Nowadays, there are various types of crypto wallets available in the market, but choosing the best ones from the list of bundles may be a tedious task for you. If you want to choose the best crypto wallets, you must have a clear idea about what you are looking for in the crypto wallet. Each wallet has its specifications, control, and security measures to offer a pleasant experience to crypto users. You must choose a crypto wallet that satisfies your needs. If you are an investor or trader, the crypto wallet must be your first choice as it stores your virtual assets safely. These wallets offer innovative solutions to crypto users with extensive security measures that make them unique from other available options.
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Here, we categorized the crypto wallets based on the following criteria:
Based on Control:
If we categorize the crypto wallets based on the control, you will see two major types that are listed below:
Custodial Wallets: The custodial wallets are the crypto wallets where your private keys are held by a third party. These wallets are offered by a centralized authority like a crypto exchange. In these wallets, you outsource your private keys to a specific institution. If you want to send your crypto through the custodial wallet, you need to log in to the platform and input the public key of the wallet where you want to send crypto. After then, the specific institution will have the responsibility to perform the transaction securely on the platform; they input your private key to complete the transaction. In short, your funds and the private key are in the control of the third party.
If you lost your private key, you can recover it by requesting it from a third party. This feature makes it unique from the other available wallets. As the demand for custodial wallets increases, it upgrades the functionality by including other services such as staking, investing, etc.
Non-Custodial Wallets: The non-custodial wallets are the crypto wallets where the users have full control over their assets. It means that the user has full ownership over their virtual assets. You can get an idea from its name that clearly states that no one except you includes the custody of your wallet. Hence, you don’t need to trust any person or authority to perform any transactions within the wallet. These wallets support censorship-resistant transactions where no single authority can tamper with the assets held in the wallet.
In the non-custodial wallets, the transactions performed on the chain are reflected in real-time. This feature makes it unique from the other available options. You can consider it as the highest level of security which provides an impressive solution and inherent security to the wallet holders. If you create a non-custodial wallet, you don’t need KYC/Identity verification.
Based on Availability:
If we categorize the crypto wallets based on their availability, you will see two major types that are listed below:
Offline: There are various crypto wallets available in the market which you can use without the need for an internet connection. In this type of crypto wallet, your virtual assets are stored offline and are considered the most secure wallet against the other available ones. You can consider it a cryptocurrency storage solution that can be seen as a real-world safe or vault where your virtual assets reside. In a shorter sense, these wallets use the physical medium to store your keys offline. Many investors or holders consider it a great option for long-term investment.
Online: Online wallets are crypto storage pieces of software where a constant internet connection is required to perform actions in the wallet. In these types of wallets, your identity remains secret. It allows a user to store, send, or receive cryptocurrencies. As it is an online wallet, vulnerability issues have been seen in these wallets because your keys are stored online on the server. Online wallets are user-friendly wallets that are most preferred for short transactions. Therefore, a question may arise in our mind: why do experts prefer this wallet for short transactions? The answer to this complex question has a simple answer; this wallet stores your keys online which makes it vulnerable to cyber attacks or thefts.
Based on Access:
If we categorize the crypto wallets based on access, you will see the major types that are listed below:
Desktop Wallets: These wallets store and manage your keys like the other wallet but it provides more advanced features as compared to other available wallets. The features offered by the desktop wallet may differ from other desktop wallets which makes the extraction of the best wallet harder. This wallet is compatible with various platforms such as Windows, Mac, Linux, etc. You can consider it as a computer program that stores and manages your private keys efficiently.
These wallets are installed on your computer programs that store and manage your private keys. Many experts consider it a safer option for crypto storage.
Mobile Wallets: These wallets store credit and debit card information on a mobile device which allows a user to make in-store payments without the need of carrying cash. It encrypts the information stored in the mobile wallet for providing security to the user. Many experts prefer it for storing financial instruments. Nowadays, these wallets have become a new trend in the crypto world that has changed the current scenario of crypto wallets. These wallets use an innovative technology named near-field technology in which a user is required to be present if they are paying for something.
To ensure the security of crypto users, it utilizes many layers of encryption and security measures. For this reason, most smartphones use NFC technology and if we talk about the iPhones, Apple Pay offers enormous security to the specific platform.
Web Wallets: It is a cryptocurrency wallet that you can use without downloading the wallet. These wallets run in the browser and the associated keys are held by the custodian. It means that you need to trust your custodian to keep your private keys secure. Due to the security issues faced in web wallets, many experts recommend the best alternative such as Mobile Wallets, Desktop Wallets, Hardware Wallets, etc. These types of wallets show the same functionalities as other wallets perform, but the main difference is that regular wallets are available in physical form whereas web wallets are available online.
There are different versions of web wallets available in the crypto market; you can choose the best ones by considering your requirements. The e-wallets are considered the first version of web wallets where you can store your flat currency in a secure place. Popular e-wallets are PayPal, Skrill, and Neteller. The other version of the web wallet is the one that enables a user to send and receive cryptocurrencies. You can consider it as a software program that resolves the complex issues of crypto wallets.
Based on advancement:
If we categorize the crypto wallets based on advancement, you will see the major types that are listed below:
Multi-signature Wallets: The multi-signature wallet (multi-sig wallet) strengthens the security of the crypto wallets by requiring two or more private keys to send a transaction within the wallet. In this type of crypto wallet, two or more users sign the documents to perform a transaction. So, a question may arise in our mind: how many signatures are required to sign a transaction? It depends on the kind of wallet you are using.
The functionality of the multi-sig wallets is quite similar to the bank vaults where more than one key is required to open the vault. In these wallets, a unique recovery phrase is shared with each copayer that must be kept in a secure place to avoid cyber attacks or thefts.
Social Recovery Wallets: Social recovery wallets are the most secure wallet which includes the involvement of the guardians to approve the transactions. These guardians store your signing key in separate pieces. It means that each guardian will receive separate pieces of the owner’s signing keys and if the owner forgot their keys, they can simply ask them to change them to a new ones. For doing this, a special transaction is signed by the guardian which enables them to change their signing key. If more than 50% of the guardians sign the specific transactions then they can change your signing key. For security reasons, the details of these guardians remain secret. In the social recovery wallet, one guardian is provided free of charge and they can add another guardian also.
Vitalik Buterin recommends including a minimum of three guardians in the social wallets but only a single signing key is used to approve the transactions. These guardians can be your family or friends, institutions, etc.
As blockchain technology emerges as new possibility in the crypto world it defines various standards in the crypto wallets to make them more efficient. The role of blockchain technology in crypto wallets is immense; you can’t think about crypto wallets without blockchain technology. The introduction of crypto wallets designed a new path for crypto users where they can exchange cryptocurrencies and earn profits from them.
In the crypto world, we have different crypto wallets available; which you want to use depends on your preference. Security is the foremost part of the crypto wallet which can’t be ignored when you choose any of the crypto wallets. These crypto wallets are preferred by many experts to send, receive or trade cryptocurrencies.