Wallet
Crypto wallets generally use two types of keys: public keys and private keys.
Public keys operate in a similar way to your bank account number. A public key is a long string of random nu
mbers that can be shared with a third party, such as a cryptocurrency exchange, without compromising the security of your wallet. This key allows you to receive cryptocurrency in transactions—oftentimes by using a wallet address, which is essentially a compressed version of the wallet’s public key.
Private keys, on the other hand, should always be kept private. A private key allows you to access the actual cryptocurrency on the blockchain. So if someone has access to your private keys, it’s as good as having access to the crypto in your wallet.
To send cryptocurrency to another wallet is relatively simple. Once you know the recipient’s wallet address, you can open your crypto wallet, select how much crypto you want to send, and send it to that address.
As noted above, crypto wallets can generally be divided into two categories: software and hardware. But there are actually a number of different wallet types that fall into those general categories.
Hosted wallets are simple and easy to set up, which explains their popularity. These wallets are “hosted” directly on the exchange where you buy your crypto, so you may sometimes hear them referred to as “exchange wallets.” If you’ve ever bought cryptocurrency on an exchange like Coinbase or Kraken and kept that crypto on the exchange, you’ve already used a hosted wallet.
With a hosted wallet, the crypto exchange typically holds on to your private key for you. This private information is kept and accessed online, which makes it potentially vulnerable to hackers. Hosted wallets may also be limited in their uses, and you may not be able to execute certain crypto transactions—such as buying an NFT —with crypto that’s in a hosted wallet. On the plus side, forgetting your password is usually not a problem, because the exchange has ways to help you retrieve that data.
A non-custodial wallet allows you to have complete control over your crypto, with no third-party involvement. These software wallets generally offer more freedom and features than hosted wallets. For example, if you’re interested in buying NFTs or staking cryptos—a process in which your crypto supports a blockchain network and earns rewards for doing so—you may want to consider a non-custodial wallet.
With a non-custodial wallet, your cryptocurrencies can be accessed using a private key that’s in your control. Since you’re the only one managing the private key, it’s important to keep safe. If you forget or lose your key, you won’t be able to access your cryptos. And if your key becomes known to someone else, the contents of your wallets may be in danger.
Hardware wallets, also known as “cold wallets” or “cold storage wallets,” are physical devices. They tend to look similar to a USB stick. Your private key for accessing your cryptocurrency on a blockchain is stored on this device.
Since a hardware wallet isn’t connected to the internet and exists in physical form, it’s considered by many to be the safest way to store cryptocurrency. A hacker halfway around the world has no way of accessing your crypto without this device in hand.
There are a couple downsides to hardware wallets. For one, popular offerings from companies such as Ledger and Trezor can be quite expensive. And though losing your wallet isn’t the end of the world, you will need a recovery seed to regain access to your crypto. Losing your recovery seed means you’re pretty much out of luck.
There are several types of software crypto wallets that you can access on your computer or mobile devices. Which one is best for you depends on your personal situation, but here’s a breakdown of some common types.
Desktop wallets are apps that run on your computer and store cryptocurrencies. There is no third party involved, so you are responsible for the security. For this reason, you’ll probably want to have antivirus software installed on any computer where you’re using a desktop wallet.
A mobile wallet is a crypto wallet app that lets you store and control your cryptos on your smartphone. Available on iOS and Android, these are convenient for face-to-face payments. Many mobile wallets also use QR codes, which can be scanned for quick transactions.
This online-based crypto wallet can be accessed via desktop or mobile, allowing you to store and send crypto from anywhere. However, since your passwords are kept on online servers, there’s an increased risk of theft.
Last modified 1yr ago