Crypto Wallets: Details You Need To Know Before Investing
If you watch crypto news, you must have come across the word crypto wallets. So what is that, and how do we use it?
A crypto wallet is a place to store your crypto securely. It keeps your private keys, that is, the passwords that give you access to your cryptocurrencies, safe and accessible. There are various forms of crypto wallets. They include hosted wallets, non-custodial wallets, and hardware wallets, to name a few.
The right one for you depends on:
- What you want to do with your crypto and
- The kind of safety net you want to have.
Unlike a regular wallet that holds actual cash, a crypto wallet doesn’t technically store your crypto. Instead, your holding lives on the blockchain and can only be accessed using a private key. Your key proves your digital money ownership, which helps you make transactions. Losing your private keys means losing access to your money.
Crypto wallets range from simple to use apps to more complex security solutions. The three main types of wallets you can choose from include paper wallets, hardware wallets and online wallets.
- Paper wallets: The keys are written on a physical medium like paper and stored safely. It makes using your crypto harder to steal because you can use digital money only on the internet.
- Hardware wallets: Here, you store the keys in a thumb-drive device that is kept in a safe place and is connected to a computer only when you want to use your crypto. The idea here is to try and balance security and convenience.
- Online wallets: Here, you store the keys in an application or software usually protected by two-step encryption. The method allows you to send, receive, and use your crypto easily, like any online bank account, payment system, or brokerage.
Each type of wallet has its tradeoffs. For example, paper and hardware wallets are more complicated for malicious users to access due to their offline nature but are limited in function and risk being lost or destroyed.
A hosted wallet is a popular wallet that is also very easy to set up. A benefit of using a hosted wallet is that you won’t lose your crypto if you forget your password.
A self-custody wallet puts you in complete control of your wallet. Non-custodial wallets do not rely on a third party to keep your crypto safe. While they provide all the software necessary to store your crypto, you are responsible for remembering and safeguarding your password.
Along with this, you can also easily access more advanced activities like yield farming, staking, lending, borrowing, and a lot more. But if buying, selling, sending, and receiving crypto is all you want to do, depending on the crypto price, then a hosted wallet is the best solution.
Hardware wallets are physical devices that store the private keys to your crypto offline. Many people do not use hardware wallets because of their complexity and cost, but they have many benefits, like keeping your crypto secure even if your computer gets hacked.