EEA Primers™

Version 1, September 29, 2022

Educating the Business Community About the Power of Ethereum

Introduction to Crypto Wallets

What are crypto wallets? Q U I CK TAK E AWAYS

As the name suggests, a wallet is a type of purse that stores your access A crypto wallet stores your
keys to crypto coins and tokens. Such an application works like an online access keys to your
bank account for cryptocurrencies and tokens with the significant cryptocurrencies and allows
difference that there are no intermediaries. Everyone can create and use a you to send or receive
wallet (“bank the unbanked”) without signing up or authenticating. payment. Each wallet has a
public key, similar to a bank
Background account number, and a private
key comparable to a password.
Many blockchains operate with their native cryptocurrency, like Ether for It is crucial never to lose
Ethereum. Transactions of these cryptocurrencies are managed through control over the private key.
keys and are securely stored in a decentralized ledger. For usability and
security purposes the keys can be used and stored within a wallet. Each Wallets are classified as
wallet has two keys: a public key, similar to a bank account number, that is “custodial,” meaning a third
publicly visible, and a private key, similar to a password and signature, party manages your private
usually consisting of letters and numbers. The password opens the virtual key, or “non-custodial,”
vault to the blockchain where the coins and tokens are stored. meaning you’re the only one
Since these private keys are long and difficult to remember, wallets usually who possesses the private key.
link them to a seed or recovery phrase. This phrase consists of a sequence Custodial wallets require
of 12 or 24 words used as the master password. Wallets store the keys and trusting a third party, but they
work as a frontend application allowing easy transaction handling and a also reduce the risk of losing
good overview of one’s cryptocurrencies and digital assets. your private key and being
permanently locked out of your
wallet.
Not your keys, not your coins
There are different types of wallets, which differ mainly in usability and A solid wallet strategy and
security. Software wallets – desktop or mobile – are the most user-friendly thought-through governance
and fall into the category of “hot wallets” (because they are online). On the are necessary if a business
other hand, the so-called “cold wallets” – hard and paper wallets – have considers using
lower usability but are highly secure because they are offline and storable cryptocurrency.
with utmost security.
A third wallet type is the so-called “custodial wallet.” In such a scenario,
third parties, i.e., exchanges or CeFi providers, look after and store the
private keys. This is often the easiest and most user-friendly way to handle
a wallet, do transactions or to generate yield with the tokens in the wallet.

Copyright ©2022 Enterprise Ethereum Alliance [Link]

However, it represents the lowest security level because one does not
control the private key, and therefore – like keeping money in banks – the
owner loses access to his tokens in the event of the counterparty’s
bankruptcy, for example.

Secure enough for business purposes?

A solid wallet strategy and thought-through governance are necessary if
businesses consider investing in cryptocurrencies, run crypto
transactions and payments on a regular basis, or buy and hold NFTs. HOW DO I FIND OUT MORE?
One of the first questions a company needs to answer is whether they
intend to hold and secure tokens in a wallet by themselves or transfer Read: Lost Passwords Lock
them to a professional, regulated custody provider. If tokens are not Millionaires Out of Their Bitcoin
needed regularly and have a high value, a custody provider might be the Fortunes, from the New York
right choice. However, if tokens are transferred regularly and may be Times
needed on short notice, then self-custody within the company is the way
to go.
Watch: Cryptocurrencies: How
In a self-custody scenario, a company needs to implement a governance
Regulators Lost Control, from
approach in which not only one employee but different employees with
The Financial Times
different roles and responsibilities are involved in approving transactions
through a multi-signature wallet. In this case, transactions can only be
executed if, for example, three out of four responsible employees sign Peruse: Cryptocurrency
and confirm a transaction. Additionally, handling the private key or seed Regulations Around the World,
phrase is critical if only one person is responsible for storing it securely. from Comply Advantage

The location determines the regulation

Investors know what to expect when trading stocks since this sector is
heavily regulated, protecting investors from fraud or other risks. On the
View file on web page
contrary, there is still an international regulatory patchwork with
cryptocurrencies or NFTs. You should be aware of the regulatory
differences between markets as a business. Especially if you decide to
work with a custodial service, you should check the regulations at the
domicile of the service. It is strongly advised to consult the expertise of
lawyers specializing in this service.

About the EEA

The Enterprise Ethereum Alliance (EEA) enables organizations to adopt and use
Ethereum technology in their daily business operations. The EEA empowers the
Ethereum ecosystem to develop new business opportunities, drive industry
adoption, and learn and collaborate.
To learn more about joining the EEA, reach out to [Link]@[Link]
or visit [Link]
Follow the EEA on Facebook, Twitter, LinkedIn, and YouTube.

Copyright ©2022 Enterprise Ethereum Alliance [Link]