Things To Know Before Choosing a Wallet

Crypto wallets are straightforward. You don’t need to go through too many complicated steps. But there are some essential things you need to take note of before getting your wallet.

Firstly, a single crypto wallet will not have compatibility with every cryptocurrency or commodity. Most new wallets support many types of coins but not all of them. They usually include all the popular stuff, so you won’t likely encounter incompatibility issues. But it’s always better to check this sort of thing beforehand.

Secondly, crypto wallets are not built equally. Some wallets have better features, tighter security, and accessibility than others. You must research to figure out which one fits you best. Having a good reputation is also an essential criterion for crypto wallets. You’ll need to assess the wallet provider to verify their importance.

As a new investor, you should also consider the usage difficulty. Don’t get a wallet with too many complicated security steps and specialized features. Instead, for lighter investments, go for one with a beginner-friendly interface.

Finally, don’t forget your wallet address. In some wallets, you can probably get it back. But it’s not an easy thing to do. You’ll lose your entire investment for wallets like BTC if you lose the wallet key. Also, make sure to check compatibility before completing a transaction. You can’t send one type of currency to a wallet of a different kind of currency. You’ll lose your funds if you do that.

Types of Crypto Wallets Based on Ownership

You can classify crypto wallets into many different types based on various standards. For example, if you look at it from an ownership point of view, there are two types of wallets -Hosted and Non-custodial.

1. Hosted Wallet

Hosted or custodial wallets are where the exchange platform keeps the private key, not the owner. You’ll leave your wallet to your crypto exchange company to manage. You can always move your funds around. However, you won’t hold onto the key.

Hosted wallets are mainly used by large financial companies that manage crypto. You don’t have to worry about the well-being of your funds, nor do you need to care about ensuring their security. It’s like entrusting your money to a bank.

The main benefit of a hosted wallet is safety. Some investors have millions of dollars worth of crypto in their crypto wallet, and carrying a fat wallet is never safe. So, you give up the management of the wallet to a third party in return for safety. You can access that wallet through biometric verifications and other identification methods.

However, hosted wallets come with their risks. The safety of a hosted wallet depends on the host, and there have been cases of hosting companies going bankrupt. In these situations, you will most likely lose your investment. So, it’s best to pick a hosted wallet from a provider that has stood the test of time.

2. Non-custodial Wallet

Non-custodial wallets are where the user must manage themselves. This means the user must take responsibility for each transaction, security, and wallet maintenance. Conversely, non-custodial wallets are the safest for long-term investors because no third party is involved.

However, being non-custodial doesn’t mean it isn’t reliant on others. You don’t have to craft a non-custodial wallet by hand. These are also products sold by crypto companies. The only difference is your level of clearance in using the funds.

With a custodial wallet, when you open the interface to trade crypto, you don’t interact with the interface yourself. Instead, your commands go to the intermediary – the host company. They complete the transactions based on your commands. You don’t do such things with a non-custodial wallet.

On a non-custodial wallet, everything you see is the real deal. You’ll be making the transactions in real-time without any middleman. While that gives you more freedom, you must shoulder more responsibility.

Responsibilities include managing your public and private keys, hardware storage (applicable for cold wallets), and other necessary technical details. Non-custodial wallets are more complicated, and there are many of them. You also have to ensure the physical safety of your wallet.

Types of Crypto Wallets Based on Storage Method

You can classify crypto wallets differently based on various methods. There are two types of storage: cold wallet and hot wallet.

1. Cold Wallet

Cold wallets are wallets based on a hard drive or a physical key. The key is usually akin to a USB drive that you can plug into other devices to access your wallet. Cold wallets aren’t connected to the internet, making them less vulnerable to online hacking and malicious attacks.

There are two types of cold wallets. The first is a flash drive or USB drive, which you can carry. These are the most advanced crypto wallets; people with more significant investments will pick these over anything else. Ledger makes some great hardware wallets.

The other type is a paper wallet or a card. It’s a physical object with your unique QR code and personal numbers. While this type of cold wallet is more inconspicuous, it is also very fragile. You can easily damage these wallets and lose the corresponding funds. Paper wallets such as these have become obsolete in the current industry.

Meanwhile, hard-drive wallets are thriving. These wallets cost much more than regular ones, but you can store large amounts of tokens on them. Not being connected to any network means people can’t hack it through conventional means. But the downside is that it is a mobile treasure trove. You can lose your entire investment if some thief manages to steal the tiny device.

Most people with massive investments will still choose these cold wallets and secure them behind safety measures. Physical safety measures are usually easier to set up than online ones. You don’t need to consider any digital safety.