto phishing involves malicious contract approvals. Here’s how it works. A scammer sets up a website or sends you a link that looks just like your favorite crypto exchange or wallet provider or DeFi app. And then when you click the link, it prompts you to connect your wallet and then eventually approve a transaction that actually grants the scammer access to your wallet and then all of your crypto.
So how do you avoid these two super common scams? Well, it’s actually pretty simple. Rule number one is you never give out your seed phrase and you never enter it online on a random website or any website for that matter. If you do, 100% guaranteed you’re getting scammed. As for phishing scams and malicious transaction approvals, the only guaranteed way to avoid this scam is to never connect your cold wallet to any website. It doesn’t matter if it’s a website you trust, one you don’t trust, new site,
old site. You don’t connect your wallet to it because you never really know what you’re connecting to and what you’re approving. That means if you want to swap or stake your crypto, the best way to do it is to use your cold walletets native app or to send your cryptocurrency from your cold wallet to a crypto exchange do your swap there and then send it back to your cold wallet for safekeeping.
That said a cold wallet is still the most secure way to store your crypto so if you are serious about keeping your crypto safe for years to come you need a cold wallet there’s no way around it. I break down my five favorite cold wallets in this next video and what makes some good cold wallets if you want to check it out. I’ll see you over there
