What is a crypto wallet?

Key takeaways:

• Crypto wallets are software tools that secure your public & private keys and serve as your digital identity on Web3.
• There are two types of crypto wallets: custodial (or exchange) wallets that delegate ownership of your funds & self-custodial wallets (Phantom) that let you own your assets.
• Phantom Wallet provides a sleek, user-friendly, and secure interface for managing your crypto and tokens across Ethereum, Polygon, and Solana blockchains.

Most crypto beginners start by opening an account on a crypto exchange like Coinbase. Although exchanges have become the go-to entry point for newcomers to web3, it's crucial to recognize the inherent risks associated with exchange wallets, as they exercise control over your assets.

Opting for self-custody wallets like Phantom presents significant benefits, granting you complete authority over your crypto holdings and enabling seamless access to the vast landscape of web3 applications.

In this article, we'll explain what a crypto wallet is, how it works, and how you can use it to protect your digital assets.

What is a crypto wallet?

Crypto wallets are software tools that enable users to securely access, manage, and interact with their cryptocurrencies by storing their cryptographic keys. These cryptographic keys (also known as public and private keys) allow users to access digital assets on the blockchain.

How do crypto wallets work?

Contrary to popular opinion, crypto wallets don’t actually “store your crypto.” Instead, they store your public and private keys, which let you access your crypto assets.

When you sign up for a crypto wallet, two keys are created: a public key and a private key. Think of public keys as a mailbox where anyone can email you if they have its address. In contrast, private keys act as the “password” to this mailbox, and can access all stored emails or change its settings.

Here’s an example of a public key on your Phantom wallet:

A public key is a long sequence of random letters and numbers, around 26-42 characters long, and is derived from the private key.

A private key on Ethereum is made of 64 characters. Your Phantom wallet stores your private key, and references it when you sign any transactions.

When setting up a new wallet, you’ll be given a secret recovery phrase, which is your wallet’s private key in a human-readable format. Your recovery phrase is what gives you access to, and control of, your account, so be sure to keep it safe. The length of this secret recovery phrase depends on the chain, but is usually about 12 to 24 random words.

Custodial vs self-custody crypto wallets

Custodial and self-custodial wallets primarily differ in who owns the private key of your account.

When you create an account on a crypto exchange, the exchange generates a wallet for you and holds your private key. In doing so, they act as the "custodian" of your wallet.

However, this also means they have direct access to your funds, which could potentially be used for various purposes, such as lending or investing, without your explicit permission or knowledge. Some crypto exchanges have also been known to restrict withdrawals in case of market downturns.

Self-custodial wallets are the solution to this problem. In self-custodial wallets, you have true ownership of your funds. No third party can access your private key, which means you’re responsible for storing and securing it.

Types of self-custody wallets and why use Phantom?

There are primarily two types of self-custodial wallets: hardware and software.

Hardware wallets, like Ledger, are physical devices that generate and store your private keys offline.  While these wallets are typically adopted as long-term storage solutions, they require an upfront investment and are less convenient for day-to-day transactions. Phantom supports Ledger hardware wallets. Simply import your existing Ledger accounts and you’re ready to go.

On the other hand, software wallets generate and store your private keys in the wallet itself, and offer a more convenient way to access your crypto. Software wallets exist as browser extensions and mobile apps.

As a self-custodial software wallet, Phantom provides a safe and intuitive way to manage your assets, trade NFTs, and connect to your favorite dapps across Ethereum, Polygon, and Solana.

Phantom is 100% free and offers a few key advantages that set it apart from other software wallets:

Use one wallet for everything

• Instantly import all your accounts from any wallet and manage them all within Phantom.
• Access any app on Ethereum, Polygon, and Solana.
• Use multiple chains without having to manually switch networks.

Access powerful tools

• Make lightning fast swaps with super low fees with Phantom’s in-app swapper.
• Catch and deny malicious transactions in real time with Transaction Previews.
• Personalize your accounts with custom names and avatars. Organize them with drag and drop functionality.

Do more with your NFTs

• The collectibles tab showcases your NFTs and supports all file formats including audio, video, and multidimensional NFTs.
• Search for NFTs and pin your favorites. Hide and remove unwanted spam, discover new collections, and manage listings all from within your wallet.
• NFT details like floor price, last sale price, total return, and total unique holders are at your fingertips.
• Full transaction history and rich notifications for NFT bids, sales, and listings keep you informed at the speed of the market.

Phantom is available on Brave, Chrome, Microsoft Edge, and Firefox browsers, as well as iOS and Android mobile devices. Still don't have it? Download Phantom.

What can you do with crypto wallets?

Since their inception, wallets have evolved significantly in terms of functionality and purpose. In the early days, wallets primarily served as secure storage for private keys, granting access to one's cryptocurrency assets. Today, however, wallets have become indispensable tools for engaging with a multitude of blockchain-based services and applications. They now act as gateways, enabling users to interact seamlessly with various aspects of the blockchain ecosystem.

Buy, trade, or lend your favorite crypto

A crypto wallet is essential for connecting to decentralized exchanges such as Uniswap or lending platforms like AAVE.

Connect to marketplaces and collect NFTs

Your Phantom wallet lets you connect seamlessly to major marketplaces like Opensea, MagicEden, and Tensor.

Immerse yourself in web3 games

With Phantom, you can connect to games and manage your in-game NFTs and tokens.

In essence, crypto wallets act as the identity layer of web3 — allowing access to a wide variety of decentralized applications with a couple of clicks. Visit our Explore page to discover and learn about the top apps, games, and NFT projects.

Explore web3 safely with Phantom

Ready to get started with self-custody? Your Phantom wallet keeps you safe as you explore all of web3. We’re excited to be there every step of your crypto journey, so if you haven’t yet, download Phantom and experience the new digital economy first-hand.