How to choose a crypto wallet?
Crypto wallet — what is it, what is it for, and how to choose the best one — I will tell you about all of this in this article.
Types of crypto wallets
In simple terms, a crypto wallet is an analogue of a bank card that provides access to funds. However, the cryptocurrency itself is stored on the Blockchain, and the wallet, with the help of special keys, allows transactions with this very currency. Each wallet contains two keys:
- Public — this is the address of the wallet itself;
- Private — the “pin code” for transactions.
Therefore, choosing a wallet, it is better to decide in advance on the following points:
- The types of cryptocurrencies you plan to work with and their amount;
- The purpose for which the wallet is needed (e.g., to gain income from the difference in exchange rates when trading, for long-term investments, to earn money in the game, etc.);
- How often you are going to use your wallet, i.e. whether it will be daily transactions or once a week/month.
Depending on this, all wallets are commonly divided into custodial and non-custodial.
Custodial Wallets
It’s like keeping money in the Bank. In other words, not only you have access to the funds, but also the platform on which the wallet is located. The most outstanding representatives of this type are Exchanges, such as Binance. Access to the wallet is usually via username/password. Another important aspect is that the account at such services is usually verified with proof of identity. These wallets are usually used by traders and others interested in frequent buying/selling of currency.
Pros:
- Ideal for trading operations where you need to catch a price spike in time;
- It is possible to restore access to the wallet if the password is lost;
- There are many related services: investing, lending, and more;
- Large exchanges work with numerous currencies and can offer favorable rates or commissions.
Cons:
- The private key belongs not to you, but to the platform in question. In theory, the owners of the service can steal your money and walk off into the sunset;
- The owners of the service are also responsible for the security of the funds;
- There is no anonymity, which means that access to money can be regulated by the authorities.
Non-custodial wallets
Based on the name, you can already intuitively understand that these wallets are completely opposite to the previous type. Only the owner themselves has access to the money, and they are responsible for the safety of their assets. The private key is your responsibility, and you should know the seed phrase better than your own name. If you lose or forget this phrase, you cannot regain access to the currency.
What a Seed phrase is and what it’s for, read our article.
Non-custodial wallets are commonly divided into cold and hot wallets. Cold wallets store funds without access to the Internet, and hot wallets, respectively, are connected to the Internet.
Cold Wallets
Completely independent of the Internet and in physical form. By far the safest way to store assets, as they are not at risk of hacking. Such wallets are mostly suitable for placing a significant amount of currency that you use quite rarely. They, in turn, are divided into hardware and paper wallets.
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Hardware wallets look like a small or medium-sized USB stick that holds a private key. The most famous manufacturers of hardware wallets are Ledger and Trezor.
Never buy such wallets through marketplaces or ads. You should only order them from the manufacturer’s official website.
Pros:
- Internet connection is required only for transactions;
- Integration with hot wallets;
- Possibility of staking;
- Some models have a password manager and their own apps for transactions.
Cons:
- It can be easily lost;
- High price;
- There may not be the necessary types of currencies.
Paper wallets look, oddly enough, like a piece of paper with a QR code with a private key and a seed phrase printed on it. It is possible to generate such a wallet, for example, through the BitAddress service, and then print it out and keep it as the apple of your eye.
Pros:
- Free;
- Impossible to hack;
- It takes two seconds to create.
Cons:
- Easy to lose;
- It is not possible to transfer currency in installments. You will have to put the entire amount into a hot wallet, perform the transaction, and transfer the remainder to a newly created paper wallet.
Hot Wallets
By far the most common type of wallet. Hot wallets have an Internet connection or are online all the time. Such wallets are needed for frequent transactions, and the remaining currency is either transferred to another type of wallet, or remains in small amounts. The interface is usually quite simple and easy to understand, even for a beginner. Hot wallets come in the form of PC software, mobile apps, and browser extensions. Examples of hot wallets: MetaMask, Trust Wallet, Exodus.
The safest in this type of wallets are desktop wallets, which are installed on a PC. Before installing such a wallet, it is advisable to have a good anti-virus and make sure there is no malware.
When choosing a wallet, you should also keep in mind that not all of them can work with exactly the currency that you need, although most of them are positioned as multi-currency. In addition, different wallets are on different Blockchains, e.g. MetaMask — Ethereum, Phantom — Solana.
Specifically, in the GameFi industry, it’s as simple as possible. The game developers choose the hot wallet for you by specifying the wallets supported by the game on the website or in the app.
Pros:
- Simple and easy to use, you can easily see your balance or make a transfer;
- Compatible with hardware wallets.
Cons:
- Least secure: Wallet can be hacked while you are asleep because it is connected to the Internet;
- The risk of your phone being stolen and hacked or your computer being infected with a virus.
Conclusion
To briefly summarize:
- Custodial wallets are suitable for frequent exchange transactions; the degree of protection depends on the service owner;
- Cold ones are used for long-term storage of large amounts of cryptocurrency, the most secure;
- Hot ones are designed for quick transfers, the least secure among the rest.
It is important to understand that there is no one-size-fits-all wallet. And, in fact, as for any financial sphere, this is a huge plus.
So avoiding putting all your eggs in one basket, I recommend having several types of wallets. Also, never forget your Seed phrase, don’t click on any questionable links, and only use the official versions.
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