A crypto wallet stores a user’s public and private keys. If someone gains access to a wallet’s mnemonic phrase (also known as a ‘seed’) then they can gain full control of its funds.
Non-custodial wallets, such as those offered by Ledger, ensure that the user maintains full autonomy over their assets. Custodial wallets, on the other hand, are typically offered by exchanges and limit users’ functionality. Check out more at Cryptsy!
Hardware wallets
A hardware wallet is a small plug-in device that safeguards crypto assets from online threats by protecting them from physical damage. It holds a set of deterministic private keys, and it can confirm transactions by signing them. When sending cryptocurrencies from a hardware wallet, you need to enter the recipient’s public key and the amount to send. The wallet then signs the transaction and verifies it on the blockchain.
Hardware wallets typically require users to create a PIN code and backup recovery seed phrase, which are important for recovering your coins in case the device is lost or stolen. Users should also store the seed phrase in multiple offline locations.
Some hardware wallets support a wide range of digital assets, while others only work with certain currencies. Using a hardware wallet with a large variety of assets can save you money by avoiding costly conversion fees. It is also important to be mindful of the security implications of storing crypto in hardware wallets, which are susceptible to hacking.
Non-custodial wallets
New users purchasing crypto can get overwhelmed when it comes to wallet options. Custodial wallets require users to submit personal information and undergo Know Your Customer (KYC) and Anti-Money Laundering (AML) verifications. Non-custodial wallets, on the other hand, allow users to interact with a blockchain network without relying on third parties. To do so, a user must create a password or seed phrase and save it somewhere secure. If they lose these credentials, they will have no way to access their crypto.
Custodial wallets are vulnerable to hacks, and they can be subject to government seizure if the exchange they use goes bankrupt. Using a non-custodial wallet is the best way to avoid these risks and safeguard your digital assets.
Some of the top non-custodial wallets include Ledger, Trezor, and Exodus. Other wallets, such as Coinomi and Uniswap, are available as mobile apps and desktop software. Whenever choosing a non-custodial wallet, make sure it has an EAL5+ evaluation level and features air-gapped signing.
Software wallets
Crypto wallets are software applications that interact with the blockchain, allowing you to securely store and manage your digital assets. They come in two forms: desktop and mobile. The former stores private keys on your host device, while the latter holds them remotely. You can use these wallets on any device that supports the chosen cryptocurrency. In addition, they usually offer an easy-to-use UI for beginners. However, it is important to select a crypto wallet that offers an effective backup mechanism.
You should also choose a wallet that supports multiple cryptocurrencies. This way, you can diversify your portfolio and avoid the risk of losing all your assets in case of a security breach or insolvency of the platform that hosts them. Additionally, you should never store substantial amounts of your crypto in centralized exchanges or lending platforms. These entities are vulnerable to hacking and other threats that can erode your investments. Moreover, they don’t offer FDIC insurance to cover your losses.
Exchanges
Like a physical wallet, a crypto wallet can hold and keep track of your digital assets. Unlike wallets, however, exchanges are designed to facilitate buying and selling digital currency. They also offer a convenient and secure way to trade. Some centralized exchanges offer in-built wallets while others require users to use their own.
While many people choose to keep their cryptocurrency in the exchange wallet where they purchased it, this can be dangerous if the exchange suffers a hack or other security breach. In order to mitigate these risks, reputable exchanges typically host the majority of their users’ funds in cold hardware wallets that are not connected to the internet.
In addition to charging trading fees, most exchanges charge withdrawal and deposit fees. The exact amounts depend on the exchange and type of asset being traded. In addition, some exchanges may provide insurance in the event of a hack or other disaster. While this is rare, it’s worth considering when deciding where to store your crypto assets.