Rich by Coin

Crypto wallets help keep your private keys for accessing crypto holdings safe, but the level of security differs. Custodial wallets, where a third-party manages your private keys, are very common and easy to use. Non-custodial, or self-custody, wallets give you full control over your private keys, which can be stored locally on your device for added protection. Unlike a regular wallet that stores cash, a crypto wallet doesn’t actually hold your crypto.

Instead, a crypto wallet holds the private keys that enable you to send, receive, and manage crypto stored on blockchains. One of the major differentiators is that crypto wallets can either be custodial or non-custodial; custodial wallets involve a third-party holding your private keys, while a non-custodial wallet means you hold them. Typically, custodial wallets are best for beginners or those who prefer simplicity and are comfortable with a third-party exchange or similar platform holding their private keys.

There are also offline devices that store your private keys if you want to further reduce the risk of hacking. Cold wallets are offline wallets — generally self-custody wallets — that could range from no-tech options like a piece of paper with your private keys to high-tech solutions like Trezor hardware devices that connect to computers or phones via Bluetooth or USB to digitally authenticate transactions. An advantage of using a cold wallet is that you can avoid internet-based attacks, like malware infecting your computer and enabling a hacker to gain access to your wallet. And if you don’t know your seed phrase, you could permanently lose access to your crypto holdings.

Hot wallets are software-based wallets that store the private keys locally on your device for self-custody options, but the wallets themselves are still connected to the internet. That could make these wallets susceptible to certain cyberattacks, like malware or phishing, that could potentially lead to others accessing your private keys. However, you can protect against this through cybersecurity best practices, like being careful about clicking on links that may be phishing attempts. Still, hot wallets have the advantage of convenience over cold wallets, as you can access your crypto from essentially anywhere.