What is a Crypto Wallet?
A crypto wallet is a place where cryptocurrency can be stored. They also support crypto coins transfer through the blockchain. A crypto wallet doesn’t store cryptocurrency physically. Rather they store public and personal keys that are needed to buy crypto coins like Bitcoin and Ethereum. They are secured with digital signatures that authorize each transaction. A Crypto wallet is an indispensable tool for buying, selling and trading cryptocurrencies.
What is the significance of a crypto wallet?
Crypto coins, including bitcoins, have gained sweeping acknowledgement and stand in vogue. Crypto wallets make it easy to safely store and organize your crypto portfolio. Some wallets also allow their users to buy, sell and interact with the decentralized applications. While some crypto wallets may only allow a single cryptocurrency, many provide support to hold multiple cryptocurrencies. These wallets ensure that only one user can access the funds by going through passwords and security measures.
Crypto wallets, unlike their real words, homonyms do not store cryptocurrency. Rather, they read a public ledger to show you the balances you hold. They hold public and private keys. A public key is just like a bank account number you can share with anyone, whereas a private key, also called a ‘seed phrase’, is just like a signal meant to keep private and secure. Both keys are needed to sign a crypto transaction.
Types of crypto wallets
Various types of crypto wallet applications are available depending on what you want to do with crypto and what kind of security you need.
Crypto wallets are divided into two main categories:
- Hot wallets.
- Cold wallets.
Hot wallets are usually in the software form and have internet connectivity. They are recommended due to their flexibility and the various features they offer on the go. However, they are more susceptible to security breaches due to their internet connectivity. Hot wallets are in the form of mobile wallets, hosted wallets and self-custody wallets.
Cold wallets are physical wallets and do not have internet access. They are secure from potential hackers. Paper wallets and hardware wallets are two examples.
This is the most popular and easy-to-use wallet. When you buy crypto coins from some app, your cryptocurrency is automatically secured in a hosted wallet. A third party keeps your crypto for you, just like a bank keeps your money. Hence the name hosted wallet. However, you cannot avail of every service crypto is offering. However, many hosted apps are working on adding more features. One main advantage of hosted wallet is that you don’t lose your crypto if you forget your password. If you only want to spend, sell or receive crypto, hosted wallets are your go-to options.
Self Custody wallet
It does not rely on third parties to secure your crypto, and you have complete control over your crypto. Self-custody wallets provide a platform to store your crypto keys, but the responsibility of securing and remembering the password is entirely on you. If you forget your password or seed phrase, there is no way you can get your crypto back. With a self-custody wallet, you can have access to many features that do not come with hosted wallets, including yield farming, staking and lending.
These wallets are in the form of a USB device that stores your private keys offline. The main benefit of a hardware wallet is that your cryptocurrency is secured even if your computer system is hacked. Hardware wallets are usually expensive, and not everybody likes their taste of them.
Another way of storing keys is to write them on paper or some physical thing and secure them in a safe place. They are not an easy-to-use way and offer limited functionality, as keys can only be used on the internet for digital money. Paper wallets, however, secure your crypto from hackers. There is a risk that you might lose your paper wallet.
So from various crypto wallets, you can choose what suits your needs well.