A crypto address is a unique string of characters that represents a specific wallet on a blockchain network. It can be used to send and receive crypto assets, just like a bank account number or email address. At first it can feel daunting to get your head around the concept but in this guide I will break everything down into baby steps.
Ready? Let’s dig into it.
Types of Crypto Addresses
There are many different types of crypto addresses. You know how I said that a crypto address is like an email address. Well that is kind of true but it also isn’t. With email I can use my gmail address to send you an email to your hotmail address. With crypto you can’t do that. If I want to send you bitcoin I need to send it to your bitcoin address. And if I want to send you Ethereum I need to send it to your Ethereum address.
What does a crypto address look like?
A crypto address is just long string of alphanumeric characters. For example this is my Ethereum address on my MetaMask wallet:
If you like go ahead and send a few ETH to my address.
For those drawing a blank, I am only joking. But, really, please be my guest if you want to send me some ETH.
Where people usually make mistakes with Crypto addresses and how I lost $2,000
When you transfer crypto, all wallets and cryptocurrency exchanges will ask you to input the address that you want to send your crypto to. For example, if you wanted to send ETH to me you would copy my address above and paste it into the corresponding field in your wallet or crypto exchange account.
However, there is one extra field that you need to fill in and if you get that wrong your crypto will be lost.
This second field allows you to select the type of address. For instance, if you send ETH to my ETH address you need to select the Ethereum network. If you select a different network I will never receive the crypto and you will never be able to get it back.
This is easier explained with an example. So let me walk you through one and then I will tell you how I lost all my money.
Step-by-Step example of how to use a crypto address
This is my Binance account. As you can see, I have about $2,500 in USDT there. Now USDT can be transferred across a bunch of networks. There is USDT on Ethereum, USDT on Solana, USDT on Polygon Matic and so on.
Here you see I have $2,500 in USDT in my Binance account.
Step 1: Initiate transfer (sounds like a robot command😜)
Now, imagine your sister gives you her address and you want to send her some USDT. So you click on “withdrawal” and you are given the option to transfer via a crypto network or a phone or email. Binance gives you the second option because many people find the first option scary. However, most crypto exchanges offer the first option only.
I have not tried the second option so I will not comment on it. Moving on, let’s select the “Send via Crypto Network” option and see what happens.
Step 2: Paste the crypto address
Next, paste the crypto address where it says address (duh!). You need to be super careful here. After you paste, cross check a bazillion times it is the right address and that you haven’t missed any characters. A less stressful way to do this is to do it on your phone and have the address open on another phone or desktop device. This way you can click on that little box next to the address field and you will be able to scan the QR code of the address.
When you are transferring crypto most often it won’t be to others. As you become more adept at using crypto you will find yourself needing to transfer assets between the numerous exchanges and wallets that you own.
It’s just way easier to open up the QR code for the address you want to send crypto to and scan it from your phone rather than copy pasting.
Step 3: Select the correct network.
This is the most important step.
Binance will automatically select the right network for you but it would be good to cross check. If your sister holds her USDT on the Solana blockchain then you need to select Solana. If you select Ethereum or Polygon, for example, she will not receive it and most likely you won’t be able to recover your USDT. Once you confirm, waive goodbye to your USDT as it starts its journey for a few nerve racking minutes to reach your sister’s account who will be eagerly awaiting for it.
How I lost 2,000 bucks
First of all this story ends well and I got most of my money back. Here is what happened.
In 2021, during the peak of the crypto bull run, I made a hasty transfer from one exchange to another. I wanted to transfer some USDT to my ETH wallet address. When choosing the network I noticed that the transfer would be cheaper if I used Paxos. So I selected that from the dropdown menu. But because the address was an ETH address the transaction did not go through. Or rather my USDT vanished into the nothingness of the internet. So lesson learnt, and I can’t repeat this enough, make sure you get the network right.
How it all ended well in the end
After a few moments of extreme panic I reached out to KuCoin’s support which was the exchange I was using at the time. They said they may be able to recover the funds for a fee. And indeed that is what happened. I am not entirely sure how they recovered the funds but please don’t count on that as a solution and learn from my mistake. I also had to pay a hefty fee for this service.
ok, so let’s talk about something else you need to know about crypto addresses.
Public vs. Private keys: how are they connected to your crypto address
Another word for crypto address is public key. In crypto every public key has a corresponding private key. The public key is available to anyone. Or rather you can feel free to share with anyone just like I have above.
A private key on the other hand is a unique, secret code that’s used to access your crypto assets. It’s like a password, but much more secure because it’s a long, random string of characters. Your private key is how you sign things. Just like you wouldn’t want anyone else to forge your signature and sign over all your fortune to their name, so too you would never want to reveal your private keys.
Now, here is a brain twister for you. Your public key is a version of your private key that’s been mathematically derived from it. This means that you put you private key through an algorithm to derive the public key. But no one can do the reverse i.e. no one can derive your private key from your public key.
Most wallets make life easy by asking you to write down a series of 12 words called a seed. 12 words are easier to manager rather than a long alphanumeric string. If you want to check what your private key is you can. For example, in MetaMask you need to click on account details and there you will see the option to export you private key after you enter your password.
Ok now that you know what a crypto address is you also need to familiarize yourself with wallets.
Hey by the way you might also like my article on why is cryptocurrency worth anything where I deep dive into this topic quite a bit.
Types of Wallets
There are several main types of wallets that you can use to store and manage your crypto addresses. These include:
1. Hardware Wallets
Hardware wallets are physical devices that store your private keys offline, making them one of the most secure options. They look like a USB stick and they only hold specific types of crypto. For example, you may buy a wallet that only stores bitcoin addresses. This means you will only be able to perform bitcoin transactions on the bitcoin network with this wallet. So you need to check the specs before hand. The most famous hardware wallets are Ledger and Trezor.
Paper wallets are physical documents with a QR code that represents your crypto address and private key. These wallets are essentially just a printout of your public and private keys, and they’re usually used for long-term storage of crypto assets.
Desktop wallets are software programs that you can download and install on your computer. These wallets offer more functionality than paper wallets, but they also come with more risk because your computer is connected to the internet.
Mobile wallets are apps that you can download to your mobile phone. These wallets are convenient because you can access them from anywhere, but they also come with more risk because your phone is connected to the internet and can be lost or stolen.
Web wallets are online platforms that you can access through a web browser. These wallets are not the most secure because they are connected to the internet, but they’re also the most convenient because you can access them from any device with a web browser. The most famous web wallet is MetaMask which has a chrome extension that you can use.
Hot wallets vs. Cold wallets
You might also come across the people talking about hot wallets vs cold wallets. The main difference between the two is that hot wallets, also known as software wallets, are connected to the internet while cold wallets are physical devices that don’t have to be.
A hot wallet is a digital wallet that is connected to the internet and can be accessed online. This means that the wallet is always connected to the internet, which makes it easier to use for day-to-day transactions. However, it also makes it more vulnerable to hacking and cyber attacks. All of the web, app desktop wallets are hot wallets.
On the other hand, a cold wallet is a physical wallet that is not connected to the internet i.e. a hardware device. Cold wallets are often physical devices that look like USB drives, and they are usually kept in a safe place like a bank vault or a personal safe. This makes them much more secure than hot wallets because they are not connected to the internet, and therefore cannot be hacked. However, cold wallets are less convenient for day-to-day transactions, as they require a physical connection to a computer to access the funds.
Custodial vs. Non-Custodial Wallets
It’s important to understand the difference between what custodial and non-custodial wallet is. Custodial wallets are managed by a third party, such as a cryptocurrency exchange, while non-custodial wallets give you complete control over your own private keys. Non-custodial wallets are generally considered to be more secure, but they also require you to take extra precautions to keep your private keys safe. When you store your crypto on an exchange it is not in your custody. You don’t have the private keys to that crypto and if anything goes wrong there is nothing you can do to claim like many people found out with the recent implosion of FTX’s crypto exchange. This why the expression “not your keys not your crypto” is popular in the industry.
Best Practices for Managing Your Crypto Address
Now that you understand how crypto addresses and wallets work, it’s important to follow some best practices to keep your assets safe and secure.
1. Use Two-Factor Authentication
Two-factor authentication (2FA) is an extra layer of security that requires you to enter a code that’s sent to your phone or email in addition to your password when logging in to your wallet or exchange account. This helps to protect your account from unauthorized access. To find out more about this read my article on how to purchase polka dot crypto.
2. Use a Hardware Wallet
Hardware wallets are the most secure option for storing your crypto assets because they store your private keys offline. This means that they can’t be hacked or stolen because they’re not connected to the internet.
3. Use a Strong Password
It’s important to use a strong, unique password for your wallet or exchange account. A strong password should be at least 8 characters long and contain a combination of letters, numbers, and special characters. Avoid using the same password for multiple accounts, and consider using a password manager to help you generate and manage strong passwords.
4. Write Down Your Seed Phrase
A seed phrase is a series of words that’s used to generate your private keys. It’s a good practice to write down your seed phrase and store it in a safe place, such as a secure physical location or a password-protected digital document. This will allow you to access your assets if you ever lose your hardware wallet or forget your password.
In his book, The Bitcoin Billionaires, Ben Mezrich describes how the Winklevoss twins stored their private keys on snippets of paper which they then cut in half and stored in multiple safe deposits around the US. This way even if thieve managed to break into a safety deposit it would only be one fragment of the private key.
Pretty decent book by the way. Written by the same guy who wrote the Social Network.
5. Be Careful Who You Share Your Private Keys With
Your private keys are the most important part of your crypto assets, and it’s important to keep them safe. Never share your private keys with anyone, and be cautious of anyone who asks for them. Also do not store them online
6. Don’t Store Large Amounts of Crypto in Hot Wallets
Hot wallets are wallets that are connected to the internet, and they’re generally less secure than cold wallets, which are offline. It’s a good idea to only store small amounts of crypto in hot wallets, and to store larger amounts in cold storage, such as a hardware wallet.
8. Don’t Send Funds to Unknown Addresses
It’s important to only send funds to addresses that you know and trust. If you receive a request to send funds to an unknown address, do your own research and verify that it’s a legitimate request before sending any funds.
9. Use a Crypto Exchange with a Good Reputation
When choosing a crypto exchange, it’s important to select one with a good reputation and a track record of security. Look for exchanges that have been around for a while and that have a good reputation in the industry.
Popular crypto address formats
There are several common address formats used for cryptocurrency transactions. The following are some examples of popular address formats:
- Bitcoin Address (P2PKH) Format: A Bitcoin address in this format starts with a 1 and is a 26-35 character string of letters and numbers. This format is used for pay-to-public-key-hash (P2PKH) transactions.
- Ethereum Address Format: An Ethereum address starts with 0x and is a 40 character string of letters and numbers. This format is used for Ethereum and other ERC-20 tokens.
- Ripple Address Format: A Ripple address starts with r and is a 25-35 character string of letters and numbers. This format is used for Ripple and other XRP-based tokens.
- Litecoin Address Format: A Litecoin address starts with L or M and is a 26-35 character string of letters and numbers. This format is used for Litecoin and other Scrypt-based tokens.
- Bitcoin Cash Address Format: A Bitcoin Cash address can start with either bitcoincash: or q, and is a 42-54 character string of letters and numbers. This format is used for Bitcoin Cash and other Bitcoin Cash-based tokens.
These are just a few examples of the different address formats used for cryptocurrencies.
- A crypto address is a unique string of characters that represents a specific wallet on a blockchain network.
- There are several different types of crypto addresses, such as Bitcoin, Ethereum, Polkadot, Paxos and many more.
- There are several main types of wallets, including hardware wallets, paper wallets, desktop wallets, mobile wallets, and web wallets.
- Custodial wallets are managed by a third party, while non-custodial wallets give you complete control over your own private keys.
- Private and public keys are used to access and manage your crypto assets. A private key is a secret code that’s used to access your assets, and a public key is a version of your private key that’s been mathematically derived from it.
- It’s important to make sure you’re sending your crypto assets to the correct network, or they may be lost forever.
I hope this article has helped you to understand the basics of crypto addresses and wallets. If you have any further questions or would like to learn more about these topics, please don’t hesitate to ask. Remember, it’s always a good idea to do your own research and stay up-to-date with the latest developments in the crypto space. Good luck on your crypto journey!
If you are wondering what to read next I recommend you understand why cryptocurrency holds value in the first place.
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