Understand cryptocurrency wallets

If you are, or plan to be a Stacks token holder, you need to think about how you can manage your tokens. How can you review your token balance or send and receive your tokens? You manage your tokens through a cryptocurrency wallet.

Unlike the wallets you carry physical money in, a cryptocurrency wallet doesn’t hold your tokens. Your tokens are recorded by transactions which are themselves encrypted on the Stacks blockchain. The cryptocurrency wallet holds software keys. You use these keys and some software to interact with the blockchain and gain use of your tokens.

Token flow and wallets

Tokens move from one wallet to a another via the blockchain. For example, say Lena decides to buy a book from Bitbooks, a company that accepts tokens. A complete purchase, has the following general steps:

Large-scale or institutional token holders

Just as you don’t keep all the money you have in your bank in a physical wallet, you shouldn’t keep large amounts of tokens in your cryptocurrency wallet. Instead, if you have a large number of crypto assets, you should store them with a custodial service. Custodial services protect your token holdings using high-security systems.

Custodial services have different techniques for storing crypto assets. The techniques vary according to factors such as the liquidity level you want to maintain or the security you would like. If you own large numbers of token assets as an investment, you should choose a custodial service as if you were selecting any investment service. Consider your needs, the firm’s reputation, fees, and so forth.

Warning: None of our ecosystem entities, Blockstack PBC, Blockstack Signature Fund, and Blockstack Token LLC, are custodial services. Neither the pre-genesis software wallet or the upcoming wallet are recommended for institutional holdings.

Blockstack suggests a firm such as Coinbase Custody for institutional holders. Coinbase Custody charges its clients a management fee based on assets. Of course, like any responsible asset holder, you should do your own research and select a service that meets your needs. The Investopedia’s article What Are Cryptocurrency Custody Solutions? is one place to start.

Choosing a cryptocurrency wallet

You can choose among different types of cryptocurrency wallets. There are mainly two types of wallets, software and hardware.

Software wallets run as programs on a computer desktop/tablet, online (web), or mobile phone. Desktop software wallets are downloaded to one computer. Because they are on one system, they are vulnerable to theft either of the computer itself or through computer hacking. Computer viruses can also impact desktop wallets.

Similarly, mobile wallets are, but they also tend to be smaller and simpler. Online wallets run over the web and are accessible from any networked device, computer or phone. However, online wallets are vulnerable to hacking as well and also rely on third-party service providers who themselves may also be vulnerable.

Hardware wallets store your seed and addresses on a device like a USB. To use these wallets, you connect them to a networked computer, enter a pin, and communicate to send and receive tokens across the web.

Unlike a pure software wallet, hardware wallets can be disconnected and placed offline in a secure physical location like a bank deposit box. For this reason, hardware offers another level of security that software wallets don’t have. Blockstack suggests that you use a hardware wallet such as Trezor or Ledger.

Multiple wallets

Of course, you need not use a software or hardware wallet exclusively, you can use multiple wallets choosing whichever works best for you at a specific time.

For example, the Stacks Wallet is a software wallet. It operates with and without a link to a hardware wallet. With a link to a hardware wallet, you can use the Stacks wallet to send and receive Stacks. When used without a hardware wallet link, the Stacks wallet is in watch-only mode. This means the wallet cannot send or receive Stacks. You can view only balances and transaction history.

In some cases, you may need to transfer Stacks to or reference token address in whichever wallet you want to move. Consult the documentation for your wallets for more information.