How to Choose and Setup Crypto Wallet

Custodial wallets, also called hosted wallets are the most popular and easiest wallets to set up. They are offered by third parties or centralized exchanges. If you’re new to this, you can read our article about crypto exchanges. When you receive or buy Bitcoin using a wallet such as a Binance wallet or Coinbase wallet, the exchange automatically keeps your coins safe. Users have less responsibility since the hosting party is partially responsible for the security of the money, and performs extra duties such as managing private keys.

Opening an account with a centralized exchange’s blockchain wallet means you’ll be using their private keys, so you trust that the institution will keep them safe. The wallet provider, in this case, will input private keys into the server whenever the user logs into a wallet and initiates a transaction. The other key benefit of these wallets is that forgetting your password will not cut you off from your crypto as it’s easy to reset it. The flip side of it is that while hosted wallets provide a simple and efficient solution for beginners, it comes with a layer of risk. First, users are susceptible to hacking. Second, the crypto exchange can get hacked too. Exchanges such as Mt. Gox and Bitstamp have been attacked by hackers in the past. Mt. Gox lost over $500M worth of Bitcoin to hackers between 2011 and 2014, while Bitstamp lost $5M worth of BTC in 2015. Lastly, governments can easily target hosted accounts. The Canadian government recently attempted to prevent supported the Canadian trucker protest from accessing their crypto in custodial wallets.

Hardware wallets are physical devices for storing cryptocurrency; also called offline wallets or cold wallets. They come in form of small USB-like shapes and are used to keep digital assets completely offline. This adds a layer of protection to your assets since these devices are unhackable, and inaccessible remotely. The downside is that if you misplace them, your money will be lost too. While cold wallets can’t be hacked remotely, it’s still possible to physically tamper with them. So always buy new hardware wallets from trusted sources to avoid falling prey to offline crypto storage that may have been interfered with. So far very few investors use this method since it doesn’t come for free like custodial and non-custodial wallets. A proper hardware blockchain wallet goes for not less than $100. Due to their nature, these wallets suit people who want to buy and hold virtual coins for a long time. They are solely used for storage, so you won’t get extra features such as staking, trading, or exchanges.