In the world of traditional currencies, you can store your dollars under the bed, in a safety deposit box, or keep them in a bank account. You can carry your money around, making it hard for you to transact during rugby betting or when paying for a service.
However, when it comes to cryptocurrency, there is a virtual asset. Nevertheless, you must store your cryptocurrency in a wallet. You may wonder what this wallet is and how to acquire one.
This article will explain the types of crypto wallets and their features.
Three types of cryptocurrency wallets
- Hardware (Cold) Wallet
- Custodian Software Wallet
- Non-Custodian Software Wallet
Let’s take a look at each of these wallets, shall we?
1. Hardware Wallet
In the 20th century, music was stored in compact cassettes and discs. In the 21st century, we store data in memory cards and flash drives. A hardware wallet is similar to a flash drive. The name hardware is a tangible object you carry around.
The first step of acquiring a hardware wallet is to purchase the flash drive-like device from a trusted source. Some trusted hardware wallets include Ledger Nano S, Trezor Model One, SafePal 1, D’CENT Biometric, and SecureX V20 & W20.
It would help if you did your research to understand the characteristics of each company before you decide which one will be suitable for you.
After you purchase the device, installing the software is next. Ensure you download the software directly from the company’s website to avoid scammers. Next, you set up your wallet with your details. You will be given a combination of characters that will be your private keys if you need to access your wallet.
Always store the hardware wallet in a separate place from the private keys. You should note that you have full control of these items, and if you lose or forget your private key, you lose your crypto. Keep in a safe but reachable place when in need.
Hardware wallets are the most secure because they are offline. They are not susceptible to scammers on the internet. The only way someone can access your wallet is if they have both the flash drive and the private key.
However, hardware wallets may be costly to set up. Also, a hardware wallet may not be convenient for daily activities. Another disadvantage of a hardware wallet is that you cannot buy crypto directly using fiat currency. You have to transfer from another crypto wallet.
2. Custodian Software Wallets
They are also called hosted wallets. Unlike hardware wallets, there is no tangible storage device for software wallets. They are completely online. A custodian wallet is one where you create an account with a third party who will store your crypto.
All you need to acquire a custodian wallet is your email address. You can choose from many platforms when you want to create a hosted account. Such platforms include Coinbase, Binance, Gemini, Crypto.com, and Kraken. After settling on a platform of your choice, go to their website and create an account with your details.
The main advantage of a hosted wallet is that you can purchase crypto directly using other fiat currencies. Also, you don’t have to worry about private keys. If you forget your password, you can contact the service providers, who will help you retrieve it.
Custodian wallets are prone to hacking. This does not mean that they are not secure. But because a third party is involved, hackers might find it easier to get hold of your account.
3. Non-Custodian Software Wallets
They are also called self-custody wallets. A self-custody wallet is similar to a custodian wallet, for they are online, only that no third party is involved. You have full control of your wallet.
The first step in acquiring a non-custodian wallet is downloading the software from the company website. After you install the app, you create your account with your details. A combination of characters will come up as your private key.
Make sure you keep it in a safe place. If you forget or misplace it, you will lose access to your wallet and all crypto.
The advantage of self-custody wallets is that you can access more advanced activities like borrowing and lending. A limitation of non-custodian wallets is that you cannot buy crypto directly using traditional currencies.
There are three types of crypto wallets. Hardware wallets are offline, while hosted and self-custody wallets are online. Hardware wallets are more secure because hackers don’t have easy access to them. Do more research to determine which of the three wallets is more suitable for your needs.