Before you acquire cryptocurrency, you’ll need to choose a place to store it. Unlike fiat money, you can’t hide cryptocurrency in a piggy bank. To store it and for all transactions, you’ll need crypto wallets. In this article, we’ll discuss ordinary crypto wallets, secure crypto wallets, and more. Which crypto wallet type should you choose? Keep reading to find out!
Ordinary Crypto Wallets vs. Secure Crypto Wallets: The Main Differences
With ordinary crypto wallets, the user is simply provided with an address and an interface for accessing the wallet and nothing more, making the wallet unsafe in many respects. The user can only set a pin code.
With a secure crypto wallet, even if the storage of the private key is organized in the cloud, there are means of protecting and managing this key, such as:
- storing the crypto key in a crypto container, protected by a local password set by the user, making it impossible to use the wallet without the user’s knowledge;
- the ability to change the password (re-encryption of the private key);
- the installation of two-factor protection for transactions and access to wallets;
- the ability to back up the wallet with all available data.
In secure crypto wallets, password storage, backup mechanism, and recovery of access to the wallet are organized using proven encryption algorithms and modern information protection methods like E2E encryption and even features like a secure messenger.
Custodial vs. Non-Custodial Wallets
We would also like to make a comparison of custodial vs. non-custodial wallets. Custodial wallets resemble banking instruments. Their distinctive feature is that the user does not have full control over their funds since the operator has access to the private key. This has its advantages. For example, if a user loses their password or keys, they can still access their funds.
On the one hand, custodial wallets are more reliable and private for the user; on the other hand, they create inconvenience for the user and lead to data loss (private keys). Among the main disadvantages of custodial wallets are the custodian’s access to user funds and the risks of losing them due to hacking, forks, authorities, or court decisions. The lack of access to your funds during technical work can also be an unpleasant experience.
The only plus of custodial wallets is the storage and management of the private key. However, due to changing security and regulation policies, services are starting to pre-verify clients, which means checking the wallet from which funds will be replenished or withdrawn for an item. Accordingly, custodial wallets’ use will be complicated in the future: the owner will have to accept regulation rules and undergo a KYC check. This will lead to the fact that only one significant plus will remain – the private key’s storage on the end device.
A cryptocurrency wallet is non-custodial when it allows the user to control the keys and their funds fully. This category includes hardware, mobile, paper, desktop, and web wallets. Are non-custodial crypto wallets completely safe? No. Non-custodial crypto wallets have their drawbacks. For example, if you lose the private key and the phrase for its recovery, the funds will be irretrievably lost.
To sum it up: if you’re planning on storing your crypto to use in the long-term, it’s best to choose a secure wallet; they have backup mechanisms and modern information protection methods like E2E encryption. In case you’re using crypto for quick purchases and in small amounts, a regular digital wallet will do.
With a non-custodial wallet, you have sole control of your private keys, which in turn control your cryptocurrency and prove the funds are yours. With a custodial wallet, another party is in charge of your private keys.