Crypto wallets 101
A crypto wallet is a software that enables users to securely store, send, and receive digital assets such as cryptocurrencies. It works by storing the user's private keys, which are used to access and manage their crypto assets on a blockchain network.
When using crypto, it is important to ensure that the wallet is secure and that the user's private keys are not compromised. This can be achieved by using a strong password, enabling a two-factor authenticator, and keeping the software up to date with the latest security patches. Side note: Bizzllet has all of those features ready.
Crypto wallets come in various forms, including mobile apps, web-based services, and hardware devices. They provide users with a unique address that can be used to send and receive cryptocurrency payments.
This blog aims to give you basic knowledge about different wallet types, their properties, and when they are best used.
What are the two main types of crypto wallets?
This is the main category we use for separating them. They come in many shapes and forms, but our starting point is always whether the wallets are connected to the internet (online or offline).
When talking about cold wallets, we usually think about offline wallets with a physical form that can’t be accessed immediately. These are called hardware, the most widely spread cold wallets.
A hardware wallet is a small physical device that securely stores private keys to manage digital assets. This is usually in a USB form. They use advanced security features like encryption and secure element chips to protect private keys from cyber attacks. To access the funds stored on the device, the user must enter a PIN or seed phrase and sign transactions using the device. Hardwares are considered one of the most secure ways to store cryptocurrency funds.
Their advantage is that it is much less vulnerable to hacking or cyber-attacks since it is not connected to the internet. However, using a cold wallet can be less convenient than a hot wallet (connected to the internet) since it requires the user to physically connect the device to a computer or mobile device to make transactions.
A hot wallet is connected to the internet and designed for frequent use in managing and accessing cryptocurrency. Unlike a cold wallet, a hot one provides instant access to a user's crypto assets and allows easy transactions.
Hot wallets are available in various forms, including desktop software, mobile apps, and web-based services. Private keys are stored on the device or server, making them easily accessible and more vulnerable to hacking or cyber-attacks.
While hot wallets offer greater convenience and accessibility than cold, they are considered less secure due to their exposure to the internet. We recommend using hot wallets only for small amounts of cryptocurrency or frequent transactions, while more significant amounts should be stored in cold wallets for better security.
What is the difference between custodial and non-custodial wallets?
Now we reached a very important point in our discussion and generally every crypto discussion; who has access to your digital assets? There are two possible answers to this question.
Custodial crypto wallets
A custodial wallet is a crypto wallet where the user's private keys and digital assets are managed by a third-party custodian, such as an exchange or provider. With a custodial wallet, the user relies on the custodian to manage their assets' security and backup procedures.
They are often preferred by users who prioritize convenience and ease of use over security and privacy. With a custodial wallet, users can access their digital assets with a username and password without worrying about managing their private keys or backups. When signing up, you usually have to go through KYC and AML procedures which can be exhausting.
Examples of custodial include exchange wallets like Coinbase and Binance. Custodial wallets are generally considered less secure than non-custodial, as they rely on a third party to manage the security of the user's private keys and digital assets. You always carry the risk of your digital assets being inaccessible due to the exchange blocking withdrawals or even going down.
New crypto users usually opt in for a custodial wallet. If you are new to the game, it is okay to have a custodial wallet, but as you get into crypto, consider having a non-custodial one.
Non-custodial crypto wallets
A non-custodial wallet is where users retain full control over their private keys and digital assets. This means that the user(you) is responsible for managing their own security and backup procedures rather than relying on a third-party custodian to manage their assets on their behalf.
Non-custodial wallets are often preferred by users who prioritize privacy and security, as they eliminate the need for users to trust a third-party service with their private keys and funds. With a non-custodial wallet, users can manage their security measures, such as using a strong password, enabling two-factor authentication, and keeping their backup or seed phrases secure.
Examples of non-custodial wallets include MetaMask, Bizzllet, and Safe and hardware wallets like Ledger and Trezor. Non-custodial wallets are generally more secure than custodial wallets, but they require a bit higher knowledge and responsibility on the user's part.
Single vs. Multi-sig wallet
There is always a tradeoff between speed and security, so we will consider another category of wallets.
A single-signature wallet requires only one signature or authorization to initiate transactions. In other words, only one party, typically the owner, must approve and sign off on any transactions made from the wallet.
Single-sigs are the most common types and are often used for personal or individual use. They are generally easy to use and do not require additional verification or approval processes, making them a convenient choice for managing small amounts of cryptocurrency.
However, single-signature wallets are also more vulnerable to security threats and hacking attempts, as only one level of security is required to initiate transactions. Using strong passwords and taking additional security measures is essential to protect yourself from unauthorized access.
A multi-sig wallet, short for multi-signature wallet, requires multiple signatures or authorizations to initiate transactions. This means that to send cryptocurrency from a multi-sig wallet, a pre-determined number of signatures must be obtained from authorized parties.
Multi-sig wallets are often used when a high level of security is required, such as for institutional or corporate use or for managing large amounts of cryptocurrency. By requiring multiple signatures, multi-sig wallets provide an extra layer of security against unauthorized transactions and internal fraud or theft.
They typically require a minimum number of signatures, which the owner or administrator can set. For example, a 2-of-3 multi-sig wallet would require two out of three authorized parties to sign off on a transaction before initiating it.
Examples of multi-sig wallets include Safe and Bizzllet.
Best business crypto wallet combination
In the dynamic business world, optimizing day-to-day operations is a paramount objective. To achieve this goal, mitigating the frictional effects is imperative. As previously stated, the dilemma between speed and security constitutes a major source of such friction.
To address this challenge, we have developed Bizzllet, a sophisticated business wallet that leverages cutting-edge technology to facilitate expedient transactions while maintaining the highest levels of security. Our platform is online, multi-signature, and self-custodial, providing the optimal platform to execute transactions quickly without sacrificing the integrity of your digital assets.
Bizzllet is a hot wallet that employs MPC technology to safeguard your company's digital assets. Through private key shares, this state-of-the-art system ensures that the private key remains under the ownership of only those authorized by you. As a result, your company can execute transactions swiftly and confidently, knowing that your assets are fully protected.
This blog post provides a comprehensive guide to different types of digital asset wallets and their properties, focusing on the differences between:
- What are Hot and Cold wallets?
- What are Custodial and Non-Custodial wallets?
- What are Single and Multi-sig wallets?
- What is the Best Business Crypto Wallet?
Now that you better understand the different types of crypto wallets available, it's time to do your own research and choose the one that best suits your business needs. Remember to always stay up to date with the latest security measures and follow best practices for keeping your crypto assets safe.
If your company could benefit from using Bizzllet, we recommend signing up for Bizzllet to try it out while its still free.