If you are new to crypto, you’ve probably wondered where and how cryptocurrencies like Bitcoin, USDT, USDC, and BUSD are stored.
Are they kept in the bank, in a wallet, or on the internet?
While cryptocurrency has grown in popularity and adoption in recent years, some users still don’t know the safest way to store their crypto.
Many business owners now accept crypto stablecoins in exchange for their goods and services.
If you have questions about crypto wallets, how they work, and the best way to keep your crypto, this article answers all of them.
But just before that, we’ll show you how to buy your crypto.
How to buy crypto stablecoins
You can buy your cryptocurrency from direct trade with exchanges or Peer-2-Peer platforms like Binance.
Peer-2-Peer simply means trading between two people without an intermediary like banks or the government.
To exchange regular currencies like the dollar or naira for crypto,
- Connect your bank details to your Binance profile.
- Your account will be debited and you’ll get the dollar equivalent of the cryptocurrency. For example, to buy $500 worth of USDC stablecoins on Binance, they’ll send $500 to the seller.
- After which the seller releases the 500 USDC to your wallet.
You can then proceed to pay for your items with the crypto in your wallet.
Next, we’ll talk about the types of wallets you can store your crypto in.
What is a crypto wallet, and how does it work?
Crypto wallets are a form of digital storage for crypto keys.
Unlike traditional currency wallets that are physically seen and touched, crypto wallets could be software, devices, or programs that allow you to store and transact with your crypto assets.
Unlike physical wallets, crypto wallets require private keys or passwords to unlock.
Another difference is that crypto wallets do not store your actual cryptocurrencies.
Your actual cryptocurrencies remain on the blockchain. Crypto wallets just store the private keys used to access your crypto on the blockchain.
Also, the security of your crypto wallet and cryptocurrencies depends on the type of crypto wallet you use.
This article will help you understand how to select a safe wallet for storing your cryptocurrencies.
Categories of crypto wallets include cold or hot, custodial or non-custodial. Do not panic; we’ll explain now.
Cold Wallets vs. Hot Wallets
To keep your cryptocurrencies, you would need either a cold or hot wallet.
Although both are designed for storage, they function differently.
Cold wallets are designed to function offline without the internet, while hot wallets function online.
Hot Wallets
Hot wallets are internet-based, i.e., connected to the internet, making them easily accessible.
Let’s assume you spend crypto to make everyday purchases; in that case, you want to store your digital currency in a hot wallet.
A hot wallet is web-based (mobile or desktop wallets) and always online. Because they’re always online, they are easy to use (especially for trading and other transactions).
Although they can be vulnerable to online attacks — which could lead to stolen funds/assets — it’s faster and easier to trade or spend crypto from a hot wallet.
A cold wallet is typically not connected to the internet, so while it may be more secure, it’s less convenient.
Most crypto exchanges – centralized and decentralized – provide hot wallets and are available online.
They are the best way to store your crypto if you intend to buy things online with it.
Examples of hot wallets include Armory, Coinbase, Binance, MetaMask, and Lazerpay wallets.
Types of hot wallets
Desktop Wallets - users have to download the wallet on their desktops or laptops. Desktop wallets are hot wallets that work on desktops/laptops only.
Examples of desktop wallets include Electrum, Exodus, and Armory.
Now, let’s talk about cold wallets, also known as offline wallets.
Cold Wallet
Cold wallets are very secure. They are the best option for people who have significant investments in crypto assets.
It is hard for hackers to steal from a cold wallet as this will require physical access to the cold wallet and the private keys/pins/passwords to access the crypto stored in it.
Most hardware wallets (some look like USB sticks) are cold wallets.
Users with significant crypto holdings usually keep their assets in a cold wallet because it is almost unhackable.
However, unlike hot wallets, cold wallets are less convenient to use.
Also, while hot wallets are primarily free, cold wallets are not; the price starts from around $80.
Examples of cold wallets are hardware wallets like Ledger, Trezor, and SafePal or Paper wallets.
Media four- Image of a hardware wallet
Types of cold wallets
Paper Wallets - as the name suggests, this kind of crypto wallet involves the use of paper.
Paper wallets are old-fashioned. You’ll need all the necessary information to access your crypto asset on a piece of paper.
If the paper is damaged without a safe copy elsewhere, you lose access to your cryptocurrency for life.
Paper wallets have no extra safety measures, making their usage very low.
Hardware Wallets- Most cold wallets are hardware wallets that look like USB sticks.
Hardware wallets are physical devices that allow users to store their private keys with minimal online exposure.
Hardware wallet users only connect the wallet to the internet when they have to complete a transaction and disconnect it immediately after the transaction is completed.
This drastically reduces the chances of getting hacked or compromised.
Examples of hardware wallets are Ledger, Trezor, and SafePal.
DIFFERENCE BETWEEN HOT WALLETS AND COLD WALLETS.
Next, we’ll talk about the next category of wallets.
Custodial Wallets vs. Non-Custodial Wallets
This is simply a category of wallets you keep yourself versus one that is kept for you by a third party.
Custodial Wallets
A custodial wallet is the kind of wallet where your assets are held in custody for you.
This means a third party is involved and will store and manage your private keys on your behalf, i.e., you are not your own bank.
Tokens worth billions of dollars have vanished forever due to users' private keys getting compromised or lost, which results in users losing access to their wallets permanently.
A custodial wallet solves this issue as it places the burden to secure users' private keys on the third party (usually centralized exchanges)
NOT YOUR KEYS, NOT YOUR COINS
Custodial wallet users also have their concerns; the most obvious is that users will entrust their private keys to a third party. There have been stories of people losing money to custodial wallets in the early days of crypto.
For example - QuadrigaCX and Afriscrypt are some of the early crypto days scams. However, the users can mitigate these worries by choosing a trustworthy exchange or custodial wallet service.
Binance, FTXx, Coinbase, KuCoin, and GATE are some famous examples of exchanges that issue safe custodial wallets to users.
Some essential information to look for when choosing a custodial wallet is:
- Who are those in charge?
- Is it regulated?
- How are users' private keys stored?
- Does the provider have insurance?
Non-Custodial Wallets
A non-custodial wallet does not involve third parties - you are your own bank. .
Most crypto analysts deem non-custodial wallets the best option (as long as you keep your private keys safe).
TrustWallet, Phantom, and MetaMask are some famous examples of non-custodial wallets.
Tokens worth billions of dollars have vanished forever due to users' private keys getting compromised or lost, which results in users losing access to their wallets permanently.
Hence, you must be extra careful in saving and storing your private keys.
DIFFERENCEs BETWEEN CUSTODIAL AND NON-CUSTODIAL WALLET
Noth custodial and non-custodial wallets are popular among crypto users.
Most users use both wallets depending on their needs and the best way to go about it.
Custodial wallets/exchanges are more user-friendly as they guide users and help remove some burden of securing your assets.
However, custodial wallets give you many options, enabling users to interact with Defi platforms.
Whichever wallets you choose to hold your tokens/digital assets, the most important tip is to be cautious of non-verifiable links.
To store your private keys properly (in a non-custodial wallet), and use 2-Factor Authentication or other security measures to keep scammers away from your custodial wallet.
Which is the safest crypto wallet?
Cold wallets offer assurance and peace of mind. They guarantee that users’ token/digital assets are safe and secure because they are almost impenetrable.
Cold wallets are offline, so they are deemed safe and secure. Users connect them to the internet when they want to perform a transaction.
To save in a cold wallet, users have to send crypto assets from a hot wallet to a cold wallet’s public address.
To transfer crypto from cold wallets, users connect a hard wallet to the internet via the wallet’s dedicated software and sign the transaction with the wallet’s private key.
Which do I choose as a crypto wallet?
Holding cryptocurrencies/digital assets are personal choices that require adequate information so users can select the option that works best for them.
So, we’ll advise you to read this article carefully and also do your own research.
Do I need a crypto wallet to buy and sell with crypto?
Yes, you do.
However, you do not necessarily need your own crypto wallet to buy and sell crypto because many platforms that trade cryptocurrency offer their users storage options on their platform.
For example, opening a Lazerpay account comes with a crypto wallet for Lazerpay users to store their stablecoins.
Conclusion
The demand for crypto payments is increasing. Both from customers who want to pay with crypto and employees who want to get paid in crypto.
Also, many business owners now accept crypto stablecoins in exchange for their goods and services.
We hope this article has enlightened you on the different types of wallet you can use for saving and paying for items with crypto.
