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What is a Crypto Wallet? A Beginner's Guide to Digital Asset Storage

What is a Crypto Wallet? A Beginner’s Guide to Digital Asset Storage

Posted on October 31, 2024

Learn all about crypto wallets, how they work, and why they differ. Choose between hot and cold wallets and custodial and non-custodial wallets.

A crypto wallet is a digital tool for securely storing, managing, and accessing your cryptocurrency. However, unlike traditional wallets that hold physical currency, crypto wallets do not store the actual cryptocurrency. Instead, they hold the digital keys that allow you to access your crypto assets on the blockchain, a decentralised digital ledger that records all cryptocurrency transactions.

How Crypto Wallets Work

Each crypto wallet generates a public key and a private key. These keys work together to facilitate transactions and provide security. 

  • Public keys are similar to bank account numbers and are used to receive funds. They can be shared with others. 
  • Private keys are like passwords that grant you access to your crypto assets. They should never be shared. 

Essentially, whoever holds the private key controls the funds associated with that wallet.

Types of Crypto Wallets

Crypto wallets can come in two primary forms: software (hot) wallets and hardware (cold) wallets.

Software Wallets

Software wallets are digital wallets connected to the Internet, making them accessible and convenient for frequent transactions. They are typically offered as mobile or desktop applications and allow you to buy, sell, and trade crypto easily. 

However, because they are online, they are more susceptible to cyber threats, which makes stringent security measures essential.

Hardware Wallets

Hardware wallets are physical devices designed to store private keys offline. Because they do not connect to the Internet, they are far less vulnerable to cyberattacks, making them ideal for holding crypto assets securely over time. 

Accessing a hardware wallet generally requires connecting it to a computer or mobile device and entering a PIN or passphrase.

Custodial & Non-Custodial Wallets

Crypto wallets are also categorised as custodial or non-custodial, depending on who controls the private keys. 

Custodial wallets 

Custodial wallets are managed by third-party providers, such as exchanges, where the provider holds the private key on your behalf. This is convenient for beginners but can limit your control as you rely on a third party for security. 

Non-custodial wallets

Non-custodial crypto wallets like Best Wallet give you complete control over their private keys, which means only you can access the funds. This provides more security and privacy but requires you to manage your own private keys responsibly.

If you want to invest in cryptocurrency, you’ll need to choose a wallet that best suits your needs and is safe, secure, and convenient. 

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