As the name suggests itself the word crypto wallet means that it is like a digital wallet for cryptocurrency, which functions similar to a physical wallet where we store cash and cards. However, do get confused as crypto wallets technically don’t store your crypto. Crypto wallets basically store public and private keys, which keep crypto safe and accessible, and it also allows to send, receive, and spend cryptocurrencies like Bitcoin and Ethereum.
Before delving into what types of crypto wallets you should look at, let’s learn more about what private and public keys are?
Understanding Public and Private Keys in Cryptocurrency
Public Key: Think of it like your bank account number. It’s safe to share with others because they can use it to send you money (cryptocurrency).
Private Key: This is like your secret password or PIN for your bank account. Keep it super safe, like a hidden treasure. It’s what lets you access and control your cryptocurrency.
These two keys work together to keep your transactions secure. Others can send you money using your public key, but only you, with your private key, can access and use that money. It’s like having a secret key to your digital wallet.
Types of Crypto Wallets
There are mainly two types of crypto wallet, one is hot whereas the other one is cold wallet.
Hot Wallets: They’re like an online wallet which are always connected to the internet and these wallets are easy to use but also easier for hackers to target because they are online.
Cold Wallets: These are like a super secure safe for crypto. They’re offline, like hiding our money under the mattress. They’re harder for hackers to reach because they’re not connected to the internet.
Which one to choose?
When choosing between hot and cold wallets, it really comes down to what you prefer. If you’re into everyday trading and need quick access to your cryptocurrency, a hot wallet is worth considering. On the other hand, if you’re planning to store a large amount of crypto and prioritise maximum security over convenience, then a cold wallet is the way to go. It’s all about what suits your needs best.
Now, you must have also heard about custodial and non-custodial wallets? Let’s shed some light on the same.
Custodial Wallets: These are like wallets offered by crypto exchanges. They’re easy to use, especially for newcomers and active traders. But here’s the catch: in this we trust the exchange to keep our money safe because they control our private keys. They use security measures like two-factor authentication, email confirmation, and biometric checks. So, if one is okay with trusting others to safeguard the crypto and want low transaction fees, this is an option.
Non-Custodial Wallets: With these, we are in full control. We have a secret phrase to access the money, and it’s super important to keep it safe because if one loses it, then the funds are gone. It’s like having the money in our own safe, and we are responsible for its security.
Which is Better?
It really depends on individual preference. If we want someone else to handle the security and don’t want to worry about losing access, go with custodial. If one prefers complete control and is careful with your security, go non-custodial. It’s all about what suits you best.
After getting a basic understanding of what types of crypto wallets do we have, let’s explore more about the exact need for these and is it actually necessary?
Why is There a Need For a Crypto Wallet?
If you have cryptocurrency, how you keep it safe is extremely important. So, storing it on an exchange where you buy and sell is okay for small amounts or if you trade often. However, if you have a significant amount of cryptocurrency, it’s better to put most of it in a special wallet, whether it’s hot or cold. This way, you retain control of your money, much like having your own secret key. It’s similar to having your own safe for your savings, and that’s much safer.
There’s no one-size-fits-all solution for crypto wallets. Each type has its pros and cons. It depends on what suits you best: If you’re okay with some risk and want to make quick online payments, go for a convenient hot wallet. But if you’re a bit more cautious and plan to keep your coins for the long term, a secure offline device like a hardware wallets is a good choice. The final decision is yours.
However, it’s smart to use a combination of cold and hot wallets for better security, especially if you have a lot of cryptocurrency.