A crypto wallet is an application that performs a function similar to normal wallets. But instead of storing fiet or other currency, a crypto wallet stores crypto coins. It does not necessarily mean that coins get dumbed inside the wallet where they are digitally stored. That’s not how crypto wallets work. Instead, it only stores the passkey that you need to make transactions. It also provides you with an interface to access your crypto assets as well. In this article, we will delve deeper into this concept and gain insights into how exactly these wallets work and also the different types of wallets.
Working Behind A Crypto Wallet
Crypto Wallets are software that runs on computers or other electronic devices, such as mobile phones and tablets. They establish a connection to the associated cryptocurrencies’ blockchain via the Internet and generate information that allows users to transfer their assets through blockchain technology.
This information mainly comprises two major things: A Public Key and a Private Key.
A Public Key is similar to a bank account number which we can share with others to receive funds. Meanwhile, the Private Key is a password that helps you to safeguard your assets and later access them.
During a transaction, the Private Key is used to make it possible by verifying that it is indeed you who is making the transaction. This transaction is then hosted into the network where they are validated by the miners. After the successful validation, the transaction is then integrated into the blockchain.
Types Of Crypto Wallets
Crypto Wallets can be of many types. Here, we will discuss the Five Most Important Types Of Crypto Wallets. They are:
Hot Wallet
A Hot Wallet is a crypto storage space that is connected to the internet so that you can easily access it from anywhere. They are most notably used for making day-to-day transactions. They are ideal for traders who require quick access to their cryptocurrencies and also for beginners because of their easy-to-use features and interface. They can be accessed via the browser or through other web-based applications. However, they are susceptible to hacking and other cyber attacks.
Examples Of Hot Wallet
- Web Wallet: Coinbase, which is hosted on a website and can be accessed through a browser.
- Mobile Wallet: TrustWallet or MetaMask, which can be accessed via their mobile applications.
Cold Wallet
A Cold Wallet is a device or method that is used to store the private keys of cryptocurrencies offline. This makes them more secure than Hot Wallets as they are not as susceptible to hacking as other wallets. They are designed in such a way that they will not be susceptible to any online threats. In fact, this is one of the most popular ways to store your cryptocurrency these days. Furthermore, in case you lose the physical wallet, there are numerous ways like seed phrases which can help you recover your assets.
Examples Of Cold Wallet
- Hardware Wallets
- Paper Wallets
Custodial Wallet
A Custodial Wallet is a crypto wallet that is managed by a third party. Just like any other wallet, it can also be used to send, receive, and store cryptocurrencies. However, there is an added concern about these wallets as the third party has more control over your fund than you in the first place.
Example of Custodial Wallet
- Binance Exchange Wallet
Non-Custodial Wallet
A Non-Custodial Wallet is a digital wallet that gives users full control over their public and private keys. Here, the users can access their assets round-the-clock without any delay or setback. These types of wallets are ideal for seasoned traders, as they come with the huge responsibility of storing their keys safely. However, the users will lose all their crypto assets if they were to somehow lose their private key. So, while using a non-custodial wallet, one should be extremely cautious.
Examples Of Non-Custodial Wallets
- Electrum Wallet
- Trezor Wallet
Desktop Wallet
A Desktop Wallet is a software application that stores and manages your public and private keys on a desktop computer. This is basically a simple software that you can install on your computer or laptop, just like you install any other application. As they are present on a computer, they are also susceptible to various cyber security issues like malware, keyloggers, machine learning attacks, and so on.
Examples Of Desktop Wallets
- Exodus
- AtomicDEX
Which Wallet Should You Choose?
Choosing a wallet to store your crypto is one of the crucial and most important phases of Crypto Trading. It can depend on numerous factors. If you want to purchase popular cryptos and keep them in for the long haul, a Cold Wallet may be the best option. If you’re planning on trading or swapping your coins frequently on exchanges or through P2P transfers, then it would be better for you to have a Hot Wallet that is connected to the internet.
However, if you have a habit of forgetting or misplacing things, it would be extremely difficult to maintain a cold wallet, which can be misplaced easily. There is also the case of the seed phrase that you could easily forget. To overcome this, you may want to consider using a custodial wallet. Unlike other wallets, even if you forget the passkey for the wallet, you can easily recover them through your third party, which in most cases is an exchange.
Also Read: Which Cryptocurrency Will Explode in 2025?
