How To Secure Your Digital Assets With Crypto Wallets

Any item created digitally that has value is called a digital asset. This can range from the data you generate, including internet usage, cryptocurrencies (like Bitcoin and Ethereum), and digital arts. These assets are becoming increasingly popular, and much like anything of value, securing them is of utmost importance.

That’s why crypto wallets exist, to keep these assets safe. But with so many crypto wallet options, it’s only natural to feel overwhelmed and lost when trying to choose one for your assets. So, let’s take a quick look at what crypto wallets are, the different types out there, and how they can help you keep your digital assets safe.

Understanding Crypto Wallets?

It’s easy to think of a crypto wallet as a place to “store” your digital currencies and other assets, but that’s not quite accurate. Unlike a traditional wallet that holds your cash or cards, a cryptocurrency wallet functions differently. Essentially, it’s a software application that connects to the blockchain, allowing you to access and manage the digital assets associated with your account.

Here’s a simple way to think about it: when you go on a platform like OANDA to buy Bitcoin, what you end up with is an encrypted record of data that is scattered all over the blockchain. A crypto wallet lets you access that data and see its value.

Privacy and security are arguably the two most important things people care about in tech. Crypto wallets are designed to meet both of these needs. Unlike a traditional bank account, digital assets aren’t stored in crypto wallets; instead, they are distributed in an encrypted (privacy) format across the global blockchain (security). Apart from the inherent ethos and architecture of privacy and security embedded in cryptocurrencies and other digital assets on the blockchain, crypto wallets also contribute to these features by adding another level of security and maintaining the anonymity that the blockchain already provides. This is achieved through two components of any crypto wallet: the private key and the public key.

The public key is like your bank account number. It’s what people need to know when they want to send you a digital asset, and it’s perfectly okay for others to know it. The private key is different — it’s like your secret password to the blockchain, and you want to keep this information to yourself. This key is what allows you to transfer your digital funds, making it the most important part of crypto security. If anyone else gets their hands on your private key, they gain full access to your assets.

Types of Crypto Wallets

Crypto wallets are designed to safely keep the private keys that grant you access to your digital assets on the global blockchain. However, these wallets are not all built the same, and each type has its own unique features and uses. As a rule of thumb, always choose a wallet that gives you the most control over your private key. With that said, let’s break down the different types of wallets, how they work, and what sets them apart.

Custodial and Non-Custodial Wallets

These are the two main types of crypto wallet. Custodial wallets are wallets offered by a company (like a cryptocurrency exchange) that hold onto your private keys, meaning they control your access. All you have to do is create an account and set up a password with the institution. Non-custodial wallets (the more popular of the two), on the other hand, give you full control, meaning only you have the private keys in your wallet.

When using a custodial wallet, a major perk is that you don’t have to worry about losing your keys. However, you’ll be relying on someone else’s security measures, which can be risky, especially if you have a large portfolio of digital assets. With a non-custodial wallet, you’re in full control, which is great, but it’s also a big responsibility. If you lose your private keys, your cryptocurrency and other assets are gone forever.

Hot Wallets (Online Wallets)

Hot wallets, also known as online wallets, are a type of wallet that connects to the internet. These wallets come in different versions, like a web wallet (which you’d access through a website), a mobile wallet (an app on your phone), or even a desktop wallet (installed on your computer). These types of wallets are popular because they are convenient for everyday transactions due to their ease of access, just like bank apps. A major risk lies in the fact that they are online, which means they are exposed to hacking. With that in mind, it is advised that large amounts of your digital assets shouldn’t be stored in an online wallet.

Cold Wallets (Offline Wallets)

Cold wallets are entirely different; they stay offline. This type of wallet generally includes hardware wallets (including physical devices like Ledger or Trezor) and paper wallets (where you write out your keys). Because they stay offline, they are the best choice for keeping larger portions of your digital assets and for long-term storage. A major caveat to this type of wallet is that, since they are not easy to access, they cannot be used for daily transactions and can also be a bit expensive.

Putting It All Together

If you’ve been following closely, you might have noticed that you can mix and match these wallet types. For example, you could have a non-custodial hot wallet (an online wallet where you keep the keys yourself) or a custodial cold wallet (where a company manages a hardware wallet for you). Wallets come in different styles, but understanding the peculiarities of hot and cold wallets, as well as custodial and non-custodial wallets, helps you figure out which type might work best for you!

Choosing for Your Needs

As the world continues to advance digitally and more people acquire valuable digital assets, choosing a crypto wallet will become a very important part of our lives. So, if you need a wallet, you should first understand how you plan to use it. Are you going to be making quick, daily trades with it, or are you just storing cryptocurrencies in it? If it’s the former, then a hot wallet on your phone or desktop might be your best bet for easy access, but you have to consider the risks and start thinking of extra security precautions like two-factor authentication, using a VPN, and avoiding public WIFI.

Security and accessibility are definitely important, especially for those handling large amounts of crypto. Spending a little more on a hardware (offline) wallet with strong security features can really pay off.

That said, many wallets (offline and online) today offer enhanced security features like two-factor authentication or multi-signature support, which requires more than one key to approve a transaction. So, if you’re going to be using a mobile wallet, make sure it offers these features.

The Bottom Line About Blockchain Security

The blockchain may be secure, but if you’re not using the right wallet to carry out transactions, you might be compromising the safety of your digital assets. That’s why it is important to know what type of wallet you’re using, whether it is secure enough, and whether it meets your personal needs. If you’re trading daily or just holding long-term, the right type of wallet exists; you just have to do a little bit of research to find it.