What is a Crypto Wallet?
Just the way how your normal everyday wallet stores paper currency and coins, a Crypto Wallet is used to store public and private keys to send or recieve and validate your crypto money transactions. Some wallets even offer services to store important encrypted data.
Basically, you can’t use cryptocurrency without a digital wallet. They come in different forms, primarily, hosted wallets, non-custodial wallets and hardware wallets. You can select any of these based on your needs and usage.
Firstly, a hosted wallet. You have one right when you create an account in crypto exchange such as WazirX, CoinSwitch etc. A third party, like these apps, store your crypto for you. Just like how a bank stores your money in your account. You need not worry about losing all your crypto (you may have heard many incidents where people lost millions of dollars in crypto) when you forget your password because you can reset it with your hosted account. But you, wait for it, will not have access to your private keys; you will have to trust the third party to handle it. As a result of which you won’t be able to access your wallet in it’s full capacity. This does not mean that hosted wallets are no safe at all; infact these are the most popular kind of wallets.
Secondly, we have non-custodial wallets, where you have the complete accesss and control over your crypto. You can download the software and have your crypto, but you are in complete responsibilty of safeguarding it. Meaning, if your forget your key, your crypto is lost.
Man Forgets Password to $225 Million Bitcoin Fortune. https://www.youtube.com/watch?v=aQGk_Qd2jp4
If some gets your key, they can use you crypto however they want. But with non-custodial (or with no custodian) you have access to many advanced facilities such as lending, borrowing etc.
And then we have physical/hardware wallets. Kinda almost like your normal wallet, but instead of cash, you have crypto private transtion keys and they are stored offline, hence called cold wallets. And is mostly in the form of a USB drive/Hard-drive. This could be a little more than mildly inconvenient and a secure hardware device could cost you some $ .. but hey, atleast your wallet is secure from hackers on the internet! Again, if you lose this physical device, your crypto is gone.
This young chap changed his computer and thought he had transferred all the files he needed, threw away his old hard-drive, and ended up losing 7000 bitcoins. Searching for his lost $6M fortune (this was back in 2013) in his local landfill, he gave an interview to the BBC. https://www.youtube.com/watch?v=0tMXLDVpPs8
Well, atleast now you know why choosing the right and secure wallet is important! Every kind of wallet has it’s own set of merits and drawbacks, so it’s entirely dependent on the person’s needs and usage.
For someone would mostly only buy, sell or just transact small amounts of crypto, hosted wallets are the best, since they handle most of the stuff.
Have a happy and safe crypto :) !
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