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What Is A Crypto Wallet: Definition, Guides & Compared

Guides Oct 14 2022
[Oxalus] what is a crypto wallet

A cryptocurrency wallet is a very first tool you need when entering the field. However, newcomers may find it overwhelming when it comes to choosing the most suitable crypto wallet as there are many types of wallets now available.

Knowing what a cryptocurrency wallet is, how it works, and how to secure your wallet is the most important basic knowledge for a crypto citizen. In the article, we will give you everything you need to know regarding cryptocurrency wallets and help you confidently start your crypto journey.

What Is A Cryptocurrency Wallet?

A cryptocurrency wallet (or crypto wallet) is software or hardware that allows users to store and use cryptocurrency. 

A crypto wallet will keep track of the owner’s public and private keys, as well as their current holdings. Through the blockchain or the exchanges, it allows for the sending and receiving of cryptocurrency. Some wallets even facilitate interactions with DApps and cryptocurrency trading.

How Do Crypto Wallets Work?

Crypto wallets don’t store any actual cryptocurrency; rather, they keep the public key and private keys needed to make cryptocurrency purchases and generate digital signatures that authorize each transaction. The currencies themselves are stored on a blockchain, which is a form of digital record that serves as the foundation for numerous decentralized cryptocurrencies.

Token transfers, for instance, involve using your private key to sign the transaction and add it to the blockchain ledger. The network will then include your transaction to update the changed balance for both you and the recipient.

What Are A Public Key & A Private key?

The public key performs as your bank account number which you can freely share with others while the private key is like your bank account PIN which you should keep under wraps. All public keys in a public-key cryptosystem will have exactly one matching private key. 

Some cryptocurrency wallets do not support any other user identification mechanism such as email or phone number. This means that if you ever forget your private key, there is no way to change it or recover your assets. Thus, you should always make back up your private key information and keep it in a safe place.

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Types Of Crypto Wallets

Cryptocurrency wallets are divided into two main kinds including “hot wallets” and “cold wallets”. Read on to choose the right one for you.

Hot Wallets

Hot wallets are software wallets that require a constant Internet connection to function and can take the form of a website, mobile app, desktop app, or browser extension. Storing a large quantity of cryptocurrency in a “hot wallet” is risky because your private keys are kept in Internet-connected software, which makes yours attractive to cybercriminals. 

There are two main categories of hot wallets: custodial wallets and non-custodial wallets. 

Custodial Wallet

ProsCons
– Faster transaction speed
– No worry about losing your private key 
– Support from customer care when being in trouble
– Possibility to recover access
– Complicated KYC Process
– Access barrier as some exchanges are banned in certain countries
– Depend on a third party to protect your assets
– Only access to cryptocurrencies listed on the exchange

Custodial wallets are centralized wallets provided by cryptocurrency exchanges such as Binance, Coinbase, etc. 

They are centralized because the exchange holds access to the private keys of the users while users do not have complete control over their tokens and must rely on the exchange to keep their funds “safu” (Secure Asset Fund for Users).

How to use:

At the outset, you must select a reliable platform by looking at security, user authentication protocols, compliance with government and financial rules, customer support, and user experience.

Secondly, create your account. Choose a highly secure password and use 2-layer authentication for extra security. In addition, you should also take precautions to protect any associated accounts, such as email and phone numbers, that are utilized for authentication purposes.

Thirdly, complete the KYC process then link your wallet account with a payment method such as a bank card, MasterCard, VISA, or Paypal to enable deposit and withdrawal transactions from the exchange.

At long last, you can use the wallet to make purchases. If you want your transaction to go through without a hitch, make sure to follow the exchange’s instructions and contact customer support if you ever run into any issues.

Non-Custodial Wallet

ProsCons
– Full control over your fund
– Access to all cryptocurrencies on the supported blockchains
– Access to Dapps on the blockchain
– Quick to create new wallets
– No custodial fees
– Higher security
– Slower transaction speed
– Impossibility to regain access once losing your private keys and seed phrases
– No customer support

Make sure you have downloaded a wallet app on the device.

Secondly, it’s important to write down and safely store your seed phrase including 12 randomly generated words). This acts as a backup or a way to get back into your device if you lose access to it. Anyone who knows your seed phrase can take complete control of your wallet. If you lose your seed phrase, you won’t be able to get your money. Do not print it out on a public printer or take a picture of it with your phone.

Finally, make every transaction with caution.

Cold Wallets

ProsCons
– High security over your crypto assets
– Suitable for long-time holders
– Not advisable for frequent transactions
– No backup method
Costly
– Some cold wallets don’t support many assets
– Some cold wallets have limited storage

A cold wallet or hardware wallet is a physical device that stores your private keys offline. 

Though far less convenient than hot wallets, cold wallets are considered the best security for long-term holdings because they hold your cryptocurrency offline, away from the reach of hackers and other online threats. However, there is a chance that users’ funds could be stolen. If you lose your device, you will lose access to your assets permanently as there’s no backup to this form of storage. If you acquire a used gadget that already has malicious software installed, there is also a risk that your wallet will be hijacked. Make sure you buy genuine cold wallets from reputable manufacturers such as Ledger or Trezor.

>>> Join us on Oxalus Wallet App to receive more NFTs news, helpful hints, and hidden gems.

NFT Wallets That Focus On Managing NFTs

ProsCons
– Easy connect to NFT marketplaces and DApps
– Seamless NFT experience
– Showcase your NFTs
– Some wallets support multiple blockchain networks
– A few NFT wallets do not support buying NFTs with debit/credit cards

How To Choose The Best Crypto Wallets?

Choosing the best cryptocurrency wallet for you depends on many factors shown below:

Hot vs. Cold

Those with higher risk tolerance and making frequent transactions will find a hot wallet to be the most practical option. Whereas, those looking for long-term storage of their crypto assets will benefit most from a cold wallet.

Blockchain and Cryptocurrency Support

Selecting wallets that function with several blockchain networks is preferable. You will not be able to trade an unlisted token on Binance using the Binance custodial wallet. Similarly, you cannot store and trade a Solana NFT on an NFT wallet that does not support the Solana system. Ensure that the cryptocurrency wallet you select is compatible with the network and tokens you plan to trade before making your purchase. 

Strong Security

Two-factor authentication is the standard security protocol today and is recommended as a criterion for choosing a cryptocurrency wallet.

User-Friendly Interface

The easier the wallet interface is to use, the harder it is to cause confusion leading to property damage. Especially when you often trade NFTs, choose an NFT wallet with a smooth and friendly experience.

Multiple Device Access

Most NFT wallets are available as web extensions, mobile or desktop programs, or both. Look for a wallet that can synchronize transactions in real time and is available on numerous devices for added ease.

Pricing

Keep an eye on the costs associated with your wallets, since they can have a significant impact on your returns. A good pricing wallet will save you considerable money in the long run.

Which Crypto Wallet Should You Use?

To choose the optimal cryptocurrency wallet, you need to consider your specific needs. A cold wallet is appropriate for a serious holder who intends to keep your cryptocurrency for a long time and has no plans to sell it any time soon. 

However, if you are a trader who trades frequently, a hot cryptocurrency wallet is your best bet. Furthermore, you should read the pros and cons of using different wallet types described in this article carefully in order to make an informed decision.

The Bottom Line

There is no perfect option for cryptocurrency wallets as each type of wallet has distinct advantages, functions, and trade-offs. Thus, it’s truly up to you to decide what’s the best for you and your requirements. The article has provided all the necessary information to choose the right wallet for you!

Frequently Asked Questions

1. Do I really need a crypto wallet?

Having a crypto wallet is a must if you want to start buying or trading cryptocurrencies.

2. Is a crypto wallet free?

Most non-custodial wallets are free while most custodial wallets cost transaction fees and cold wallets cost hardware buying fees.

3. Are crypto wallets safe?

It depends on the wallet type, be sure to select the security wallet and manage your own private key, seedphrase with the crypto wallet.


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