Peace and love everyone It is an exciting time for all of us with the arrival of the long-awaited GME Wallet I have noticed a lot of interest in it which is great but can also be risky So I wanted to share some info on wallets to help everyone stay informed and safe.
One of the biggest challenges in Crypto has been the confusing nature of wallets so it makes sense that many people have not taken the time to learn the basics Which are really important for making smart decisions, especially with cryptocurrency.
I will break this down like this:
- Simple explanation of what different wallets do
- Visual aids for those who learn better that way (read them from bottom to top)
- A more detailed explanation towards the end for those interested in more info
~~ Please let me know if there are any mistakes or additions needed and I will happily update it ~~
Explain Like I’m 5
When we go outside to play (use web3), we need to wear pants (a hot wallet) Pants help protect us (seed phrase/private keys) and help us fit in socially.
Sometimes we might need special pants (meta mask) or other kinds (GME wallet). There are occasions that allow us to wear different kinds of pants depending on what we need, thanks to a relaxed dress code (many wallet options available).
BUT just wearing pants can be risky What if they get ripped (hacked) or dirty (phished) Someone might see our legs and private parts (keys)! So an extra layer of protection is wearing underwear (hardware/cold wallet) No one should see our underwear except for us or if we allow it (manually confirming transactions on the device) This helps keep our legs and private parts safe (writing down our seed phrase and keeping it securely).
If we switch pants, for instance, from blue to green (changing wallets), only the outer layer changes but inside we still have the same legs and private parts (seed phrase/private keys).
Explain Like I’m SEC
Cold vs Hot wallets
There are two main types of wallets:
Cold (hardware) and Hot (software/web). Both serve as digital storage on a blockchain that lets us hold cryptocurrencies We are given access via a private key (10-20 word seed phrase) and a public address (0x…)
Cold wallets offer the highest security They are not connected to the internet and require a manual confirmation on the device for transactions (like sending funds) Cold wallets generate their seed phrase (private key) offline ensuring it never touches the internet or gets stored online The seed phrase is shown only once and cannot be retrieved later.
Hot wallets are convenient and accessible but less secure They are fine for smaller daily transactions but because they are connected to the internet, they carry risks for larger assets There have been many hacks involving hot wallets, which you can find information about online For hot wallets, transactions approve on the device or browser If a hot wallet is non-custodial, the seed phrase isn’t stored on a server but could still potentially be compromised An attacker could then access the wallet without the owner’s knowledge or confirmation.
Companies that offer software/hot wallets invest heavily in security to protect users, but hackers are always trying new methods Loopring stands out among software wallets because it uses Social Guardians instead of seed phrases This, along with address whitelisting (allowing only specified wallets to transact) makes it harder for funds to be stolen in case of a hack since multiple confirmations are needed This approach also supports wallet recovery in general.
As you might guess, having thousands of dollars in a hot wallet with the security key recorded on a piece of paper has caused problems for many users Social Guardians offer new methods to recover lost or blocked wallets which is one reason I strongly support LRC.
Levels of Security
No matter which wallet type we pick, we need to connect them to sites to access web3 benefits This means we share permissions allowing websites to view our public key and carry out transactions if needed.
We can combine Cold wallets with Hot wallet interfaces to enjoy both security and convenience For example, I own a Trezor hardware wallet that stays unplugged It connects to MetaMask (using my cold wallet 0x… address) and allows me to interact with decentralized apps (dApps) When I make a transaction, I still need to physically press a button on my hardware wallet to confirm It’s a secure and reliable process It might take more time but it’s much safer.
Loopring is often seen as a hot wallet, but due to features like guardians and being non-custodial (our phone acts as the secret phrase, and no one at LRC can access our data) it acts more like a warm wallet Social guardians can also be cold wallets that we own and have whitelisted for added safety.
Keeping just a hot wallet as our main account is generally frowned upon in the crypto community In the future, Layer 1 and Layer 2 fees will be much cheaper It’s usually advised to send money to hot wallets for transactions, but not for holding them long term.
Note: It’s also not recommended to keep all our funds in one wallet, whether it’s cold or hot I have 2 Cold wallets and 4 Hot wallets on the ETH mainnet (that uses the Ethereum blockchain) Not to mention 4 other currencies with their own wallets/nodes They are basically free and splitting them up can enhance security.
examples of dApps
As the web3 ecosystem develops from finance, banking, exchanges, to games, social media, and news we will feel more comfortable connecting our wallets to various sites It shows that we own the assets in the wallet (even if they’re not being sold or bought For example, holding a season pass as an NFT in our wallet might grant us access to a specific area of a journalist’s website) It also helps authenticate who we are in a semi-anonymous manner.
Longer reading
Wallets are essential in the crypto world Thankfully developers (or devs) have picked a really practical name for this tool because a wallet is just what you’d expect a place to store your money Digital money that is, in encrypted form.
When we use a credit card, driver’s license, or cash, we usually reach into our wallet for these When it comes to holding these items, wallets help keep things organized and secure If you’ve ever lost a wallet, you know how much of a hassle it can be to freeze accounts and recover everything Sometimes, it can take weeks and certain items like cash might never get back In the same way we protect our physical wallets, we need to consider crypto wallets.
But with crypto wallets, there’s much more at stake It’s not just about theft but also about losing access completely If I lose my bank card, I can just call the bank to freeze my card and get a new one Simple enough This is the key difference: in crypto, there is no customer service The decentralized nature means there isn’t a central authority overseeing our funds.
So what does this mean Exactly… Why is decentralization pushed if it feels risky Well Spiderman said it best with great power comes great responsibility When there’s no customer service, we become our own support system When there’s no central bank, we gain independence and authority And that’s the whole idea behind it
No customer service means no one can control how we spend our money, no withdrawal limits, no transfer restrictions, and so on So we get certain features at a cost Let’s get back to wallets There are essentially two wallet types to keep in mind as mentioned above: a HOT wallet, and a COLD wallet.
Hot and cold just refer to security In a hot wallet, our assets are stored on a mobile or browser app Essentially, they’re securely stored, but accessible via a program or addon connected to the internet A cold wallet stores assets on a device that isn’t connected to the internet like a USB drive.
Meta Mask is the most popular form of hot wallet It’s a browser addon that grants access to a wallet for storage and a number of DeFi websites We can transfer crypto bought on Coinbase for instance to our MetaMask wallet, and then use that to connect with sites like Bancor.
The issue with hot wallets is that since there’s internet access (though secured and encrypted by the company’s processes), they are vulnerable to hacking Companies like MetaMask work hard to keep their app secure, but hacking remains an ongoing risk Programmers are talented, and scammers are everywhere so hot wallets come with that risk.
A cold wallet, on the other hand, is offline, like a super secure USB stick that we only connect when we want to make transactions This creates an air gap of sorts Hackers can’t reach what isn’t connected to the internet While someone could steal the physical device and try to break in, this is less likely unless you’re a prominent target.
Companies like Trezor are considered top-tier cold (hardware) wallets and have been around for a long time With a small screen, you have to confirm any outgoing transactions with a button while the device is plugged in with the software running
To set up a cold or hot wallet, we need to write down our seed phrase This is a series of 10-20 randomly generated words that are the key to our crypto assets.
No one else should know this information Once shown, it can never be regenerated as it is created entirely offline This seed phrase is crucial to securing our assets Most wallets will guide us through verifying the seed phrase so we type the words in again to confirm we’ve recorded it right.
And yes… we have to write it down on paper! You might ask why in this high-tech world we still use a pen and paper Well consider this situation:
If we take a screenshot of our seed phrase and save it in our phone’s library, is that really safe? What happens if the phone gets lost, or if we visit a site we’ve trusted that ends up getting hacked? An attacker could take that shot and our seed phrase, allowing them to access our wallet without our consent or knowledge.
Even if our phone is super secure, if it syncs to cloud storage, that could be a risk too if the cloud gets hacked. We can never be too cautious. For safety reasons, we should avoid having our seed phrase in any digital form. Not even typed to print since someone could dig up deleted files on a hard drive easily.
Those who want extra protection might even store that piece of paper in a strong metal container or safe keeping it as our only access point to the wallet. Treat it very seriously.
Once we secure our seed phrase, we can pretty much forget it. Our everyday transactions use our public key This is another random string of code that allows public access to view our wallet It looks like this ‘0xh9daDHhjha77ad7dabh…’ This is also how others can transfer assets to us Essentially, the public key acts as our address or our blog URL where others can find us (as a bonus we can link an ENS address to a public key giving it a simple web address).
Newer platforms like Loopring (an original protocol, though some features are new or still evolving) have changed the landscape They introduced Social Guardians providing enhanced security for software wallets (your phones) with Layer 2 functionality This means that every time we create a wallet (as opposed to Layer 1 wallets that are free), we enter a contract and pay a fee.
It has been shown that even if the relayers face issues, we still can pull our assets since they’re not tied to the organization This means LRC doesn’t access our funds while we interact with the layer 2 protocol
The GameStop wallet is quite similar to the Loopring wallet In fact, Loopring assisted in building it! However, GME chose to use seed phrases instead of social guardians They allow us to connect cold wallets to the backend (by providing a 0x… address and seed phrase from offline storage) adding another layer of security Personally, I prefer this over social guardians for now, but I know that technology will evolve. Both wallets let access to the NFT marketplace (along with MM), and you just need to keep either one. It is fine to have multiple too to ensure you have flexibility If all apes switched to GME wallet, the company wouldn’t gain any advantage (perhaps more download stats or marketing data).
I wouldn’t recommend switching wallets to GME when you can easily create new ones inexpensively (using L2 Loopring as activation) when gas prices are low Moving wallets is a bit risky from a coder’s standpoint I have heard this from some pros too Unless you are handling a significant amount of funds in one wallet and prefer to avoid transfer costs, which goes against two principles don’t keep valuable funds in hot wallets, and only use them for minor transactions or trades, not as a long-term storage option.
If anyone has further questions, I encourage you all to engage I have a busy work week ahead but hope the visual aspects really clarify the message There’s a ton of information online about all of this, as what I mentioned isn’t new (except the pants analogy).
I suggest testing things out Get hands-on experience learn how it all works and develop curiosity about the technology This will lead to greater understanding Use funds you can afford to experiment with Make small or fun transactions just to explore (and please check online for answers before posting questions here)
Hope this helps Thanks for reading and keep shining everyone
Now we wait Thanks!