What is a wallet?
NFTs are created on the blockchain and stored inside an application known as a wallet. A crypto wallet is like an online bank account that allows you to communicate and interact with the blockchain. Every wallet has a unique address (similar to routing numbers and account numbers) that allows for the transfer of NFTs from one wallet to another. Instead of a traditional password, wallets use private keys to ensure the security of your NFTs so others cannot access them. Think of it as a universal password. Crypto wallets, unlike traditional bank accounts, can be accessed from anywhere and do not rely on banks or other centralized institutions to handle the storage and movement of assets. One downside, however, is that crypto wallets have no protection against lost or stolen items. This makes the type of wallet, and how you choose to store your private key, of utmost importance.
Types of wallets
There are two types of wallets: hot wallets and cold wallets.
Hot wallets are wallets that are connected to the internet. This connection may be facilitated through crypto exchanges like CoinBase, Trezor, and MetaMask. Due to this constant connection, hot wallets are always accessible and can easily be used with a variety of online applications to trade and sell NFTs. Being connected to the internet constantly does increase the risk for online attacks and makes hot wallets much less secure.
Cold wallets are wallets that are not connected to the internet and allow NFTs to live on physical storage devices like a flash drive. Cold wallets are the most secure way to store your NFTs and other cryptocurrencies since they are not vulnerable to remote attacks. Of course, there have been numerous occasions where people misplace their cold wallets and the assets inside are lost potentially forever.
Which one is best for NFTs?
Typically the type of wallet you should use should depend on the value of the NFT being stored on the wallet. If you have a small collection and have not spent a significant amount, a hot wallet will be perfectly suitable for security as long as you take care to protect your private key. The benefits of a hot wallet’s ability to easily connect to platforms like OpenSea outweigh the cons when there is not a significant amount on the wallet to lose.
If you have large amounts of crypto and very valuable NFTs stored in your wallet, you should consider purchasing a cold wallet that still gives you the ability to connect online. An example would be Ledger’s cold storage wallet which gives you the security of a cold wallet but the accessibility of a hot wallet. This type of wallet will cost significantly more but will ensure the safety of your assets.
Seed phrase vs. private key
Your seed phrase, or recovery phrase, is a master password consisting of a group of words that unlocks your crypto wallet. Your unique seed phrase is generated when you first open a crypto account and you never want to share your seed phrase with anyone. You use your seed phrase to retrieve your account, not your private key, which you use to send or spend your crypto to just one address. Cracking seed phrases is nearly impossible. People can easily store and retrieve their private keys using a seed phrase. Although both allow someone to spend the funds in a specific wallet, seed phrases and private keys are not the same. A seed phrase can be used to generate private keys in crypto wallets. The essential point to remember is that your decision should be tailored to your personal financial needs, goals, and risk profile.
Crypto wallets can be intimidating at first. Every day there are new hacks and fraudulent activities that have made wallets more frightening than ever. As wallet technology continues to improve, the process of onboarding NFTs will improve as well. Companies like Nifty Bridge are taking strides to protect customers by simplifying the onboarding process and building wallet technology that is both easy to use and safe to store. If you are curious to learn more about wallets and how to keep them safe please click here for more information.