What Are Some Types of Digital Wallets & Their Uses?

Let’s get something out of the way straight away: In crypto, the phrase “wallet” might be a little confusing because “wallet” has numerous distinct meanings depending on what you’re trying to do. So while we’ll concentrate on the “self-custody” category, here’s a short rundown of some of the most frequent types:

• Hosted (or “custodial”) wallets are digital wallets managed on your behalf by centralized exchanges. When you create an account, they provide you access to a hosted crypto wallet where you may safely keep your coins. You may use a hosted wallet to perform simple crypto transactions without managing your confidential keys (which jobs sort of like passwords for your crypto).
• Users that want more control over their assets and are interested in new crypto technologies like DeFi choose self-custody wallets. You are in charge of safeguarding your private keys with these wallets, which usually include a recovery phrase (more on this beneath). Importantly, Investment platforms will never have admission to your private keys or recovery phrase and therefore be unable to assist you if you misplace them. And anybody who knows your recovery phrase has access to your cryptocurrency, so keep it secure!
• Like the Ledger wallet, hardware wallets are tangible devices that store cryptocurrency. They are also self-custody, which means you’re responsible for ensuring your own recovery phrase. A hardware wallet may also be thought of as two-factor authentication, as the device serves as a physical key for completing any self-custody transactions.

What’s at stake? The ability to keep track of your private keys isn’t the only benefit of a self-custody wallet. Perhaps an even more convincing explanation is that, similar to how a web browser is your doorway to the internet, a self-custody wallet is your passport to the vast world of decentralized crypto programs (or dapps) that has evolved in recent years. For instance, a wallet supports hundreds of thousands of assets and many blockchain networks. The browser extension and mobile app for the Wallet allows you to explore the emerging world of Web3: decentralized finance (or DeFi), non-fungible tokens (NFTs), staking, and much more.