What is Wallet
A cryptocurrency wallet is a digital tool that allows users to securely store, manage, and transact with cryptocurrencies like Bitcoin and Ethereum. It serves as an interface for users to interact with blockchain networks and is an essential component of the cryptocurrency ecosystem.
Crypto wallets work by managing a pair of cryptographic keys: a public key and a private key.
The public key is like your bank account number that you can share with others, so they can send you cryptocurrencies. The private key is like your secret PIN or password that you must keep secure because it allows you to approve transactions and authorize the transfer of funds.
What is a public key? What is a private key? What are they for? Please refer to the content: What are Public Keys & Private Keys
There's a wide range of crypto wallets out there, and we can categorize them based on different factors.
Hot Wallet vs. Cold Wallet
Crypto wallets can be divided into hot wallets and cold wallets depending on whether they're connected to the internet.
🔥 Hot Wallet
A hot wallet is a crypto wallet that's online and connected to the internet. These are mostly software wallets, including web, desktop, and mobile wallets.
- Web Wallet: A wallet you access through web browsers like Google Chrome or Firefox.
- Desktop Wallet: A software wallet you download to your computer or laptop.
- Mobile Wallet: A software wallet you install on your smartphone.
❄️ Cold Wallet
A cold wallet is an offline crypto wallet that's not connected to the internet. These include hardware wallets, brain wallets, and paper wallets.
- Hardware Wallet: A physical device, similar to a USB flash drive, that you store offline. You connect it to an online device via USB or Bluetooth when making transactions. Popular brands include Ledger and Trezor.
- Brain Wallet: A way to keep your private key in your brain memory by memorizing the key or seed phrase.
- Paper Wallet: Writing or printing your private key on paper and storing it offline.
Custodial Wallet vs. Non-Custodial Wallet
Crypto wallets can also be classified as custodial or non-custodial, depending on who manages the private keys.
🔑 Custodial Wallet
In a custodial wallet, a third-party institution, like a centralized exchange, controls your private key. With these wallets, you can manage your funds using a username and password. If you forget your password, you can retrieve it through your mobile phone or email.
🔐 Non-Custodial Wallet
A non-custodial wallet lets users control private keys and take care of funds, and complete decentralization is guaranteed through technology. The OKX wallet is a non-custodial wallet.
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