When you buy CryptoCurrency from an exchange, you don’t own the Cryptocurrency, even though the exchange says it is yours due to the fact that you bought it. If the exchange gets hacked, you may lose all your cryptos.
Your Own Wallet:
In the light of the above, what do you do? You have to transfer your crypto from the exchange to your own wallet. Every wallet has a private and public key and a backup phrase. The wallet Address is used as an “Address” i.e it is used to receive Crypto. If you want to withdraw your crypto from an exchange or ask someone to send some crypto to you, you give them the wallet address.
Save Your Wallet Backup Phrase:
Save your wallet backup phrase in case you lose the wallet. Never give backup phrase or your private key to someone else. Write it down on a paper and keep it somewhere safe. Even if you screenshot it on your phone, you are still better off writing it down somewhere else. That phone may get spoilt, lost or stolen.
Types of Wallets:
Wallets can be classified based on two things.
a. Based on who holds them
Custodial and non-custodial. Custodial means that you don’t own the wallet and the wallet just merely gives you a way to interact with your crypto. Wallets with crypto exchanges are custodial. Non custodial means that you are the sole owner of that wallet and it is safer and also better to the cause of Crypto.
b. Based on hardware/software
Wallets can also be classified based on hardware or software. As you can guess, software wallets are wallets that exist on your digital devices like phones and computers. As a wallet, phones are better than computers anyway. Although software wallets are better than holding your cryptos in exchanges, hardware wallets are much better. As the name suggests, a hardware wallet is a physical storage or device that you can carry anywhere. It is made for storing your wallet contents and is encrypted making it a highly safe alternative to hot storages. As you start your journey into Cryptocurrency Investment, one of the first steps you should take is to invest in a hardware wallet.
The above are the basic things you need to know about wallets. We will be following it up with more details in future posts