Crypto wallets: everything you need to know

As the world becomes more digital and connected, it's no surprise that the rise of cryptocurrency has gained significant momentum in recent years. Cryptocurrencies are digital assets designed to work as a medium of exchange, and they are stored in digital wallets. Crypto wallets play a crucial role in securing your cryptocurrency and enabling you to transact with ease. In this article, we will explore everything you need to know about crypto wallets.

What are Crypto Wallets?

A crypto wallet is a software application (or sometimes - a tangible device) that allows users to store, manage and transfer their cryptocurrencies. It works like a traditional bank account, but instead of holding physical currency, it stores digital currency. Crypto wallets come in various forms, including mobile, desktop, web, and hardware wallets.

Private Keys

Private keys are the essential components of crypto wallets. They are a long sequence of letters and numbers that serve as a password to your cryptocurrency wallet. The private key is used to sign transactions and is essential to access your digital assets.

The private key is used to sign transactions, which are then broadcasted to the network for verification. Without the private key, you cannot access your digital assets or authorize transactions. One of the most important things to remember about private keys is that they should be kept safe and secure at all times. If someone gains access to your private key, they can steal your digital assets. That's why it is crucial to use a reliable and secure wallet and to keep your private key secret. It's also important to keep a backup of your private key in case you lose access to your wallet or your device. Some wallets will give you a recovery phrase, which is a list of words that you can use to recover your private key.

What Wallets Are Out There?

Nondeterministic and Deterministic Crypto Wallets

There are two types of crypto wallets, namely nondeterministic and deterministic wallets. Non-deterministic wallets are also known as random wallets because they generate private keys randomly. These wallets do not use a specific algorithm to derive private keys from a seed phrase. Instead, they generate private keys using a random number generator. While this method may seem simple and convenient, it has some drawbacks.

The primary disadvantage of non-deterministic wallets is the risk of losing private keys. Since the private keys are generated randomly, there is no way to recover them if lost. This means that if you lose access to your private keys, you will lose your digital assets forever.

Another disadvantage of non-deterministic wallets is the possibility of generating duplicate private keys. With random key generation, there is a chance that the same private key can be generated multiple times. If this happens, you risk losing your digital assets as the same private key can access multiple accounts.

Deterministic wallets, on the other hand, use a specific algorithm to generate private keys from a seed phrase. This algorithm is designed to ensure that the same private keys are generated every time the seed phrase is entered. This means that you can recover your private keys if you lose them, provided you have your seed phrase.

Deterministic wallets offer better security than non-deterministic wallets. Since the private keys are generated using a deterministic algorithm, there is no chance of generating duplicate private keys. This means that your digital assets are safe and secure.

Another advantage of deterministic wallets is that they allow for the creation of multiple accounts using a single seed phrase. This means that you can manage multiple accounts using one wallet, making it more convenient and easy to use.

Custodial and Non-Custodial Wallets

Crypto wallets can also be classified into custodial and non-custodial wallets. Non-custodial wallets are also known as self-custody wallets. These wallets give you complete control over your private keys, which means you are responsible for securing your digital assets. With a non-custodial wallet, you are the sole owner of your digital assets, and no third party has access to them.

One advantage of non-custodial wallets is that they offer better security than custodial wallets. Since you are the only one with access to your private keys, there is no chance of someone else stealing your digital assets.

Another advantage of non-custodial wallets is that they offer more privacy than custodial wallets. Since there is no central authority managing your digital assets, there is no risk of your personal information being leaked.

Custodial wallets, in their turn, are managed by a third party, usually an exchange or a financial institution. These wallets give you less control over your digital assets since the third party manages your private keys. With a custodial wallet, you are not the sole owner of your digital assets, and the third party can access your digital assets.

One advantage of custodial wallets is that they are more convenient than non-custodial wallets. Since the third party manages your digital assets, you don't have to worry about securing your private keys. But it can also be the disadvantage when it comes to the security aspect.

Another advantage of custodial wallets is that they offer more support than non-custodial wallets. If you encounter any issues with your digital assets, you can contact the third party for assistance.

Offline, or Cold Wallets

Offline wallets are wallets that are not connected to the Internet. They are considered the most secure form of crypto wallets as they are immune to hacking attacks. There are two types of cold wallets: hardware wallets (like Ledger or Trezor) and paper wallets. Hardware wallets are physical devices that store your private keys, while paper wallets are a physical piece of paper that contains your private keys.

Online, or Hot Wallets

Online wallets are wallets that are, obviously, connected to the Internet. They are convenient and easy to use, but they can also be vulnerable to hacking attacks, especially when we talk about custodial services. Examples of online wallets include mobile wallets and desktop wallets. Some of the most popular online wallets are Guarda Wallet, Coinbase, Trust Wallet.

How to Choose a Crypto Wallet?

Choosing the right crypto wallet is crucial to ensuring the safety and security of your digital assets. When choosing a crypto wallet, you need to consider factors such as security, ease of use, and convenience. You should also consider whether you prefer a custodial or non-custodial wallet and whether you prefer an online or offline wallet.

In conclusion, crypto wallets are essential components of the cryptocurrency ecosystem. They play a crucial role in securing your digital assets and enabling you to transact with ease. With the right crypto wallet, you can rest assured that your digital assets are safe and secure.

Guarda wallet is a non-custodial wallet which is available on all platforms: desktop, mobile, web version, Chrome extension. It can also be connected with Ledger hardware wallets. Our main goals is to ensure that users’ funds are safe with Guarda.