On a really simple level, a wallet is just a personal and unique cryptographic key (as shown below). Wallet apps like Rainbow are user interfaces that allow you to create, store, and manage cryptographic keys without having to have technical skills or knowledge.
In this article, we’ll break down exactly what a crypto wallet is, the wallet components, and the purpose of interoperability so you can successfully navigate the world of crypto and web3.
What is a wallet?:
A crypto wallet holds your secret phrase/private keys. Your phrase/private key are the passwords that give you access to your crypto. This allows you to send and receive assets like Ethereum.
Wallets themselves come in many forms. The most common wallets are:
- Hot Wallet: which is wallet that is always connected to the internet and a crypto network; i.e. Rainbow
- Cold Wallet: also known as a Hardware Wallet. This is a wallet that stores your private keys in a secure hardware device offline; i.e. Ledger.
When you create multiple wallets in Rainbow, you're actually generating sub-wallets using the same secret phrase.
What are the components of a wallet?:
Now that we know what a wallet is, it’s important to identify the parts of a wallet and why each part is essential to navigating the world of web3 — and making sure your funds are secure.
Wallets have 3 main components:
- Public wallet address
- Secret phrase
- Private cryptographic key
Comparable to account numbers, your public wallet address can be freely shared with everyone, and anyone can potentially send transactions to them. Anyone who knows your public address can see your transaction history and what assets you have inside of your wallet.
A private key or secret phrase on the other hand grants control over everything inside of a wallet. Whenever you go to make a transaction or do something on the blockchain, you will have to “sign” a message that verifies you possess the wallet’s key.
What do you do if you lose your private key or secret phrase?
If you lose your wallet's private key and secret phrase, there's no way of recovering access to the wallet. You can't just click a "forgot password" button, and there's no 2-factor authentication. Wallet providers like Rainbow don't even know your private key, so we can't retrieve it for you either.
Instead, you need to personally backup your private key and/or secret phrase. There are many ways of doing this, and each method gives you a different level of protection. Here are a few examples:
- Rainbow's iCloud (iOS) / Google Drive (Android) Backup feature
- Password Manager like 1Password
- Written on a piece of paper
- Stamped onto a piece of metal
The Importance of Backups
Keeping your wallet safe, secure, and backed up is essential to wallet ownership. Here we'll chat about why it's important to backup your wallet and the different methods that you can backup with. We covered in our Get Started with Rainbow article the beginning setup of backing up your wallet.
One of the other big differences between crypto and the traditional internet is that you can take your wallet's private key or secret phrase and use them with a totally different wallet app. If you decided Rainbow wasn't for you, then you could easily take your credentials and use them somewhere else. You could even have your wallet (and thus all the assets contained by it) in two places or apps at once.
Export Your Secret Phrase
Your wallet is highly portable and can even be exported to use with another wallet app! You can do this by exporting your wallet's secret phrase.
A term used to describe this kind of tech is the word interoperable. It means that data and software made by totally different organizations can work together seamlessly 🤝
The traditional internet doesn't typically work this way, and it's usually not good for consumers. For example, you can't take your Facebook data and move it over to Twitter. You're locked in, and the burden of leaving is heavy.
In the new world of Ethereum and Web3, your identities and data go with you.
You can connect your wallet to decentralized apps (Dapps) to do lots of fun and useful things. You can also sign-in to websites using your wallet instead of having to create new accounts and passwords for each one:
Connect to a Website or App
Instead of creating new accounts and passwords for every website you interact with, you'll just connect your wallet instead. This lets you control your identity and take your assets/items with you all around the internet. In this article, we'll guide how to connect your wallet via mobile and desktop!
In fact, the term "wallet" isn't really that great of a name for what apps like Rainbow can do. It’s kind of like how we call our devices “phones” but they’re so much more than just a phone. Crypto wallets are more like portals, passports, and digital identities for a whole new world.
The possibilities are endless 🌈