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What is a Crypto Wallet?

A crypto wallet is a device or app that stores your passkeys to access, receive and spend digital currency. They can take different forms, including hardware, software and paper wallets, with different levels of convenience, safety and blockchain accessibility. 

🤔 Understanding crypto wallets

Crypto wallets are apps, software or devices that store passkeys to your digital currency on the blockchain. These wallets store two types of keys:

  • Your public key acts as your wallet “address,” similar to a bank account number
  • Your private key acts as your “password” to unlock, spend and receive crypto

Together, your keys “track down” and prove ownership of your coins, allowing you to make transactions.

Types of crypto wallets

Keys can be stored in different kinds of wallets based on the security features and currencies you prefer. Here’s what to know. 

Custodial vs noncustodial wallets

Custodial wallets are hosted by websites or exchanges (like Coinbase) and allow third parties to maintain your keys. When you want your coins, simply log onto the platform. While they reduce the risk of losing your keys, they’re also easier to hack.  

Meanwhile, noncustodial wallets are hardware or paper wallets that allow you to control your keys. While they’re safer from hacks, they’re easier to lose or break. 

Hot and cold wallets

Hot wallets connect to the internet (or an internet-connected device) directly. Generally, you find hot wallets online or as desktop or mobile apps. They offer greater convenience but can be less secure. 

By contrast, cold wallets can’t connect to the internet or blockchain. They often take the form of USB-type hardware wallets or paper wallets. While they’re easier to physically steal, you usually don’t have to worry about hacks. (Plus, they reduce the temptation to spend or trade as often.) 

Crypto storage options

The actual “wallets” themselves take three forms:

  1. Paper wallets are merely pieces of paper with your keys written on them. While they’re less convenient, they’re the most secure from online hacks. 
  2. Hardware wallets store your keys in a USB-style or handheld device. They’re popular for their mix of safety and convenience—plus, you can sign transactions without typing your keys. 
  3. Software or online wallets store your keys in an online exchange or downloadable app. While they’re most susceptible to hacks, they’re also more convenient for frequent traders and spenders. 

What this means for you

Crypto wallets take many forms, including:

  • Custodial software hot wallets
  • Noncustodial hardware cold wallets
  • Noncustodial hardware hot wallets
  • Custodial hardware cold wallets

When choosing from your wallet, it’s crucial to assess what you need in a crypto wallet. 

Do you trade frequently and require a hot wallet with easy access to the blockchain? 

Or are you a long-term investor looking for the safest way to protect your digital currency?

Perhaps you’re a beginner just dipping a toe into the complex lingo surrounding cryptocurrency? 

Ultimately, it’s up to you to decide which kind of crypto wallet suits your situation. But remember: As a rule, you should choose the most secure option that meets your needs. 

Disclosures

Q.ai is the trade name of Quantalytics Holdings, LLC. Q.ai, LLC is a wholly-owned subsidiary of Quantalytics Holdings, LLC ("Quantalytics"). Quantalytics offers automated financial advice tools through Quantalytics Investment Advisors, LLC ("QAI"), an SEC-registered investment advisor. QIA’s investment advisory services are ONLY available only to residents of the United States. Disclosures concerning QIA’s investment advisory services are available on its Form ADV filed with the SEC. The content in this newsletter is for informational purposes only and does not constitute a comprehensive description of Q.ai's investment advisory services.

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