In this lecture, we analyze the types of crypto wallets
A crypto wallet is an integral component of the Blockchain system and an essential part of the process of buying and selling, staking, and mining cryptocurrencies. With it, you can make transactions and receive funds. Each type of crypto wallet has its own advantages and disadvantages. To work safely and confidently in the blockchain, you need to know the features of all types and be able to use each of them.
The principle of operation of a crypto wallet
There is a stereotype that a crypto wallet is only needed to store a digital asset. In fact, it is a tool for interactions in Blockchain.
Here, public and private keys are generated — that is, data for operations with a virtual asset.
The public key is used to identify the wallet where funds are sent
and the private key is used to access the system by its owner.
Regardless of the type of your crypto wallet, you can access any virtual asset using a private key. At the same time, you can use it from any device.
If the storage was located on a smartphone, you can easily open it from your PC — just enter the private key or seed phrase
It is important that coins cannot leave the system: they only move between addresses.
Cryptocurrency can be converted into ordinary money only through exchanges or special terminals if the digital asset is somehow backed by currency (for example, BTC).
According to the mechanism of operation, hot and cold cryptocurrency wallets are distinguished.
Hot wallets
All software wallets are hot, that is, they are constantly connected to the network during operation. Thus, they allow you to send and receive transactions quickly and without any hassle.
The option is suitable if you are not engaged in large investments, but simply use cryptocurrency payments from time to time for any purpose.
Let’s look at the situation.
You buy BTC on the cryptocurrency exchange. In the future, you plan to resell your coin. To keep track of all trends and quickly bring coins to the market when the market value increases, you keep the asset on a hot wallet. It is tied to the network and, if necessary, coins are easily transferred to trading platforms.
This tool will be easy to set up, with it you have constant access to funds. Typically, traders use this type of crypto wallets. Its only disadvantage is vulnerability. Fraudsters can get your funds because of a technical security breach.
Cold wallets
In cold wallets for cryptocurrencies, keys are stored offline most of the time — so they are inaccessible to any hacker attacks or viruses. You can replenish such a wallet without hindrance, knowing the address, and in order to send a transaction, you will need to temporarily connect to the software wallet.
Therefore, cold wallets are ideal for long-term investment, when mostly only replenishment occurs.
For example, if you hold BTC coins on your account, you transfer it to cold storage, as if disconnecting it from the Internet and excluding the ways for hacking
What are custodial and non-custodial wallets?
Custodial wallets mean that your private keys are held by a third party (most often this is the exchange or platform where you buy cryptocurrency).
In the early days of Bitcoin, all users had to create and manage their own wallets and private keys. While having full control over funds has many benefits, it can be inconvenient and even risky for less experienced users.
For example, if private keys are compromised or lost, the user will permanently lose access to their cryptocurrencies. Blockchain analysis shows that over 3 million BTC could be lost forever.
Non-custodial wallets allow you to have complete control over your funds, as the private keys are kept by you.
This option is best suited for those who need to manage their funds on their own. Since there are no intermediaries in this case, owners of non-custodial wallets can trade cryptocurrencies directly. This is a suitable option for experienced traders and investors who know how to use and protect their private keys and seed phrases.

Which wallet is the safest?
At the moment, the most secure type of cryptocurrency wallets are hardware devices like Trezor and Ledger.
With the development of the industry, new types of cryptocurrency wallets regularly appear, and now there is a clear bias towards decentralization. It is being made easier to learn even for novice users, while before it was too technologically advanced for many. Treat the storage of cryptocurrency carefully so as not to worry about the safety of your savings.