NFT Wallet Setup Strategy: Store your NFTs Safely
by corporate trash
3/21/2022
Setting up your NFT wallet and loading it with crypto is the first step in purchasing NFTs. But after you have bought a few NFTs, you realize that having just one wallet for all of them may not be the best solution for holding NFTs long-term.
Setting up an NFT wallet strategy reduces the risk to your assets and protects you from scams and bad actors trying to take your NFTs. As a bonus, spreading your NFTs across multiple wallets can also sometimes help with future airdrop opportunities that are based on wallet addresses.
The good news is that setting up your crypto wallets for NFTs can be done rather easily, even by a beginner. Having an NFT wallet strategy can help protect your crypto and NFTs, and can help you focus more on collecting and less on scams.
Please note that there are many ways to set up your NFT wallets, and the following three-wallet setup is just one method. Whatever you do, be sure to also check out NFT Scams to watch out for.
NFT Wallet #1: The Hot Wallet
A “hot wallet” is a crypto wallet that is set up inside a browser extension, like MetaMask (on desktop or mobile). Many users (especially beginners) only have this one wallet, which they use to keep cryptocurrency and all of their NFTs.
Hot wallets should connect to NFT marketplaces, minting websites and other Web3 sites with this same wallet. It definitely makes it easy to only have one public wallet address to remember, but it isn’t worth the risk of having all of your assets in one wallet.
By setting up your wallet this way, you are inadvertently creating one single point of failure. If someone is able to hack into that wallet or somehow gets your private seed phrase, it means that all of your crypto and NFTs are at risk of being stolen. That isn’t good!
Ideally, your hot wallet should be the wallet that you can connect to multiple sites with, and mint things with. It can contain some NFTs, but these NFTs shouldn’t be very high-value.
Buying and selling are both fine to do with this wallet. The amount of Ethereum (or other crypto) you keep in this wallet should be minimal, likely only the amount you need to mint NFTs with.
By connecting this wallet to sites often, you are exposing it to some vulnerabilities. However, if the wallet has minimal assets in it, then it will be okay if it is compromised in some way. You aren’t putting a lot at risk using the hot wallet this way.
NFT Wallet #2: The Cold Wallet
A hot wallet is one is available via browser extension in the cloud (a “software” wallet). A cold wallet also means it needs a physical device to access your crypto on the blockchain (a “hardware” wallet).
Hardware wallets like Trezor and Ledger are plugged into your computer, and physical buttons need to be pressed in order to make any transactions with that particular wallet on the blockchain. This adds an extra security layer to a hot wallet, which is more prone to being hacked. And don’t worry — as long as you have your seed phrase for this wallet stored safely, you can still restore it if the physical device goes missing or breaks.
Optional: Set up a Warm Wallet for NFTs
While this second wallet is highly recommended to be a true “cold” wallet only accessible with a physical device, some choose to make another hot wallet on a secondary browser instead. This is sometimes referred to as a “warm” wallet, because you may not interact with it as much as your main hot wallet.
This technically makes it less cumbersome to transact on the wallet, but it does open this wallet up to the same vulnerabilities as other hot wallets, as you’ll likely connect it to mobile sites.
This second wallet should be the wallet you sell NFTs from (not buy). After you mint or buy them with your first hot wallet, you can transfer them here for safe keeping until you want to sell. Only connect to trusted marketplaces, like OpenSea or LooksRare, and periodically use revoke.cash to ensure permissions are revoked.
NFT Wallet #3: The Vault
The third wallet is simple: it’s your vault. This is a second cold storage wallet. With this additional cold (hardware) wallet, you never connect to any sites, you never buy, and you never sell. Use it for transfers only. Transfer your highest value NFTs here and you’ll be able to sleep at night knowing they are safe, and not connected to any sites!
Once you are ready to sell, you can send them to your second wallet and go from there.
A Note on Crypto Exchanges
My personal practice is to not hold a lot of cryptocurrency at once in a cold (or hot) wallet. Plenty of people do, and there is nothing wrong with that, as long as it’s properly protected.
I choose instead to periodically send cryptocurrency to exchanges like Coinbase or Celsius in order to take save, convert to fiat, and benefit from some high APR% reward opportunities.
Also, it helps me to not immediately reinvest all my profits right back into NFTs, with Ethereum in my MetaMask! We all know that’s an ongoing challenge.
These types of exchanges mean that they hold the private keys to your cryptocurrency, unlike a wallet like MetaMask where you hold the private keys. You have the option of sending cryptocurrency from MetaMask to these exchanges, but not NFTs (yet).
Be sure to research to see what option will be right for you and your personal goals, and don’t forget to research which events are taxable in crypto and NFTs.
TL;DR: The Ideal NFT Wallet Setup
It’s tough to admit that it took me much too long to have an NFT wallet strategy like this one. For many months, I used a hot wallet for almost everything, connecting to various minting sites with reckless abandon.
I was lucky that my high value NFTs weren’t stolen as a result.
The sooner you get set up with an NFT wallet strategy, with three wallets for different purposes, the more confident and organized you will feel. It helps spread risk over several wallets instead of putting all your eggs in one basket.
Scammers and hackers in the Web3 space are growing at a faster rate than ever, so be a responsible collector and start an NFT wallet strategy today.
Once you have these NFTs across your different wallets, you can use our site to see the value of your Ethereum NFT wallet. Just search an ENS name or your wallet address at the top of the site!