Cryptocurrency provides good earnings, but unlike the securities market, where you can use the services of brokers, you will have to figure out a lot on your own. We have already written a guide for dummies on the Binance cryptocurrency exchange and talked about the nuances of buying digital money in Ukraine. This article will discuss a number of other important details that beginners need to know.
Types of cryptocurrency wallets
A cryptocurrency wallet is a special program for storing, sending or receiving cryptocurrency. There are universal wallets for working with many types of cryptocurrencies, and there are only one type of digital money.
Cryptocurrency wallets are divided into “hot” and “cold”. The former have access to the Internet and are active at any time. These include wallets on cryptocurrency exchanges, online wallets, as well as wallet applications or browser-based crypto wallets in the form of extensions.
“Cold” crypto wallets are not connected to the Web and work offline. If desired, they can also connect to the Internet, send or receive cryptocurrency. “Cold” wallets include hardware wallets (various options in the form of “flash drives”) and paper wallets (printed QR code or wallet keys).
“Cold” hardware cryptocurrency wallets are considered the safest option for storing digital money. Some hardware solutions have their own web interface, so with their help you can not only store, but also trade cryptocurrencies.
The biggest disadvantage of a hardware crypto wallet is the price tag and the possibility of losing it, like any other thing. The average price tag of such a “flash drive” is about 120$. There are cheaper options, but most are two to three times more expensive. The most famous manufacturers are Ledger, Trezor and KeepKey.
Wallets for cryptocurrencies are also divided into custodial and non-custodial.
A custodial wallet is a wallet in which a user’s personal data is stored by a third party. They call her a custodian. Most often, custodial cryptocurrency wallets are found on exchanges and similar services. The advantage of this option is the quick restoration of access to the wallet if the user loses his password or key. The downside is the opportunity to run into scammers who will steal cryptocurrency and block access to assets.
The use of custodial wallets is recommended for frequent use of P2P platforms, speculative trading, futures and interest deposits.
A non-custodial wallet gives the user full access to their digital money. Usually they are used by decentralized cryptocurrency exchanges and various services. The most famous among them are Nuri and ZenGo . It can be created and used through browser extensions, as well as in the form of a piece of paper with printed public and private keys.
Due to the high level of protection, a non-custodial wallet is recommended for storing assets and long-term investments. Their disadvantage is the irretrievable blocking of access when the user loses a key or password.
Crypto wallet keys
Each kind or type of wallet mentioned above works with keys. They are public and private. The private key is needed to sign transactions. It is he who needs to be protected from prying eyes, because he gives access to the stored cryptocurrency on the wallet.
The keys have different storage systems and this also needs to be decided. Some wallets store keys on user devices. Online wallets prefer remote storage of keys on their own secure servers. On the one hand, it gives protection against loss by the user. On the other hand, it increases the risks of access to keys for hackers who sometimes manage to hack the servers of crypto sites.
Types of cryptocurrency exchanges
Most cryptocurrency exchanges are centralized trading platforms (CEX). Such platforms store users’ cryptocurrency and act as intermediaries between buyers and sellers. To start trading, digital money is transferred to the account of the trading platform and then the user no longer controls them, eventually receiving his money or cryptocurrency at the end of the transaction.
But there are also decentralized cryptocurrency exchanges (DEXs) that do not store users’ cryptocurrencies, but only act as services for creating transactions. Such exchanges place advertisements for the purchase / sale of crypto-currencies, and the exchange itself is made by the parties directly with each other.
There are also pros and cons here. On the positive side, users’ digital money is not temporarily lost to a third party and cannot be stolen by hackers. The negative point is the ignorance of the other side of the transaction. After all, there may be scammers who will try to deceive.
As you can see, there are a lot of nuances in this case. To buy / sell, store, accumulate and any other manipulations with cryptocurrency, the user needs to decide on various details, select the type of wallet, as well as the type of key. It is also worth choosing the type of exchange on which transactions are planned and knowing the differences in each of these points.