Cryptocurrency wallets are a method to manage digital assets, as well as execute transactions through the blockchain. Depending on the provider, some wallets have additional features, such as allowing users to purchase and sell their assets or interact with decentralised applications (dapps) within a specific ecosystem.
The term ‘wallet’ can sometimes be a misnomer, as virtual wallets do not store crypto assets the same way a physical wallet stores physical cash. Instead, these wallets store a user’s public and private keys that unlock access to the blockchain and display the funds associated with a certain address. Additionally, the private key also permits the user to transact with those funds.
Two main types of crypto wallets are custodial and non-custodial. In short, custodial wallets are third-party software that store the public and private keys for users, and non-custodial wallets involve users having complete control over their funds and private keys.
Further categorising these are the two subcategories of wallets:
- Hot Wallets — Also known as software wallets, hot wallets are connected to the internet. Examples of hot wallets are web-based wallets, mobile wallets, and desktop wallets.
- Cold Wallets — Cold wallets, or cold storage, are air-gapped from the internet, which enables a higher level of security. Examples of cold wallets include paper wallets and hardware wallets.
For a deeper explanation of the types of crypto wallets, read our University article What Is a Crypto Wallet? A Beginner’s Guide.
