How to select the right crypto wallet
This type of wallet is generally offered by CEX (centralised exchanges) and some wallet apps. In simple terms, CEXs take custody of your crypto assets on your behalf, and the ownership arrangement is between you and the CEX.
This type of wallet is a widespread option amongst new investors. They find the CEX platform very user-friendly and allows you to freely move fiat currency and various coins/tokens within your account. However, the risk is that the CEX may become a victim of a cyber attack or worse it’s poorly managed i.e. the recent FTX fiasco.
Another downside of not having direct custody of your coin/token is that you may be restricted from participating in project-related incentives, i.e. airdrops, staking, pool liquid contribution etc. Please do your own research!
This wallet type gives you full custody of your crypto assets without relying on a third party.
When you start a wallet, you will be given a recovery seed (in some cases, 24 words in a particular order), and you must save this information on paper in a ‘very’ safe place.
Then, you create a dedicated account for each coin type (i.e. ETH, BTC, DOT account etc), and each account will generate two types of keys; a private key and a public key (which is your blockchain address for transactions). Without getting too technical, you don’t need to worry about the private key, as it’s hidden in your wallet. Ultimately, your ability to access your wallet confirms that you are the owner of the private key, which as a result, confirms your ownership of that particular public address for you to transact.
However, if you lose access to your wallet and don’t have a backup of your recovery seed (or codes), then, unfortunately, it will be impossible to access your assets in the wallet. Therefore it’s vitally important to be vigilant with your security and protect your wallet.
As for wallet types, there are various options based on the size of your financial commitment and how frequently you will need to access your wallet. Most commonly used wallet options:
This is a desktop-based wallet type. Exchange-based wallets (as custodial wallets) are also considered ‘hot wallets’. These wallets are convenient to use and easy to access, but for security, they carry high risks as your desktop or the exchanges could face cyber attacks. Cost: NIL
Same as desktops, these wallets are used on apps. These apps must be downloaded from registered Android or OS platforms to ensure they are not a copy/scam of well-known wallet apps! As a security, these wallets are slightly safer than ‘hot wallets’ but still not ideal for a large investment portfolio. Cost: NIL
This wallet type stores your crypto assets on a dedicated device. It acts like a safe until you’re ready to transact—possibly the best option to consider for accessibility and security. The two most popular brands are ‘Ledger’ and ‘Tezos’. If you go with this wallet option, you must order your device from the manufacturer directly! Never buy secondhand or via an online shopping platform! Device cost varies; please check the manufacturer’s websites.
In addition to the above, there are other options like ‘Paper Wallets’ and ‘Cold Storage’ facilities.