What about Crypto Wallets?

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Hot, hosted, hardware wallets… You’ve just started your journey to the crypto world, and all these confusing words scare you? No big deal! If you are confused by how they work and the types of crypto wallets on the market, you have come to the right place.

So, what is a crypto wallet?

Generally, this is where you store cryptocurrency. But if we look a bit deeper, users create cryptocurrency wallets to store public and private keys with a convenient interface to manage crypto balances.

You may ask: what kind of keys are you talking about?

Well, a key is a long string of random, unpredictable characters.

The public key may be compared to your bank account number and shared widely;
The private key, in its turn, is like your bank account password or PIN, and, consequently, should be kept secret.

In cryptography, every private key is paired with one corresponding public key, together they encrypt and decrypt transactions.

For instance, you’re sending a Toncoin to your friend. This process is almost like sending a message, but a cryptographic one. As a sender, you need the private key to encrypt the message, while your friend, as a receiver, needs his private key to access the funds. You can compare it to when you were a kid exchanging messages with your friend using the language you two have created. Only you and your friend had the means to decipher the message.

Now it’s time for you to learn more about wallet types.

Types of cryptocurrency wallets:

Hosted (custodial) and Non-Custodial wallets;
Hot wallets and Cold wallets.

Hosted wallets are

Popular;
Easy to register and use;
Also easy to be hacked 😎

Why “hosted”, though? Because of a third-party app (like an exchange, broker, or other apps) that keeps your crypto for you. All you need to do is register an account using the platform, and they will provide you with access to crypto storage.

Yes, there’s no need to remember and store the private key; no need to get familiar with how the blockchain works. However, there’re some limitations like you can't transfer that wallet to other platforms. You can send funds to other wallets, but not the wallet ownership. Moreover, if the platform goes down, then your crypto might go under with it.

You can compare hosted wallets to traditional banking. You have your funds stored in some institution which should be (in a perfect world) responsible for keeping them safe. But you need to ask permission to use or transfer those funds or tokens in advance. You basically give an order to the bank to transfer funds somewhere else. But the bank at its discretion can decide to cancel the transaction or even freeze your account.

You can use these wallets for TON:

@Wallet;
Crypto Bot.

The full list can be found here.

Non-custodial wallets provide

Complete control over crypto as users have direct access to their funds;
Direct cryptocurrency trading from your wallets, because there’re no middlemen involved;
With the non-custodial wallet, you can engage in p2p (peer-to-peer) trading leaving out changes as a middleman. That can save you a few bucks on the commission exchanges take for processing deals.
Excellent opportunities for more seasoned traders: you can create a trading bot that would use your wallet data for arbitrating on several exchanges!

In a non-custodial wallet, you’re the only person who manages your private keys. It gives you sole responsibility for protecting the holdings.

You can use these wallets:

And the full list can be found here.

Now we fall into two other basic categories: hot and cold wallets. Main difference is whether they are connected to the Internet or not.

Hot wallets ⇔ Online!

Connected to the Internet!
User-friendly and convenient to use;
Vulnerable to hacking and online attacks (as private keys are stored and encrypted on the app itself, which is kept online);
Best suited for beginners and regular traders who make quick online payments.

Available on Desktop, Web, Mobile.

Remember! Keeping large amounts of cryptocurrency in a hot wallet is a fundamentally poor security practice.

The only way to reduce risks is to use a hot wallet with stronger encryption, or devices that store private keys in a secure enclave - sets of security-related instruction codes built into new CPUs.

Cold wallets ⇔ Offline!

Kept offline;
Less convenient and more expensive;
More secure and immune to hackers;
Suited for advanced users and those who have substantial sums of assets.

Available on Paper and Hardware wallets.

Paper wallets

Guess what? A piece of paper or an engraved piece of metal are examples of cold storage. So, a paper wallet is a physical location where the private and public keys are written down or printed. It’s a safer method of keeping funds from hackers, but there’s a huge risk of that paper getting destroyed or lost resulting in loss of funds :(

Hardware wallets

The hardware wallet is a physical device that stores your private key offline. What does it look like? Usually, it’s a small USB drive with different sensors. Like in cool movies, it may be a fingerprint authentication. The cost starts from $100 a piece and is irreplaceable if you lose it. It can also be a bit hard to get, though it is getting more popular nowadays.

But, hey! Do you know what’s beautiful about it? – No matter what happens to your PC, smartphone or tablet, the private key is safe. You can’t get me, hackers!

Hot VS Cold: Which one is better?

There are different reasons why an investor might want their cryptocurrency holdings to be either connected or disconnected from the Internet. As we’re regular users, I can give you one scheme:

If you plan to trade day-to-day ⇒ accessibility is important ⇒ a hot wallet is a better choice;
If you are considering storing a significant amount of crypto assets ⇒ security is over convenience ⇒ wise to invest in a cold wallet.

Recommendations

There’s always a need to keep a balance between being safe and comfy. I recommend you to:

Use the hosted wallet to buy/sell crypto on different exchanges;
DO NOT use the hosted wallet when participating in airdrops or presales;
Use the non-custodial wallet for receiving and storing crypto or NFT you’re planning to send to someone else soon or for storing a small amount of crypto;
Use the hardware wallet as a safe deposit. Keep the rarest or the most valued NFTs there. You should also keep the more significant part of your crypto investments there.
Attention! Always use only official distributors for purchasing hardware wallets. NEVER buy it from shady individuals as such wallets can have malicious software installed resulting in the theft of all your funds.

Considering hot and cold wallet combination is the ideal option for both beginners and advanced traders. Wish you good luck!