Crypto Wallet 101: All You Need to Know

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Coinmonks

4 min readFeb 7, 2022

Words such as “Crypto,” “Cryptocurrency,” and “Bitcoin” are no longer strange terms. Often you’ll see Ads, social media posts, blog posts, and traditional media talk about it. The cryptocurrency market is one of the trends whereby millions of individuals, investors, and significant companies are investing. According to a report published in 2021, the cryptocurrency market is expected to be approximately $ 2.2 Billion.

There is significant adoption of cryptocurrencies across the world. However, most beginners in the crypto sphere struggle to understand some concepts, such as crypto wallets. This post discusses the basics of crypto wallets and answers frequently asked questions.

What is Crypto Wallet?

As the name suggests, a crypto wallet helps you transact and store your cryptocurrencies. A crypto wallet may be a physical device or a software program that allows you to send, receive and store crypto.

Let me make this easier for you! A crypto wallet is similar to an online bank account where you transact and store digital currencies. What makes a crypto wallet unique from your typical online bank account is that it’s transacting in a decentralized sphere, unlike banking that operates in a centralized environment. It means a peer-to-peer financial network uses certain security protocols, software, and connectivity to use a crypto wallet effectively.

Why should you not compare a crypto wallet to your typical wallet? A typical wallet allows you to store money, but it doesn’t protect your money (ooh! it can protect it from the rain). Conversely, a crypto wallet utilizes private keys where each user has their own private keys that allow them to transact.

Note: Technically, a crypto wallet doesn’t store your crypto assets. Usually, crypto assets are held on the blockchain (A digital distributed and decentralized data system existing across a network. It maintains a secure and decentralized record of transactions). Generally, you need a private key to access your crypto asset via a crypto wallet on the blockchain. Therefore, it means that if you completely lose your private key, you lose access to your crypto assets.

What are the Types of Crypto Wallets?

First, let’s distinguish the two categories of crypto wallets, i.e., custodial and non-custodial wallets.

Non-custodial crypto wallets give you complete access to all crypto assets in your wallet. Examples of such wallets are ChangeNow, Trust Wallet, Exolix, SimpleSwap, Wasabi, Electrum, and Exodus.

On the other hand, Custodial crypto wallets don’t offer full control of your crypto assets, and the wallet provider could also access your private keys. In brief, private keys are held by a third party. Examples of custodial wallets entail Binance, Coinbase, and Bitmex.

Now, let’s get into the two types of crypto wallets, i.e., Hot and Cold wallets.

Hot wallets

These are wallets connected to the internet, and you can use them anytime to pay and acquire new crypto assets. They are convenient in the sense that you can easily and quickly use, trade, or spend crypto. Examples of hot wallets are web wallets, mobile wallets, and desktop wallets.

Cold wallets

A cold wallet is a physical kind of wallet such as a device that keeps your crypto assets offline. These kinds of wallets are secure but less convenient because you need their physical access. Examples of cold wallets are paper wallets and hardware wallets (such as USB sticks and secondary offline computers)

Each of these types of crypto wallets has its advantages and drawbacks.

Why do You Need a Crypto Wallet?

A significant number of crypto exchanges offer crypto storage in a wallet within the exchange. This is what is referred to as a custodial wallet. Why would you consider this kind of a wallet anyway? Suppose you’re a complete beginner in the cryptocurrency market. In that case, this is a reasonable option as you learn and understand about private keys, public keys, and types of crypto wallets, among other security-related aspects of the crypto market.

Have you heard crypto experts and enthusiasts say, “Not your key, not your crypto”? If you’re a firm believer of this saying and you understand the crypto market, a non-custodial wallet may be your choice of crypto wallet. It means you’ll have a private key that you use as a password to your crypto wallet. However, it’s vital that you maintain the crypto key as a secret.

So, why is a crypto wallet important? A crypto wallet stores your private keys that keep your crypto safe. Further, the private key allows easy access to your crypto asset on the blockchain.

Bottom Line

As the crypto market keeps growing, more players are joining the game. Similarly, understanding crypto is a vital aspect of the current world. A crypto wallet is one thing you’ll require if you want to transact or store crypto assets you acquire. Additionally, it is worth understanding the advantages and disadvantages of various types of crypto wallets before choosing what suits you.

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Crypto Wallet 101: All You Need to Know

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Written by Stan Kihu