Crypto Wallets: The Home of Digital Assets

WhiteBIT
Published 06 July 2022
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Crypto Wallets: The Home of Digital Assets

Content

Storing national currencies is common. Some keep their savings under a mattress, in a bank, invest in real estate, etc. What about virtual assets? When it comes to blockchain and virtual finance, not everybody is able to give a confident answer to this question. In this article, we will tell you where cryptocurrencies live and how to choose a suitable storage option.

What is a crypto wallet, and what are its components?

A cryptocurrency wallet is a tool used to create and manage addresses to transmit and store digital currency. If compared with a bank account, a crypto wallet gives more freedom to its owner because the owners of cryptocurrencies can control all transactions with their assets independently.

Private and public keys

Creating an address in a crypto wallet is accompanied by the generation of private and public keys. A public key is something like your bank card number, which can be given to third parties to receive funds from them. But the private key is a code for activating the received funds, which cannot be shared with third parties. It is also used to validate transactions and create digital signatures.

Seed phrase

Most crypto wallets have an additional level of protection, a seed phrase. It consists of a unique code 12 or 24 characters long and serves to restore access to the cryptocurrency address in case of its loss. If the seed phrase is lost, the user will no longer be able to regain access to his/her address and, consequently, to the cryptocurrency.

Crypto wallets classification

There is a set of characteristics by which you can classify cryptocurrency wallets.

According to the level of privacy, wallets are divided into:

  • custodial
  • non-custodial

A custodial wallet is an application for storing and transferring cryptocurrency, the addresses of which are managed by a custodian (third party). Such an operator has private keys for wallet addresses and secures customers’ money. The users, in turn, must pass an identity verification procedure to make the interaction as transparent as possible.

The custodian wallet is used by centralized exchanges to optimize financial transactions. Each client of the exchange has its own balance and account, but the funds are stored at separate addresses owned by the exchange. The main point for criticism of custodial wallets is the possibility for a third party to have access to customer funds. On the one hand, the exchange provides strong protection of client funds, and on the other – at the request of regulatory authorities, the exchange has the right to provide personal information about its clients or, in rare cases, to freeze their accounts.

A non-custodial wallet is cryptocurrency storage and management software that is wholly owned by the user, including private and public keys. Such an application cannot freeze users’ funds but is not responsible for their safety. This application can be installed on a personal computer or smartphone and create addresses for cryptocurrency without the user’s identity identification. The disadvantage of this type of wallet is the lack of professional protection by a professional operator and the possibility of losing access to funds in case of password loss.

All crypto wallets are divided into:

  • cold wallets;
  • hot wallets.

Hot cryptocurrency wallets are software wallets that only exist as online applications and require an online connection. Such wallets provide convenient and fast access to cryptocurrency and all related transactions. Hot wallets can, in turn, be divided into:

  • a web wallet that can be used with a browser;
  • a desktop wallet that can be installed on a personal computer;
  • mobile wallet, which is convenient to use from a smartphone.

Cold (hardware) cryptocurrency wallets are cryptocurrency repositories accompanied by a physical device and do not require a permanent connection to the network. This type of cryptocurrency wallet is considered the safest because its use minimizes the risk of online hacking.

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Storage of cryptocurrency on the exchange

Based on the abovementioned information, we can conclude that the most reliable centralized crypto platforms use cold wallets. The same applies to our exchange. WhiteBIT has a custodial license that provides a high level of protection for customer funds through professional cybersecurity tools, with 96% of all funds being stored on cold wallets. Due to this, our exchange is a recognized leader in cybersecurity and is among the Top 3 best-protected crypto platforms in the cer.live ranking. In addition to high-quality cryptocurrency protection, centralized exchanges allow verified users to quickly restore access to their accounts in case of loss of login data.

A cryptocurrency wallet is a mandatory attribute of a crypto user. Both cold and hot wallets, as well as their subtypes, have a number of characteristics that can be useful to consider when choosing the wallet. To choose a suitable wallet, you should take into account the frequency of use, the type of cryptocurrency transactions, as well as your own preferences and beliefs.

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WhiteBIT Team