A crypto wallet is a physical device or online application that lets you “store” crypto assets using private keys. They also allow you to send and receive cryptocurrencies. “Store” is used in quotes because crypto wallets don’t technically store the assets –– they live on a blockchain. There are two types of crypto wallets – hot and cold.
First, let’s take a look at the concept of custodial vs. non-custodial wallets.
Custodial wallets are wallets that hold users’ assets (“in custody,” so to speak) as well as their private keys. Custodial wallets are often criticized because they technically own users’ cryptocurrencies, and users might lose access to them in case something happens. Plus, it totally contradicts the core philosophy of crypto; there’s even an expression often used in the industry –– “not your keys, not your coins.” Such brands as Coinbase Wallet, Freewallet, and Blockchain.com are all custodial wallets.
Non-custodial wallets do not hold assets, leaving all the responsibility to the user. Examples of non-custodial wallets include MetaMask, Ledger, Trezor, and others.
A hot wallet is a wallet (mobile app, software) that is available online, 24/7, accessed through a private, unique key. Hot wallets are more vulnerable to cyber attacks than their offline counterparts. On the plus side, they are usually more user-friendly, which is why they tend to attract users who are new to the space.
Examples of hot wallets include Trust Wallet, Coinbase Wallet, and MetaMask.
Trust Wallet is Binance’s official, non-custodial cryptocurrency wallet, which supports over 166,000 digital assets.
Coinbase Wallet, developed by Coinbase, is self-custody and provides support to over 44,000 assets.
MetaMask is a web wallet available through software or a web browser extension, with over 450,000 coins support.
Cold wallets are physical devices and hardware that store cryptocurrencies. They usually look like a USB stick. Experienced traders, investors, and crypto holders (or ‘holders,’ as they’re called in the industry) tend to prefer cold wallets because they are secure, and losing one’s funds would require physical interaction with someone.
The most popular cold wallets are Ledger and Trezor.
Ledger wallets are two types of multicurrency wallets that store private keys on the device –– Ledger Nano S and Ledger Nano X.
Trezor is also a multicurrency offline storage, with Trezor One and Trezor Model T being the most popular ones.
With the rise of the web3 applications, this type of wallet has only recently been introduced as a separate category. Web3 wallets are wallets that support DeFi tokens, NFTs, and DApps, and they include brands like MetaMask and Trust Wallet.
Protecting your wallets
It’s impossible to overstate the importance of security in the digital age. Here are steps you can take to ensure the protection of your apps and digital money.
- Use two-factor authentication (two FA) when signing up.
- Consider using password managers.
- Never use the same passwords for different accounts on wallets.
- Keep your seed phrase (generated by wallet software) private and, preferably, offline.
- Always double-check links you’re asked to follow (to ensure they are from an official source).
Stay tuned for our articles on crypto specific wallets, exchanging cryptocurrency, and more!