Crypto Wallets: What You Should Know About Types of Cryptocurrency Wallets and How to Choose the Best One for You

Your currency is kept in a crypto wallet, just like it is in a traditional wallet. These online resources come in a variety of formats and can send and receive cryptocurrency.

In a technical sense, cryptocurrency is not “stored” in crypto wallets. Rather, an address that uniquely identifies the user’s digital assets on the blockchain is generated by the crypto wallet. For cryptocurrency wallets to access the blockchain network linked to that particular cryptocurrency, an internet connection is necessary.

You must think about a variety of factors that impact a crypto wallet’s security and compatibility, such as whether you want it to be hot or cold, custodial or non-custodial.

To begin with, learn what public and private keys are.

First, it’s important to comprehend what public and private keys mean.

A bank account number and a public key are comparable. You can share it with others to allow them to add cryptocurrency to your wallet. In contrast, a private key functions similarly to a password and is required to access money or sign cryptocurrency transactions. Maintaining the privacy of the private key is essential.

Cryptocurrency wallets can be classified as custodial or non-custodial based on the person in charge of or with access to the private key.

Custodial vs. non-custodial crypto wallet

A custodial wallet is one in which the user’s private keys are managed by a third party, typically a cryptocurrency exchange. This indicates that someone has the key to your wallet.

For novice cryptocurrency traders who are not experienced with handling their private keys, a custodial wallet can be useful. But users might lose access to their private keys and, consequently, the cryptocurrency wallet, if the cryptocurrency exchange files for bankruptcy.

Choosing a trustworthy cryptocurrency exchange or service provider that can protect private keys and money is essential when thinking about a custodial wallet.

Non-custodial wallets, on the other hand, offer users total control over their assets and keys. They are independent of any other party, unlike cryptocurrency exchanges.

In the world of crypto, the saying “Not your keys, not your crypto” is widely used. This implies that a cryptocurrency trader will lose access to every cryptocurrency kept in the wallet if they lose possession of the private keys.

It is the trader’s responsibility to store and manage their private keys in a non-custodial crypto wallet. Users must take care to keep their private keys in a secure location because it is very difficult to recover a lost private key for non-custodial wallets.

Hot wallets vs. cold wallets

A hot wallet is perpetually linked to the internet or a connected device. It’s perfect for people who regularly trade or use cryptocurrencies.

Conversely, a cold wallet is disconnected. It is a hardware storage device used for offline data storage that resembles a USB device. If you want to be extra cautious and protect your wallets from online fraud, a cold wallet is a good option.

Software wallet

Applications installed on desktops, laptops, and mobile devices are known as software wallets. This makes it simple for users to access cryptocurrency, begin trading, view their balance, and more. Generally speaking, software wallets are hot wallets.

Hardware Wallet

Hardware wallets are actual objects that resemble USB sticks and provide a safe way to store cryptocurrency. By keeping private keys offline, they greatly lower the possibility of online theft. One can use a computer or mobile device to transact cryptocurrency by connecting a hardware wallet.

Since hardware wallets don’t have an active connection until they’re plugged in, they’re usually referred to as cold wallets. Usually, the gadgets run between $100 and $200.

Paper Wallets

When cryptocurrencies first gained popularity, people used paper wallets, which were made of paper on which their private keys were written or typed. They eventually started to include QR codes, which made it simpler for mobile devices to scan them.

Nevertheless, a lot of cryptocurrency owners no longer use paper wallets since they are easily lost or damaged. Nevertheless, as long as you take care to store it safely in a safe or deposit box and periodically check on it to make sure it hasn’t been damaged, there is nothing wrong with using a paper wallet.