An Introduction to Crypto Wallets in DeFi
“But can’t I just keep my holdings on Coinbase or Binance?”
You’ve seen the commercials; you’ve read the magazine ads. It’s simple, right? You can buy and sell cryptocurrencies in a growing number of places. You can log into your bank account and see how much fiat currency you have. In much the same way, you can log into any number of centralized exchanges (CEXs) and view your crypto holdings.
So… why does anyone need a non-custodial wallet? (Or, better yet, what actually is a crypto wallet?)
Crypto wallets are digital wallets that facilitate the storing and transferring (i.e., sending or receiving) of cryptocurrencies on one or multiple chains. Perhaps the most important part of that sentence is the last two words: multiple chains.
In the world of crypto, there are many different blockchains, including Binance, Ethereum, and Polygon — each with their own on-chain tokens. You can think of blockchains, or simple “chains,” as networks that record all of the transactions made.
If you hold tokens from more than one blockchain — such as Ethereum (ETH) and Binance (BNB) — a multi-chain crypto wallet is a single, easy place to keep tabs of all of your holdings, rather than logging into a number of different accounts.
Keeping your holdings safe starts in your wallet
You’re careful with your physical wallet, and that same care is needed with your crypto wallet as well. First, the initial setup of your crypto wallet means that you’ll be given a recovery phrase. The recovery phrase is what enables you to access your wallet, and it must be treated with the utmost safety and secrecy.
A few tips:
- Write your recovery phrase down and store it in a place that only you can access. That could be a home safe or even a safe deposit box at your local bank.
- Do not snap a picture of your recovery phrase on your mobile phone. If someone accesses your phone… you guessed it, they now have access to your wallet.
- It goes without saying, but do not share your recovery phrase with anyone else. Whoever has access to your phrase controls your wallet.
Don’t believe us? There are endless stories of crypto millionaires who can’t access their holdings because they lost their recovery phrase. There is no “Reset Password” capability on your crypto wallet.
Disconnect your wallet when you’re not conducting any transactions
A crypto wallet enables you to send, receive, and store crypto holdings. But let’s say you want to use a decentralized app (dApp) or just swap one token for another.
For that, you need to use your wallet with the dApp or decentralized exchange, and that means “connecting” your wallet. Just like you’d log out of a public computer before walking away, this rule is simple: connect your wallet, do what you need to do, and then disconnect.
Don’t interact with random tokens
The crypto version of phishing is a random token that suddenly appears in your wallet. It can occur via airdrop or because someone sent it to your wallet’s address. If you didn’t purchase that token, or you don’t know why you’re receiving or who the sender is, then don’t interact with the token. Airdropped tokens with malicious intent, also known as “dusting attacks,” are an increasingly common means for scammers to gain access to your wallet. Interacting with dusting attack tokens like these is akin to opening the door to thieves.
Summing it up: The world system has changed a lot since the days of piracy and train robbery, but thieves and scammers still lurk in many places. You’ve probably read many articles about crypto scams, but a few basic tips (along with a mindset of safety) can protect you from many of them.
If you’re just getting started to crypto, be sure to get started the right way — manage and guard your crypto wallet like your financial dreams depend on it. (Because for many of us, they do.). Want to learn more about crypto wallets, including the difference between “hot” and “cold” wallets? Visit the Bridges Knowledgebase to get further information.