Crypto trading in simple words

Basics

Crypto wallet – which is the best for you?

When you prepare to buy your first cryptocurrency you have to make a crypto wallet. 

A crypto wallet does not physically hold cryptocurrencies in the same way your physical wallets hold cash. It stores the public and private keys required to buy cryptocurrencies and provides digital signatures authorizing each transaction. The cryptocurrency itself is stored on a blockchain. 

There are several types of crypto wallets including physical devices, programs on an app or online websites, services offered by crypto exchanges, and even a piece of paper.

So, here is a quick guide to figure out which wallet you should pick corresponding to your needs. It depends on which cryptocurrencies you choose, what you want to do with them, and what kind of safety net you want. 

All crypto wallets can generally be divided into two categories: software and hardware or so-called “hot wallets” and “cold wallets”. The main difference is that cold wallets are kept offline and hot wallets are connected to the internet. 

Hardware wallets

On the one hand, cold wallets are considered to be the safest as they can`t be hacked and exist in physical form, but on the other hand, they are less convenient. Popular hardware wallets, like Ledger or Trezor, which look similar to a USB stick can be quite expensive. But the worst is the risk of losing your access to cryptocurrency. If you lose your wallet it isn’t a big problem until you remember your recovery seed to regain access to your account. The core key to your crypto is a seed phrase or a recovery phrase – a series of simple words (usually from 12 to 24) that were generated by the cryptocurrency wallet and that gives you access to your money. But losing your recovery seed phrase means you lost your money. And if with hosted wallets you can choose an option not to care much about recovery phrase in other types of wallets you should be very attentive with it.

So, if you want to store a large amount of crypto over a long period cold wallet is a perfect choice. But if you want to start trading cryptocurrencies and don`t plan to invest a lot, hot wallets will be more convenient.

Hosted wallets

Hosted wallets are the most popular among all crypto wallets because they are simple and easy to set up. They are hosted directly on the exchanges people buy cryptocurrencies, so crypto traders also call them “exchange wallets.” The most popular hosted wallets often have a mobile app version so you can trade crypto and control it from your phone. But there are some downturns: the crypto exchange holds your private key for you, which means your money ane more vulnerable to hackers. And to avoid problems with unauthorized access host exchanges include special authentification, which can include confirmation via email or fingerprint verification for example. On the other hand, forgetting your password isn`t so dramatic. 

Hosted wallets are recommended for beginners, but before choosing one check if it sells the cryptocurrency you want to buy or if you are interested in NFTs, remember that not every exchange work with them. 

Non-custodial wallets

A non-custodial or self-custody wallet gives you complete control over your crypto. It`s like your own crypto bank and you are in charge of its security yourself. That brings us back to a recovery seed and a chance of losing money if this password is gone. Self-custody wallets are hacked more often. And not by a group of super-skilled hackers but by an ordinary user error or numerous scam schemes. That`s why it is crucial not to post your private keys and wallet addresses online and control what sites you connect to your wallet. On the plus side, with a non-custodial wallet, you gain access not only to buying, selling, or holding cryptocurrencies but to more advanced crypto activities like staking, yield farming, lending, and more. 

Give it a try

Why not both? As you can have different wallets and even create a so-called “burner wallet” for a single transaction, if you are not sure about its safety, so don`t limit yourself. 

Try hosted wallets if you are a beginner or a crypto day trader, non-custodial if you want full control, and wider opportunities for earning more with crypto, and hardware wallets if you want the safest mode for holding your cryptocurrencies. 

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