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What are the different types of Crypto Wallets?

| November 17, 2023

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A crypto currency wallet is essential to store, transact, and interact with the thriving blockchain/ web3.0 ecosystem. The rapid adoption of cryptocurrencies and digital tokens has led to the emergence of a whole new set of digital asset classes, digital payment protocols, and digital economies – and to participate in this booming industry, users need to be familiar with different types of crypto wallet and their functions.

Custodial and non-custodial wallet:

The debate on which is the best crypto wallet (custodial or non-custodial) boils down to security and convenience, as well as which party is responsible for storing and safeguarding the wallet’s private keys.

In case of the custodial crypto currency wallet, the private keys of the wallet are controlled and stored by crypto-exchange or the wallet service provider. Custodial wallets are the best crypto wallet for those users who want access to crypto funds on their fingertip without the concern of control.

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Users who demands full control of their keys and funds, must opt for a non-custodial crypto currency wallet. In the case of the non-custodial crypto currency wallet, the holder of the private key is responsible for keeping the private keys safe and secure against cyber-threat. What makes a non-custodial wallet the best crypto wallet? With the non-custodial wallet, users don’t need to depend on a third party. Crypto-holders cannot retrieve their funds if the private keys are los

Different types of crypto wallets:

1. Hardware wallet: 

A hardware wallet is a type of crypto currency wallet that helps store the crypto-holder’s private keys in one of the safest and most encrypted manners possible.

Why is securing a private key important? The private key is a critical piece of information employed by the wallet to authorize and sign outgoing transactions over the blockchain network.

Usually, the outer body of most hardware crypto wallet devices consists of a USB extension, OLED display, and a side button.

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The hardware crypto currency devices are designed with security in mind but also for conveniently daily usage.

The amount of control and accessibility might differ based on the type of crypto-currency hardware wallet users opt for.

The purpose of the hardware device is to isolate and safeguard the private keys against hackable devices such as computers, tablets, laptops, and smartphones.

2. Web wallet:

Web-based crypto currency wallet is a browser-dependent, easy-to-use wallet. It is often provided and hosted by a crypto exchange where you can trade digital assets without friction.

You can access web-based wallets using all types of browsers – Google Chrome, Mozilla Firefox, Opera, Microsoft Edge, Vivaldi, Safari, Brave, and others.

Even though you might be using the best crypto wallet from the best crypto exchange, still, your private keys and digital assets are at risk of getting compromised.

But why? Because your wallet is connected to the internet and your exchange stores the keys. Most web-based, best crypto wallets, including exchanges, are prone to DDOS attacks.

The web-based crypto currency wallets are advised for small to medium size investments as well as allow prompt transactions across the web3.0 ecosystem.

3. Desktop wallet:

A desktop crypto wallet is an (installable) software application custom built for all types of operating systems – Mac, Windows, and Linux.

The best crypto wallet in the desktop space is the one that employs encryption algorithms to keep the crypto-owner’s private keys securely hidden on your computer hard drive.

With most desktop-based crypto currency wallets, no private keys are held by some random third-party service provider or exchange.

Desktop-based crypto currency wallets come with cold storage features to provide an additional layer of security.

The only thing a crypto owner needs to ensure is that the respective computing device holding the keys must have an anti-virus installed and properly configured because the computing device needs to be connected to the internet for future transactions – posing a serious fundamental security risk.

It is a wise move to transfer and store your crypto holding and digital assets on desktop-based crypto-currency wallets rather than on a web-based wallet provided by the exchange.

A desktop wallet is one of the best crypto wallets to employ for your fund because it is easy to use, independent, provides privacy, and absolute control over funds.

4. Mobile wallet:

Mobile-crypto currency wallets are the same desktop-based software application built for different platforms, i.e., smartphones or tablets.

The best crypto wallet in the smartphone space allows users to conveniently conduct trade employing uniquely generated QR codes and transact using cryptocurrencies and other crypto assets.

The best crypto wallets in the smartphone and tablet space are the non-hosted ones which means the crypto-owner is responsible for saving and managing private wallet keys – which are present on the device.

Often, mobile-based crypto currency wallets risk getting infected by malware code because mobile devices are required to connect to secure and unsecured shared public networks.

So, it is suggested by experts – encrypting your mobile wallets safeguards your investments and funds and holds against viruses.

5. Paper wallet:

Even if you (the crypto-holder) write down your public and private keys on an isolated piece of paper, still the paper would function as a crypto currency wallet. But due to a lack of security, paper crypto currency wallets are not recommended by experts.

The best crypto wallet often provides printed paper-backup consisting of unique public and private keys generated by the wallets – in both the form – a string of characters and QR codes.

The best crypto wallet with paper-wallet features is often used as a present, giveaway, or promo scratch-off card, a way to educate about wallets or make offline transactions.

The paper-crypto currency wallet doesn’t allow the holder to transfer partial funds to other parties. These paper-based wallets are only for one-time use and can’t be reused, causing serious environmental damage.

If a crypto holder is actively looking for the highest degree of security in conjunction with a hardware wallet (cold storage), then setting up the best crypto wallet (paper-based) is advised.

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