Types of Crypto Wallets and the Benefits of the Xverse Bitcoin Wallet
Crypto wallets let you interact with your cryptocurrencies. Read here to learn about the types of wallets available and how Xverse can benefit you.
When it comes to cryptocurrencies, having a secure crypto wallet is paramount in keeping your crypto safe. Unlike real-world wallets that physically contain fiat currencies, a cryptocurrency wallet is a digital or physical device that stores the keys that allow you to access your crypto. It’s essential to keep these keys safe, since your Bitcoin and other cryptocurrencies are “stored” on the blockchain, and you can’t access them without these keys. In this article, we’ll explain how crypto wallets work and explore the different types of crypto wallets.
What is a crypto wallet, and how does it work?
In the early days of crypto, transactions required users to physically input complex keys. However, the advent of the crypto wallet changed this thanks to user-friendly software that automates the process. By storing your private and public keys, crypto wallet DApps can locate all your crypto-related data on the blockchain to give you a summary of your digital coins and NFTs on your phone, tablet, or laptop.
Cryptocurrency wallets also allow users to send and receive coins or NFTs. Receiving a payment is similar to having cash deposited into your bank account; simply provide the sender with the necessary information, in this case, your crypto wallet address. This address is generated via your wallet’s public key. Sending also reflects that of fiat transactions with the process being as follows:
- Enter a recipient’s crypto wallet address
- Enter the amount you would like to send
- Confirm the transaction by signing it with your private key
- Settle the gas fee of the transaction
It’s important to note that public keys can be shared in order to receive funds, while private keys allow you to send funds and safeguard access to those funds.
There are, however, some nuanced factors to consider when choosing a crypto wallet that best suits your needs.
Different types of crypto wallets
An important factor to keep in mind when choosing a crypto wallet is to select one that supports the cryptocurrencies you want to store. Not all wallets support all cryptocurrencies so it’ll require some research on your part to select one that facilitates your preferred currencies. You will also need to consider whether you want a custodial or non-custodial wallet, a hot or cold wallet, and which type of device you will store your wallet on.
Custodial vs non-custodial wallets
Crypto wallets can be divided into two categories: custodial and non-custodial wallets. The majority of crypto exchanges that offer web-based wallets are custodial wallets. This means that while you control the permissions for sending and receiving transactions, a third party controls your funds and private keys.
In contrast, a non-custodial wallet, gives you full control of both your keys and funds, almost like being your own bank. While this places full responsibility on the user for securing your private keys, it also ensures that you alone have control over your digital funds.
Hot vs cold wallets
Another category of cryptocurrency wallet types to consider is hot wallets and cold wallets. Simply put, hot wallets are online and connected to the internet, while cold wallets are offline solutions. In fact, a cold wallet could even be as simple as a piece of paper or engraved metal with your private keys. Both have pros and cons, so it’s important to understand the difference before deciding which one is right for you.
Hardware Crypto Wallet
A hardware wallet, is a type of cold wallet that stores your private keys offline. Hardware wallets often look like USB sticks and are designed to be immune to hacking. Hardware wallets tend to serve more long-term crypto storage needs and are considered to be highly secure. The main benefit of a hardware wallet is that it significantly reduces the risk of your coins being hacked or stolen because it is not connected to the internet. Even when a hardware wallet is temporarily connected to a computer, transaction signings are technically done within the device itself and then broadcast through your computer's internet connection to the network. Your private keys never leave the hardware device, so even if your computer is hacked, malicious signings would not go through to the device.
However, the downside is that you have to manually power on the device and connect it to the internet via a computer or bluetooth. They can also cost around $50-$200 USD, whereas most hot wallets are free. With that said, of course this would be a nominal fee in comparison to the risk of losing your crypto holdings. Some of the most popular hardware wallets are Trezor and Ledger.
Software Crypto Wallet
A hot wallet, also known as a ‘software wallet,’ that are always online. They are typically mobile and desktop wallets, but are considered less secure since they are online and therefore vulnerable to hacks. There are custodial and non-custodial hot wallet options: custodial hot wallets like centralized exchanges are considered even less secure as it's possible for these companies to become insolvent. For this reason, you may want to steer clear of centralized exchanges for storing your crypto.
So why do people use hot wallets if cold wallets are considered more secure? Hot wallets offer ease of use for everyday transactions. For example, it's much easier to use a mobile hot wallet for everyday transactions than having to carry around a hardware wallet and connect it to a computer.
Multisig crypto wallets
"Multisig" are multi-signature crypto wallets. Rather than one person being in control, trust can be spread across multiple members to manage a communal fund, governance tokens, shared NFTs and other digital assets — reducing the risk of bad actors. The more keys needed to execute a transaction, the more difficult it will be for a hacker to compromise the treasury. A shared wallet can be used as a joint treasury, like DAOs, from which to distribute funds, pay employees, and pay bounties.
Do I really need a hardware wallet for storing my cryptocurrency?
Each type of crypto wallet has its own set of pros and cons. So, which crypto wallet is the best for storing your cryptocurrency?
The answer to this question depends on your personal preferences for functionality, accessibility and security. You do not need to own a hardware cold wallet to buy and store your crypto, though it is recommended when storing large amounts of crypto.
If you're looking for a mobile hot wallet that is easy-to-use and non-custodial, then a Bitcoin wallet like Xverse might be the best option for you. You might also consider using a hot-cold wallet hybrid approach, so you can conveniently access your crypto and also have an extra step of security for your most treasured assets.
What is the Xverse Bitcoin Wallet?
The Xverse Bitcoin wallet is an advanced, non-custodial crypto wallet that allows users to manage and exchange Bitcoin, Bitcoin NFTs, access Bitcoin dapps and earn Bitcoin rewards by stacking. Xverse is built on Stacks, a Bitcoin layer that enables web3 applications on Bitcoin. Soon, Xverse will enable instant and low-cost BTC transactions multisig accounts, and the option to connect to a Ledger hardware wallet. By developing a secure software wallet with a user-friendly interface, Xverse makes mainstream crypto adoption simple and accessible for everyday people – regardless of your crypto knowledge.
Download Xverse, available for iOS, Android and as a desktop extension for Chrome.
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