If you dig into the world of NFTs it is imperative to dwell on an important topic: crypto wallets. A crypto wallet is a tool you need to interact with a blockchain network.
The wallet stores the public and private keys of an address and can be considered as your personal account, just like a personal bank account where you can store your cryptos. It is not possible to lose cryptocurrencies but in the case of a non-custodian wallet, you could lose the private keys that give you access to those cryptocurrencies.
Hot storage, cold storage custodial & non custodial
A wallet can be defined as hot storage when it is connected in some way to the Internet, which means that the private keys have been stored on a device connected to the Internet. On the contrary, when we talk about cold storage wallets, we refer to a wallet whose private keys have never met the Internet.
Obviously, having a cold storage wallet is extremely safer, as it is much more difficult to be robbed of something that has never entered the network. Moreover, depending on the preservation method of the wallet’s private keys, it can be:
- Custodial: like a bank or a social network where the passwords (private keys, seeds) are centralized and therefore if they get lost, recovery can be made through customer support. This solution is less safe because the servers where this information is stored can be hacked so users could lose all their cryptos.
- Non-custodial: in this case, passwords, seeds and private keys are in the hands of the user and it’s only up to him to keep them safe. If he loses them, access to all crypto content will be lost forever.
The Types of Wallets
There are basically three main types of wallets:
- Paper wallets: A paper wallet is the easiest possible form of a cold storage wallet, and it is nothing more than its copy: private key-address, printed on a piece of paper in the form of a QR code. The safety of a paper wallet is therefore directly proportional to the security of the place where the sheet of paper is stored.
- Software wallets: A software wallet is basically an application that can be installed on a PC or smartphone. In this case the private key is encrypted and stored on the device itself. Consequently, if the device on which the wallet is installed is compromised, the private keys are at risk and therefore also our cryptocurrencies.
- Hardware wallets: Hardware wallets basically look like real small physical device, which stores keys. However, these devices are in no way connected to the network, thus falling into the category of cold storage. Hardware wallets are extremely safer than software wallets, in fact the private keys in this case are stored in a protected area of the device from which they cannot be extracted. The user in possession of a hardware wallet signs the transactions through the device so even if the wallet is also connected to a compromised machine, the private keys will remain safe.
Hardware wallets currently represent the best compromise in terms of security and simplicity.