Setting up a crypto wallet is the first step to getting into crypto. It allows you to send and receive cryptocurrencies like Bitcoin, Ethereum, and hundreds of others. Choosing the right cryptocurrency wallet can be a challenge. There are different types of wallets to choose from, including mobile apps and hardware devices like USB sticks and external hard drives. Now, let’s look at cryptocurrency wallets in more detail.
What is a crypto wallet?
A crypto wallet is a digital program or physical device that allows you to receive, store, and send cryptocurrencies like Bitcoin. Unlike a physical wallet that stores real money, crypto wallets do not technically store your cryptocurrency. A crypto wallet does not contain real cryptocurrency but information about public and private keys needed to perform crypto transactions. Cryptocurrencies or coins are stored on a blockchain, a type of digital ledger that serves as the backbone for many decentralized currencies.
As of Feb 2nd, 2022 the number of blockchain wallet users reached 81 million worldwide.
The blockchain is a decentralized, public digital ledger that records cryptocurrency transactions in blocks. These blocks contain records of all transactions as well as the balances held at a given address. Cryptocurrency is not stored “in” a wallet but resides on the blockchain. The wallet software is used to interact with the balances held on the blockchain. The wallet itself stores addresses and allows its owners to move the coins to another location or give other people access to the balance at a particular address.
How do crypto wallets work?
Most crypto wallets allow you to send, receive and store cryptocurrencies. Some crypto wallets offer services such as letting users exchange tokens, staking, or access Dapps or decentralized applications built on various networks.
Your cryptocurrency is stored in the blockchain, but it can only be accessed with a pair of keys: a private key and a public key. A crypto wallet has two different keys: a private key and a public key. The private key is like the key to a vault. Anyone who has access to a wallet’s private key can control the funds stored there.
Public keys are derived from a private key and serve as addresses to send cryptocurrencies to a wallet. Public keys work similarly to bank account numbers. A public key is a combination of numbers that you can share without compromising the security of your wallet. This key allows you to receive cryptocurrencies in transactions, often using a wallet address that is a compressed version of the public key.
Software vs. Hardware wallets
Generally, crypto wallets are either software or hardware. Software wallets are stored on a computer and can be accessed remotely over the Internet. In contrast, hardware wallets are stored on external devices and must be connected to the computer to be accessed. They can all be used to access your cryptocurrency.
Software wallets are programs or browser extensions that facilitate sending, receiving, and storing of cryptocurrencies. They are sometimes referred to as hot wallets because the funds are held online. Hardware wallets function more like cold wallets because they keep private keys offline or cold storage.
A hardware wallet is a device that can store cryptocurrency offline. It secures your keys and connects via a USB port. It is much more secure as all signatures take place outside of your computer. A typical hardware wallet costs about $100. They are a little more difficult to use than software wallets. Most hardware wallets can be accessed from a computer in different ways, such as a web interface or a separate software wallet.
A software wallet is a computer program or mobile application that stores your private keys in an online environment, while a hardware wallet holds your funds on its own piece of hardware. There are two basic types of software wallets. The first is an online storage wallet that you can access through a browser. A software wallet is a program that can be downloaded for use on either a computer or a mobile phone. In this case, the private keys are stored on the local device and are not connected to the Internet. Different types of software wallets are available, such as web, desktop, and mobile.
Custodial Vs. Non-Custodial Wallets
There are two categories of cryptocurrency wallets: custodial and non-custodial. Custodial wallets are controlled by an organization, such as an exchange, while the user controls non-custodial wallets. Before deciding which one is best for your needs, let’s see the difference between these two types of wallets.
Custodial wallets are crypto wallets that store users’ private keys. So, the wallet providers control the users’ funds on their behalf. Custodial wallets are easy for beginners to use, as you can simply create an account with your email address and password. You do not need advanced technical knowledge about cryptocurrencies to use custodial wallets.
However, in the case of custodial wallets, you will need to deposit your funds with the wallet provider. When you deposit your cryptocurrency holdings with a wallet provider, you trust the company with the safety of your funds. However, if the provider unblocks your account without warning, you may no longer be able to access your cryptocurrency.
The numerous bankruptcies of custodians sparked the debate about custodial wallets versus non-custodial wallets. Non-custodial wallets are an alternative to custodial wallets and a prime example of the introduction of complete decentralization. A non-custodial or decentralized wallet is an online crypto wallet that gives users control over their private keys. Only the user can access the cryptocurrencies stored in a non-custodial wallet, which is favorable in terms of ownership. In addition, non-custodial wallets also provide increased security for your cryptocurrency.
Of course, there is one critical condition with non-custodial wallets. Users must have basic knowledge of securing and recovering the wallet. The wallet user must be responsible for the security of private keys, which means they need knowledge of how to secure the wallet safely.
Most wallets have a 12–24 word recovery phrase that you can use to recover your assets if you lose access to your wallet. It is often a good idea to write this recovery phrase on a piece of paper and keep it in a safe place. A recovery phase is essential for all crypto wallets as it helps you restore access to the wallet. However, anyone who has a recovery phase can access a wallet. Therefore, you should keep it offline or do not share it with another person.
Here are some notable differences you may notice when comparing non-custodial and custodial wallets:
- Access to funds
When you compare custodial and non-custodial wallets, the main difference is that with non-custodial wallets, you have complete control over your crypto assets. On the other hand, the wallet providers have access to your private key with custodial wallets. Custodial wallets also keep the funds associated with your private keys. So, crypto owners take some risk when entrusting their valuable crypto assets to third-party applications.
With most crypto exchanges, custodial wallets are directly linked to user accounts on the platform. If users forget their credentials, they can get them back from the wallet provider. With non-custodial crypto wallets, you must take responsibility for the security of your private keys. Losing your private keys and seed phrase means you will not access your account.
The most important factor when comparing custodial and non-custodial wallets is security. Every cryptocurrency owner is concerned about the security of their assets when storing them on a particular platform. On the other hand, popular custodial wallets have unique authentication mechanisms to protect against unauthorized access.
Non-custodial wallets, on the other hand, have a distinct advantage that only users can access their private keys. Therefore, non-custodial wallets offer a fairly secure approach to protecting your funds. At the same time, users of non-custodial wallets should keep their recovery phrases and private keys safe so that no one else can access their funds.
- Creating Accounts
The complexity of KYC and AML verification procedures varies depending on the provider you use. Although these procedures are essential for securing funds, some custodial wallets may take longer to pass KYC verification. Non-custodial wallets do not require KYC or AML procedures and keep users’ identities anonymous.
Beginners and advanced traders prefer online wallets like PointPay because they are easy to use. Moreover, these wallets allow traders to trade easily on different exchanges. If you have non-custodial wallets, you may need to move assets between exchanges manually.
Why you should choose PointPay crypto wallet
PointPay Wallet is a secure crypto wallet that offers several key benefits for users:
PointPay takes care of keeping your funds safe and secure. We are constantly improving the security system. For instance, we’ve integrated several features, such as two-factor authentication.
You can have a single account in both the web version and the mobile application available for iOS and Android. This allows you to send or receive your funds on the go. Moreover, the PointPay crypto wallet is part of the ecosystem, so you can easily transfer your money between the system’s products as well as buy or sell currencies in the PointPay payment system.
Pointpay Wallet allows you to store and transfer 14 different cryptocurrencies, including the most popular coins like Bitcoin, Ether, stablecoins, etc.
- Support service
We provide our users with the necessary support. Our customers can contact our staff 24/7, both in the mobile app and on the website, to get the help they need in the shortest possible time.
As with any banking service, finding the right crypto wallet for your needs is essential. And remember that you are responsible for the safety of your funds, so do not forget the basic cyber hygiene rules. Use two-factor authentication, do not share your private key with anyone, and set a strong password. These simple steps will help you protect yourself from scammers and hackers.
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