Blockchain 101: Crypto Wallets Explained

Everything you need to know about using, securing, and understanding crypto wallets.

SMooTH

Posted on Apr 16, 2025

If you’ve been following our Blockchain 101 series, you’ve already got the essentials down:

You know that a blockchain is a digital ledger that records stuff in a way that’s transparent, tamper-proof, and decentralized.

You’ve seen how blocks, validators, and consensus keep everything running smoothly.

You even met the two biggest players — Bitcoin and Ethereum.

Now you’ve got the basics down, one question remains:

How do you actually use crypto?

Like, where do you click? What do you download?

Welcome to Crypto Wallets 101 — your guide to safely holding, sending, and interacting with crypto like a pro (without getting hacked or losing your funds to the abyss).

Let’s break it all down in 5 simple chapters. 🔓

1️⃣ What’s a Crypto Wallet?

A crypto wallet isn’t a pouch full of internet coins. It’s more like your blockchain keychain.

Let’s say you have 1 Bitcoin in your wallet.

Your crypto doesn’t “live” inside a wallet. It lives on the blockchain.

Your wallet simply holds the keys that let you access and control it. Not unlike the codes you use to log into your online banking account.

Except with crypto, you are your own bank, and you control your own money.

Let’s look at a few common terms:

Public key = your crypto address. Like your email — people can send stuff there.

Private key = your master password. It proves you own the assets tied to that address.

So when you want to send crypto to your friend, your wallet lets you sign a message with your private key, authorizing the transaction on-chain.

In short: your wallet is like an app that simplifies transacting on the blockchain so you don’t need a PhD in cryptography.

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Example

You want to send your friend Bob some crypto. Bob gives you his Public key, which might look like this: 0x4e833…01311c

It’s totally fine for Bob to share his address with you (and anyone else) — it only lets people send him crypto, not access it.

Now you open your crypto wallet, paste Bob’s address, and choose how much you want to send. Your wallet takes your private key and uses it to sign the transaction.

Once signed, your wallet broadcasts the transaction to the blockchain.

The blockchain’s network of computers (nodes and validators) sees your signed transaction, verifies that it’s legit, and adds it to the next block.

A few moments later, Bob sees the crypto in his wallet.

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Did you know?

Crypto addresses are long and messy (like 0xABC123…). That’s why tools like Ethereum Name Service (ENS) exist.

ENS lets you link a short name like bob.eth to your Ethereum wallet — way easier to send and remember. Think of it like a crypto version of a website domain: unique, owned, and customizable.

No more copy-paste anxiety. Just type the name and go. ✅

Wallets come in all flavors: there are apps for your phone, USB-like hardware devices, browser extensions, even pieces of paper. But they all have one job: manage your keys so you can control your crypto.

2️⃣ Types of Wallets

Each comes with its own perks and trade-offs. The main distinction? Who controls the keys and whether the wallet’s online or not.

🧑‍🏫 Custodial vs Non-Custodial

Wallets come in two types. The difference? Choosing between convenience and control.

Custodial Wallet: A wallet where a third party (like an exchange) holds your private keys.

Think: A bank account — easy to use, but you're trusting someone else with your funds.
Example: Binance, Coinbase, Kraken (exchange wallets).
Better for: Quick trades, beginners, or storing smaller amounts you access regularly.

Non-Custodial Wallet: A wallet where you hold the private keys. You control your assets completely — but also bear full responsibility.

Think: A safe only you can open — lose the key, and access is gone forever.
Example: Rabby, MetaMask, Phantom.
Better for: Long-term storage, security-conscious users, or managing larger holdings.

Most crypto users have more than one wallet, and use both custodial and non-custodial wallets for different reasons.

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“Not your keys, not your coin” 🪙

A well-known phrase in crypto that means: if you don’t hold the keys to your assets, you don’t actually own them.

Banks (and centralized exchanges) can freeze your account anytime — often due to automated flags or vague “security reasons.”

And when that happens, your money isn’t really yours. (Remember FTX?)

🔥 Hot vs ❄️ Cold Wallets

Despite the names, this has nothing to do with temperature. It’s all about how you use them — and how accessible (or secure) your crypto is.

Hot Wallet: A wallet connected to the internet. Super convenient for daily use, but more exposed to risks like phishing or malicious contracts.

Think: Your digital wallet — always online, always ready.
Example: Any non-custodial wallet.
Better for: Trading, gaming, NFTs, and frequent transactions.

Cold Wallet: A wallet that stays offline. Way harder to hack, but slower to use. Ideal for storing crypto you don't plan to move often.

Think: A locked vault in your basement.
Example: Ledger, Trezor.
Better for: Long-term holding, large amounts, or deep storage security.

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Hot vs Cold

The same wallet can be “hot” or “cold” depending on

whether you use it in daily transactions and connect to smart contracts with it (=risky = “hot”)

or you never connect it to anything and exclusively use it for storage (= less risky = “cold”).

🧠 Smart Contract Wallets

Smart Contract Wallets run on-chain, using smart contracts instead of traditional private key logic. It can be programmed to include advanced features and security rules.

Think: A self-driving wallet with built-in safety features and custom rules.

Example: Abstract Global Wallet, Argent, Safe.

Better for: Users who want flexibility, extra security (like getting help if you lose access), and more control without sacrificing convenience.

Unlike traditional wallets, these don’t rely solely on a private key. They’re programmable, and are getting more popular as wallets evolve to be safer and more user-friendly.

3️⃣ What Can You Do With a Wallet?

Unlike traditional wallets, crypto wallets aren't just for holding coins — they’re your passport to the entire Web3 world.

Here's what they unlock:

💸 Send & Receive Crypto

Instantly transfer assets across the globe, 24/7.

Use your wallet address (or ENS like bob.eth) to send and receive funds.

Like PayPal, but without borders or middlemen.

🌐 Access dApps (Decentralized Apps)

Connect to DeFi platforms, NFT marketplaces, blockchain games, DAOs, and more.

Your wallet acts as your login — no email or password required.

A universal Web3 login that also holds your assets.

🎮 Play Web3 Games

Own in-game assets as NFTs.

Earn tokens through gameplay (play-to-earn or on-chain gaming).

Your wallet is your game inventory and player ID.

🖼️ Buy, Sell, and Store NFTs

Mint (=create) new NFTs, buy them on marketplaces, or display them in your wallet.

From digital art to memberships and identity — it’s all stored in your wallet.

A digital gallery and proof of ownership in one.

🏦 Use DeFi (Decentralized Finance)

Swap tokens, earn yield, lend assets, or provide liquidity — directly from your wallet.

A self-directed bank account with more earning power (and more risk).

👥 Vote in DAOs

Use governance tokens in your wallet to vote on decisions in decentralized communities.

Your voice in the Web3 space, backed by tokens instead of ballots.

As you can see, wallets can be used to prove ownership, verify your identity, create accounts, trade, vote, and many other blockchain-based interactions.

It’s your very own decentralized ID — your unique signature on-chain.

4️⃣ Seed Phrases & Security

Uncle Ben in Spider-Man (2002)

More than a Spider-Man cliché, this saying rings especially true in crypto.

You get full control — but you’re also in charge of security. Lose access to your wallet? Tough luck. Nobody can help you get it back.

That’s why most wallets come with a seed phrase. This phrase is like the master key to your crypto account.

Let’s talk about what it is, and most importantly: how to protect it.

🌱 What’s a seed phrase?

A seed phrase (or recovery phrase) is a list of 12 or 24 randomly generated words — created when you first set up your wallet.

It can regenerate all your private keys, addresses, and access to your funds.

Even if you uninstall your wallet app or lose your device, your seed phrase can restore everything.

But here’s the flip side:

Anyone with your seed phrase has complete access to your wallet.

Lose it, leak it — and your funds are gone forever.

🔐 Best practices:

Write it down on paper (or better, engrave it on metal).

Never store it digitally (no screenshots, no cloud, no “notes.txt”). Seriously. Never.

Make multiple backups, stored in separate safe places.

NEVER share it. Not with “support agents,” not with “airdrops,” not even your dog.

Don’t forget where you stored it

Future-proof it. If something happens to you, make sure one trusted person knows how to recover it.

Source: https://www.ledger.com

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Wow, that’s a lot of work..

You don’t say. But there is good news! For years, smart builders have been looking for more user-friendly solutions. A way to protect your assets without giving up custody.

Safe is a prime example, offering multiple security features such as social recovery, role-based permissions (for team or family use), and multi-signature access.

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Did you know?

Bitcoin’s anonymous creator, Satoshi Nakamoto, hasn’t touched their wallet since 2010.

That wallet still holds over 1.1 million BTC — worth tens of billions of dollars today.

If the seed phrase is lost (and many believe it is), those coins are locked away forever — a haunting reminder of how crucial self-custody really is.

5️⃣ Common Mistakes & How to Avoid Them

Even with newer wallets making security more user-friendly, there’s still a lot that can go wrong.

So before you learn the hard way, here’s a list of common mistakes to avoid — whether you’re deep into crypto or just getting started.

❌ Mistake	💥 Why It’s Risky	✅ How to Avoid It
Losing the Seed Phrase	Losing your only recovery method = permanent loss of funds.	Store multiple physical copies in secure, durable locations (e.g. safe, metal plate).
Falling for Phishing Scams / Blindly Signing Transactions	Fake websites, private messages, mails etc. can trick you into giving away your seed phrase.	Verify URLs, bookmark legit sites, do not download any files from strangers, never share seed phrases — even with "support".
Sending to the Wrong Address	Crypto transactions are irreversible — one typo and it’s gone.	Always double-check, use copy-paste or QR codes, and verify on-chain.
Storing Large Amounts on Hot Wallets	Hot wallets are always online — making them more vulnerable to hacks.	Use cold wallets (like Ledger or Trezor) for significant or long-term holdings.
Using Insecure Devices / Not Updating Software	Malware or compromised devices can expose your wallet keys, outdated apps may have vulnerabilities hackers can exploit.	Use trusted devices, keep antivirus, browser apps and browser up to date.

I could write an entire article on staying safe online (and maybe I will), but if you follow these basics, you’ll be ahead of 90% of users — and way harder to scam.

6️⃣ Conclusion

🎓 So, what have we learned?

Wallets aren’t just for storing crypto — they’re your gateway to Web3.

There are different types: custodial vs non-custodial, hot vs cold, and now smart contract wallets that are making things more flexible and secure.

But with great power comes great responsibility — especially when it comes to seed phrases, scams, and best practices.

..Why is everything so complicated? 🥲

In one word? Newness.

Think back to the early internet days.

You had to dial into a server. Web pages loaded pixel by pixel. It was slow, clunky, hard to use. People thought it was a passing fad.

From the Daily Mail, Tuesday December 5, 2000

There were no QR codes. No “Share” button. Interoperability was just a word.

But look where we are now: seamless logins instant payments, everything integrated. It took time, iteration, and people willing to figure things out while it was still awkward.

That’s exactly where we are with blockchain and wallets. Blockchain tech is already sneaking into your daily life — it’s just hidden behind cleaner interfaces.

Many mobile games now run tokenized economies in the background. Digital collectibles, reward systems, even digital ID projects — all powered by blockchain, but without calling attention to it.

Animoca Brands, one of the biggest Web3-native ecosystems.

What feels experimental today will feel obvious tomorrow. The tech will catch up to the vision.

In the meantime, let’s keep learning!

Job isn’t done. Stay tuned for more!

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So far, in our Blockchain 101 Series: