Today, when we talk about digital assets, it is most likely we will mention crypto and NFTs (Non-Fungible Tokens). And just like most precious assets, you need a place to safely store and manage them. That is where crypto wallets come into play. Whether you are investing to earn a passive income on the side, trading actively as part of your profession, or enjoying collecting precious tokens as a hobby, you need to understand how these digital wallets work so you can better protect your assets.
Understanding Crypto Presales
A crypto presale is like a fundraising event but for crypto projects. Anyone can create a crypto token and sell it to the public. However, to ensure the success of its Initial Coin Offering (ICO), a new crypto presale has to gain the confidence of investors. It can do so starting with its whitepaper. The whitepaper is a very crucial document that clearly states all the crypto project aims to achieve, its key components, marketing strategies, budgeting, benefits for investors, and any other relevant information. This is where the hype begins. When investors share their vision, they begin to scoop up tokens during the presale.
However, when they get these tokens, they have to store them safely somewhere before they can publicly trade them after their ICO. That is when you need a crypto wallet.
The Role of Crypto Wallets
A crypto wallet holds all your private keys and public addresses. These are the two requirements for making transactions on the blockchain network. Without any of them, you cannot send or receive digital assets. Just because it’s called a crypto wallet does not mean it only accepts cryptocurrencies. Crypto wallets also accept NFTs. They usually come in two main categories; custodial and non-custodial wallets.
Custodial wallets are those in-house wallets that are offered by exchanges like Coinbase. They reside within the exchange. They are the most convenient type of wallet especially for frequent traders, however, if the exchange is compromised, so is your asset.
Non-custodial wallets, on the other hand, are independent wallets that give you full control. They are more secure but less convenient.
Types of Wallets
Hot Wallets (Online Wallets)
Hot wallets are also called online wallets because they require you to connect to the internet. Among the three types, they are the most convenient but also the most vulnerable to cyberattacks. Cyberattacks are a major concern in the crypto space. Just recently, it was reported that Peckshield, a leading blockchain security company, tracked over $2.3 billion in losses in 2024 due to cyberattacks. So if you are going to use a hot wallet, ensure that you take every step necessary to safeguard your asset, beginning with a two-factor authentication (2FA). You can also consider getting a cold wallet as a backup.
Cold Wallets (Offline Wallets)
Cold wallets are offline wallets, meaning they do not connect to the internet, making them immune to cyberattacks. This is why they are considered to be more secure. They usually come in the form of a hardware device that looks like a USB drive. There are also paper wallets that allow you to print your private keys and public addresses. Many people find these to be quite inconvenient though. A public address, for example, ranges between 25-35 alphanumeric characters. Omitting one character could mean a total loss of assets if you’re not careful. Another disadvantage of cold wallets is damage or loss. There have been many reported cases where owners have misplaced or accidentally damaged their wallets. Their assets can never be recovered without their wallet.
Smart Contract Wallets
These wallets are generally more secure than traditional wallets. They use advanced security features to automate transactions, reducing the likelihood of human error. They also have the option of social recovery and multi-signature options, making them ideal for business use. Organizations that invest in digital assets typically use smart contract wallets so that no one person has complete control over them.
How Crypto Wallets Secure Your NFTs
NFTs deal with the ownership of unique digital assets such as art, or recently, real estate. These assets are not traded one-on-one the way cryptocurrency does. Each digital asset is granted ownership access, secured by a private key. It is like having the only key to a room. Nobody can open the room except you. This private key is stored in your crypto wallet. When you want to transfer ownership to someone else on the blockchain network, the network has to verify that you own the asset before allowing you to make the transfer. This secure method ensures the integrity of both the asset and the ownership. As earlier mentioned, it is always safer to use a cold wallet for more security, especially with pricey assets such as NFTs.
Choosing the Right Wallet For Your Needs
When you want to choose a wallet, there are some key factors to consider. First and foremost, let security be at the top of your concerns. Choose wallets with high-security features. As much as possible, choose cold wallets even though they are less convenient. Secondly, choose user-friendly wallets. Any wallet that boasts of having a sophisticated user interface is also usually complex. That should be a red flag because they may be trying to hide their flaws with all that complexity. Less is more.
If you plan on owning NFTs, then go for wallets that offer integration to NFT marketplaces. This way you can easily transfer or receive ownership of assets directly from your wallet since they are compatible.
Lastly, consider wallets that have recovery options. This is an often overlooked feature. While it is generally difficult to recover lost access to wallets, it is not impossible. Some hot wallets allow you to recover your credentials if you can prove ownership.
Common Security Risks and How To Avoid Them
If it seems like anytime you hear crypto you hear security, it is for good reason. While crypto and NFTs are highly secure assets on the blockchain network, they are not without vulnerabilities, especially the human factor of it all.
Scammers use phishing attacks, for example, to deceive unsuspecting victims. They can send an email posing as a representative of your wallet and asking you for login credentials under pretenses. Or they can send you a link to click to update your wallet software. Once you click it, they can steal your login details. Always verify URLs before clicking and never share your login credentials with anyone, no matter who they say they are.
Most presale tokens are distributed via smart contracts, making them a target for hackers. Some NFTs and Decentralized Finance (DeFi) contain ‘leaky’ smart contracts that allow hackers to slowly drain your wallet without you noticing. Ensure to research contract audits before you commit to any such transactions.
A major risk of storing your assets on an exchange platform is that if hackers attack the exchange, your assets may be affected. In January 2025, hackers stole over $85 million from a Singapore-based crypto exchange platform, Phemex. The root cause was found to be an access control breach. Just like that, you could lose everything.
If you are downloading a desktop wallet software, or using a web wallet, always make sure you are downloading from and using the official site. With so many crypto websites and apps on Playstore and App Store, it is easy to fall prey to fake sites. Be vigilant, always.
What The Future of Crypto Wallets Look Like
The future of tech relies heavily on Artificial intelligence (AI) and Machine Learning (ML). Given that security is the cornerstone of crypto, we can expect to see more AI-driven security features. An example of this is an AI fraud detection system or a frictionless biometric authentication like IBM’s Verify.
Under Trump’s administration, crypto has seen a significant boost in interest. Before his election in November 2024, the crypto market capitalization was about $2.29 trillion. In February 2025, it crossed $3.73 trillion. As he continues to implement favorable crypto policies, demand for crypto will keep rising, and so too will demand for wallets because people need to store and manage their newly acquired assets.
