Digital Wallets: What are they and why do I need one?
Digital Wallets
A Digital Wallet (commonly known as a Cryptocurrency Wallet) is an essential item that holds all of your digital tokens and connects you directly to blockchain technology. Think of it like your physical Wallet, but built for the digital Web3 world.
Your Keys, Your Coins
Your Keys, Your Coins, is a popular saying that highlights the primary feature of all Digital Wallets, ‘self-custody’. Self-custody means that everything kept inside of your Digital Wallet, is yours and only yours. Think of a real Wallet that holds your bank cards, these bank cards have a pin number that only you know. This is similar to a Digital Wallet, only you can access the assets in your Digital Wallet using what’s called a Private Key.
Everything stored inside your Digital Wallet is actually stored on the blockchain, whenever you want to access your assets in your Digital Wallet, you access them using a Private Key that only you know. Your private key proves your ownership of your digital assets and this key allows you to sign for transactions. You must always keep your private key safe and secure, If you lose your private key, you lose access to your digital assets in your digital wallet.
What can I do with my Digital Wallet?
Securely store your own private keys
Manage all your digital assets in one secure place
Interact with decentralized protocols like Trader Joe
Use your digital wallet in any shop that accepts cryptocurrency
Send and receive digital assets to any wallet anywhere in the world
What are my Digital Wallet Choices?
There are dozens of digital wallets that you can download for free, many of them come with unique features, but all of them provide the same service of storing your digital assets safely and securely.
The most popular Digital Wallets:
Metamask
Coinbase Wallet
Trust Wallet
Core App
What is a ‘Hot’ and ‘Cold’ Wallet?
Hot (Software) Wallet
A hot wallet is a type of digital wallet that stores private keys on a device connected to the internet, such as a smartphone or PC. Hot wallets are generally very convenient and are perfect for actively participating in decentralized finance (DeFi) protocols, minting non-fungible tokens (NFTs), and interacting with smart contracts.
Hot wallets usually come in the form of a browser extension or a smartphone application. This makes them very similar to traditional banking applications but comes with its own set of risks. Being connected to the internet means that hot wallets are a perfect target for malware and hackers
These risks can be decreased by using antivirus software and generally being careful around the internet, but they are never completely eliminated. For those who want extra protection from potential risks, cold wallets are suitable alternatives.
Cold (Hardware) Wallet
A cold wallet usually comes in the form of a dedicated device that isn’t connected to the internet. Private keys are stored on the cold wallet device itself and never leave it. This means it is at a far lower risk from potentially being hacked and having the assets stolen. The drawback is that Cold Wallets make interacting with decentralized protocols and transferring assets more difficult, since it can’t be done with just a phone or a computer.
Cold Wallets are often used as long-term storage options due to their security. Ledger and Trezor are the most popular cold wallets. They connect to a computer through USB and require users to physically approve each transaction on the device.
Should I choose Hot or a Cold Wallet?
Both hot and cold wallets have strengths and weaknesses. Both types provide good baseline security if used properly, but cold wallets come with an additional layer of protection. Cold Wallets however, make a trade-off in convenience for defi usecases. The final choice between cold and hot wallets will be up to you and will depend on your needs and preferences. The general recommendation is to use both approaches in tandem, for maximum convenience without sacrificing security.
In Summary
Digital Wallets are necessary tools needed to gain access to the blockchain. They store all of your cryptocurrency tokens, such as coins and NFTs. There are different types you can use, but ultimately they all serve with the key purpose of keep your digital assets safely and securely stored on the blockchain.
About Trader Joe
Trader Joe is a one-stop-shop decentralized trading platform native to the Avalanche blockchain. Trader Joe offers a comprehensive DeFi platform where you can Trade, Lend and Leverage, participate in a Launchpad and shop for NFTs. Visit Trader Joe and discover what DeFi can really offer.