Crypto wallet: Complete guide for getting started
Like your dad’s old leather wallet, a crypto wallet performs the same basic function, it holds currency. However, even though they do the same thing, a crypto wallet is far more advanced since it can also perform other transactions such as trading, staking, lending, and so on. With the increasing rise in interest towards all forms of digital currency, crypto wallets have been created with the main role of keeping your crypto safe. In other words, any platform that can be used to store any form of crypto assets securely can be called a crypto wallet. You might also hear them being referred to as a block chain wallet.
Private and public keys
Crypto wallets operate by generating private and public keys for their users to make use of when carrying out crypto transactions. A private key is a secure passcode that acts like a key to get access to the wallet and the assets it holds. A public key, on the other hand, is meant to be shared with others to facilitate transactions on the blockchain, e.g. A public key can be used to transfer coins from one wallet to another. Unlike the public key, a private key should never, under any circumstance, be shared with the public. Guard it with your life! If someone is able to discover the private key, they will have access to the wallet and its assets. Read More: fx liquidity provider definition
Types of crypto wallets
Crypto wallets can be classified into two groups: software (hot) and hardware (cold) wallets. A software wallet is any wallet that’s web-based or can be downloaded to your phone or desktop, however, a hardware wallet is any physical device that can be used to secure access to your coins offline. There are a lot of different types of crypto wallets to choose from, however, the three most commonly used types are hardware wallets, self-custody wallets, and hosted wallets. Stay updated with bitcoin news now | btc news now.
As mentioned before, hardware wallets store crypto offline in physical devices by storing a private key. Although many people think of it as the best way to securely keep and protect any crypto assets since it doesn’t run the risk of being attacked online, the responsibility of keeping the wallet and the private key safe is left to you. This means that if the wallet is lost or damaged or somebody else managed to get access to your security then you may lose access to your assets. It is also considerably costlier than the software wallets.
The most commonly used hardware wallets are the ledger nano x which is produced by ledger, which is considered to be the best hardware wallet producer, and the trezor model t.
A self-custody (aka non-custodial) wallet, like the name implies, is any hardware or software wallet that leaves the duty of protecting the wallet’s private key up to the user, leaving them with full access to their funds. A self-custody wallet will not involve a 3rd party to safeguard its private key. What this means is that once this type of wallet has been set up, and the private key has been generated, it is up to you to ensure that others do not get a hold of your private key. However, if the private key is lost or forgotten then you won’t be able to gain access to your wallet.
A self-custody wallet can be used to do a lot of other transactions, besides storing crypto assets such as trading, farming, staking, and so on.
Unlike a self-custodial wallet, a hosted wallet doesn’t leave the responsibility of safeguarding the wallet’s private keys to the user. What a hosted wallet does is rely on 3rd parties to protect its crypto assets making it very easy to set up and popular among traders. With a hosted wallet, the fear of losing or forgetting your private keys and losing access to your assets, as a result, is gone. Platforms like coinbase automatically generate a hosted wallet for their users to store their crypto in when they trade on their platform.
The only downside to a hosted wallet is the limited features it has. A self-custody provides a wide range of different features but most hosted wallets only offer the basic features such as buying and transferring crypto assets, but who knows? Maybe, sometime soon, a hosted wallet will have as many features as a self-custody wallet.
Another type of crypto wallet is a paper wallet, which is basically a sheet of paper with the wallet’s keys physically printed out in the form of a qr code on the sheet. The code is then scanned to facilitate transactions. The use of this type of wallet has become outdated and discouraged among users due to several flaws.
In general, there are a lot of different types of wallets in existence today for you to choose from to use to store your assets. So depending on whether you want more control with your assets or maybe you just want a very secure means of storage, the choice of which one to use is entirely up to you.