As popular as cryptocurrency is as a payment method nowadays (and an investment vehicle, we guess), a lot of people still don’t understand the tech. Although, we suppose that makes a bit of sense. While crypto is popular, it is still only used by a very specific segment of the population.
So, if you’re looking to learn a bit more about crypto, you’re on the right page. We are not going to tell you everything about crypto here – we could probably write a book on that and still not cover a fraction of everything there is to know. Instead, we’re going to tell you about a very specific part of crypto ownership and trading – crypto wallets. We’re going to tell you about the different types.
What is a crypto wallet?
A crypto wallet is much like your actual wallet. It holds your cash. Well, it holds your crypto, at a simple level, at least. A crypto wallet doesn’t technically hold your crypto. Instead, it stores your proof of ownership of the cryptocurrency (known as your keys). You can think of your crypto wallet as a log. If you don’t have a record of the crypto keys you own, you can’t access them. So, no crypto wallet, no crypto.
As we said, there are various types of crypto wallets out there. We will go through them now:
Custodial wallets
Custodial wallets are managed by a third party – for example, Coinbase. There are other crypto wallets out there. It might be wise to check out the CasinoMeister blog for some of the most popular custodial crypto wallets.
Custodial wallets have the advantage of being incredibly easy to use, and most of the beginners in the world of crypto trading will use a custodial wallet. Many of the major traders use custodial wallets.
There is a massive downside to putting your crypto keys in the hands of a third party. There have been many stories of these platforms disappearing overnight. But, as long as you choose your crypto wallet well, it shouldn’t be a huge issue.
Non-custodial wallets
Non-custodial wallets are when you control the keys yourself. There are a few ways to do this. We’ll discuss that soon. The major problem is that if you are not well versed in security, you are at risk with your non-custodial wallet. Somebody could take your crypto.
In the past, trading with a non-custodial wallet used to be hard. It still is with some storage methods. However, tech has improved rapidly over the last few years and there are a few pieces of great software that make the management of a non-custodial wallet a little easier.
So, those are the two main types of wallets. Throughout the rest of this page, we are going to break these wallet types down further into the various ways the keys can be stored. Most of these can be custodial or non-custodial wallet types. They each have their advantages and disadvantages.
Hot wallets
If the wallet is connected to the internet, it is known as a hot wallet. This type of wallet is incredibly popular among beginners as it is just so simple to use. As the wallet is always connected to the internet, making payments is a breeze.
You have a major downside here too. If a wallet is connected to the internet, it can be hacked. If you’re using a hot wallet, even a custodial one, then you best make sure that you take security seriously.
Cold wallets
Cold wallets are the opposite. They are not connected to the internet. This does make them more secure. However, using the funds stored in a cold wallet is hard. You wouldn’t want to be doing it too frequently. A cold wallet is best for the longer-term storage of crypto assets, especially when security is a priority.
Software wallets
Software wallets are normally hot wallets (there are some cold wallet options too).
Software wallets are very common. If you’ve got a crypto wallet already, most of the time it is a software wallet. They come in app form, website form or software on your computer.
This type of wallet is ideal if you’re frequently making transactions with your crypto.
Hardware wallets
Hardware wallets are physical pieces of hardware that store your crypto keys. Most of these will be cold wallets.
Hardware wallets come in a variety of forms, but most of them will be USB devices. The crypto keys will be stored on them in some format. These keys can only be accessed when the device is plugged into a computer. There may be additional security measures that ensure that only the right people can see the keys, although a lot of the time it will be up to you to set that up.
Hardware wallets are ideal for longer-term storage of crypto assets. It is hard to trade the assets from a wallet. Like all hardware, there is also a small risk of failure. So, if you’re going to go down the hardware route, invest in good hardware. There are some good options out there nowadays. They aren’t going to be cheap options, but they will be far less prone to failure. Plus, the better options make it a bit easier to keep a lot of crypto keys, particularly if you’re trading regularly.
Paper wallets
Yep. You can just use a bit of paper to write down details of your crypto assets if you want. A lot of people do. We wouldn’t recommend that you do it, though.
Writing down details of your crypto is cumbersome. It takes a huge amount of time as the keys are long (although, we suppose you can just get a printout of the keys too). You also need to make sure that you know where that paper is at all times, because if you lose the paper, you lose your keys, and potentially lose your huge recent gains.
Trading crypto that has been stored in this form is just so difficult it isn’t worth doing too often. You’ll be forever updating your notes, typing details into your computer etc. If you make errors, then everything is lost.
Still, it can be quite a secure method for storing crypto, particularly in the long term. Print out details of your crypto, put them in a safe, and you’re golden. It is not connected to the internet, so you don’t need to worry about being hacked. The only thing you need to worry about is losing that paper, so you might want to keep backups.
The best type of wallet for you
If you’re just learning about the basics of crypto wallets, then most of the time a custodial hot wallet is the way to go. It makes trading crypto easier. It makes making payments easier. Of course, there are some downsides to it, but it is just so much more convenient. We do encourage you to try and do more research into the types of crypto wallets that exist, though. This way, you can find out whether another option is the right one for you.
