Cryptocurrency wallets are available in different forms.
Each wallet type offers distinct advantages. Some prioritize fund protection, while others focus on ease of use. Certain wallets incorporate advanced features, resembling online banks, while others excel in basic functions, specifically designed for secure transactions and storage of specific cryptocurrencies.
Choosing a wallet depends on various factors. This article provides a comprehensive overview of different crypto wallet types, highlighting their unique characteristics and features. This information will help you make an informed decision about the wallet that suits your requirements best. But first:
What Is a Crypto Wallet and How Do They Work?
A crypto wallet, whether software or a device, is used by individuals to manage crypto assets. Unlike traditional wallets for fiat currency, crypto wallets don't hold funds; they store private keys — credentials for authorizing transactions. The actual funds remain on the blockchain.
Crypto wallets have evolved beyond basic storage and transfer functions. They offer intuitive interfaces, supporting multiple cryptocurrencies, including non-fungible tokens (NFTs). Early software wallets required manual input of private and public keys, prone to errors and fund loss.
Image source: DCX Learn
Modern wallets address this issue with features like copy-paste and QR scanning. Nonetheless, managing several wallet addresses, one for each cryptocurrency can be overwhelming. Thus, this is why XGo has introduced XGo ID. This new integration enables users to effortlessly link their wallet addresses to their unique XGo IDs. As a result, they can now conduct transactions using easy-to-read identifiers, eliminating the need for cumbersome and lengthy alphanumeric strings. These advancements enhance crypto adoption. .
Crypto wallets work with a pair of keys — public and private. The public key, akin to a bank account number, can be shared publicly. Anyone with knowledge of this key can send you cryptocurrencies. The private key, like a vault's password, is needed to move or spend funds. Sharing it is risky.
Cold Wallets vs Hot Wallets
It is essential to distinguish between "cold" and "hot" wallets. Both types have pros and cons, and understanding when to use each is crucial. Cold wallets, like vaults, offer high protection but are less convenient for regular use. Hot wallets resemble everyday wallets, but they're susceptible to theft.
Cold wallets are offline, keep your data on devices not connected to the internet or on physical media. Paper wallets are cold too. Hot wallets are online, taking the form of apps and are vulnerable to hacking.
Types of Hot Wallets
Hot wallets include mobile apps, web wallets, and browser extension wallets. They can support single or multiple cryptocurrencies. They can also be custodial or non-custodial.
Types of Cold Wallets
Image source: Best Buy Blog
Paper wallets are hand-written or printed on paper pairs of keys. Hardware wallets are offline devices, secure but easy to lose. Deep cold storage is highly secure but less accessible.
Custodial vs. Non-custodial Wallets
Custodial and non-custodial wallets differ in key access. Non-custodial wallets enable users to hold their keys, offering full control over stored funds. Custodial wallets act as intermediaries, offering more security features but less control.
Which Type of Crypto Wallet Is the Best?
The "best" wallet depends on your needs. For regular use, a hot wallet might suffice. For long-term investment, an offline wallet is better.
Non-custodial vs custodial wallets can be likened to cash vs a bank account. Non-custodial offers control but no recourse if you lose access. Custodial offers security but requires trust.
Choosing a wallet depends on your crypto usage. There's a variety of options. It's common to use different wallets for different purposes, like long-term storage and daily spending.