Crypto trading is a complex and multifaceted field, with different wallet options available for different users. Thus, two types of crypto wallets exist to store your digital assets — centralised and decentralised. In general terms, centralised wallets are user-friendly and easier to understand, while decentralised ones offer more freedom and access to a wider range of crypto tokens on various exchanges and applications. Let’s discuss each type in more detail.

A crypto wallet is an online platform or software that works as a place where you can store and manage all your digital money; you can also use your wallet to send and receive crypto. This tool tells you how much your cryptocurrency is worth and allows you to trade coins with others. Some wallets even support NFTs. 

Understanding that different wallets provide varying access levels to cryptocurrencies, blockchains, and exchanges is crucial.

Two Types: Cold and Hot Wallets.

Cold wallets are similar to flash drives and can be disconnected when unused. Hot wallets are wallets that are always connected to the internet and are often recommended for people who are new to using wallets. This article mainly discusses hot wallets because they are used more widely.

Hot wallets, in turn, can be divided into two groups: centralised and decentralised wallets.

Centralised wallets are software wallets that are also known as custodial wallets. A third party typically manages them. This means that users can send and receive tokens, but they do not have complete control over their cash or private keys.

Private keys are like special passwords that prove that you own your cryptocurrencies. The keys are long random sets of numbers used to approve transactions. You can’t withdraw, deposit or transfer tokens without a secret key.

Decentralised cryptocurrency storage is also known as noncustodial wallets. Unlike the centralised wallets, this storage type is not controlled by a central body and offers consumers total control over their private keys and digital currencies. 

Comparison 

Both types of wallets have their advantages and disadvantages. When selecting a wallet type, you should consider the following aspects.

• Ownership. Using a noncustodial wallet provides complete control over your assets. However, if you lose access to your decentralised wallet, the device on which the wallet is installed, or private keys, restoring it will be very difficult.
• Security. Custodial wallets are generally considered less safe due to the presence of a central entity. Decentralised wallets, however, ensure no one else has access to them unless you share the device on which the wallet software is installed or the seed phrases with someone else.
• Support. Noncustodial crypto wallets often lack a central organisation for assistance, while centralised wallet applications typically have authorised customer support teams for any issues.
• Anonymity. Decentralised wallets allow individuals to remain anonymous and access dApps. This makes these wallets suitable for those who want to collect crypto, as they don’t require specific identity verification processes.

Both custodial and noncustodial wallets come with benefits and disadvantages regarding safety, privacy, and convenience of use. Before choosing the type of wallet to store your assets, examine each type carefully and select the one that suits your needs.  

Most traders use both types for various purposes since having multiple wallets can reduce the risk of losing assets due to a single failure. However, no wallet is entirely secure, and users must take responsibility for safeguarding their virtual assets. Proper security measures should be taken when using any crypto wallet.