Different Types of Crypto Wallets

A crypto wallet is any software or hardware component that manages your crypto addresses and private keys. The wallet allows you to initiate or complete transactions by interacting with a specific blockchain.

There are two primary types of cryptocurrency wallets, hot and cold. Of the two, "cold storage" or cold wallet hardware devices are the safer option.

Cold Wallet (Offline Wallet)

Cold wallets act as a physical store for tokens or coins. Since they are not connected to the internet, cold wallets are resistant to online hacking. Each hardware wallet comes with a private key which is a password-like string of code that decrypts the wallet giving access to the coins or tokens that it stores. Cold wallets are recommended when storing large amounts of cryptocurrency.

If you lose your password key or your device, you will be unable to recover the contents of the wallet. Cold wallets also provide less liquidity and can take a longer amount of time to access.

Two popular models of cold wallets are Trezor and Ledger.

Hot Wallet (Online Wallet)

Hot wallets are digital wallets that are connected to the Internet. These allow quick and immediate access to your digital currencies, but because these wallets are constantly connected to the network, there is a risk of the wallet being hacked by exposing the private keys to malicious actors.

It is recommended that hot wallets incorporate a complex password as well as multi-factor authentication as a second layer of security. Examples of hot wallets are Exodus and Atomic Wallet.

Non-Custodial Wallets

Non-custodial wallets serve as an interface that enables you to access your cryptocurrency through third-party integrations. There is no direct link between a non-custodial wallet and the internet.

Non-custodial wallets allow you to retain full ownership of your assets, but you are responsible for safely storing your private keys.

If you happen to lose or misplace the keys, then you lose access to your funds. The wallet provider will forewarn you that there is nothing they can do to help you retrieve your account if this happens.

Some non-custodial Wallet Options are MetaMask, Coinbase Wallet, Trust Wallet, MyEtherWallet (MEW), and Binance Wallet.