PlayTreks users need a crypto wallet to use certain features of the platform - such as the NFT Marketplace. If you've never heard of crypto wallets before, this article is for you to get familiar with the topic. We will explain what a crypto wallet is, and we give you a breakdown of all the available types of wallets, concluding with an advice on which is the best type for wallet to get you started.
Most people are familiar with having a physical wallet or purse to store their cash money, payment cards and driver's license. And perhaps some other things as well. Think photographs, shopping receipts, discount coupons, food/drink tokens - you name it.
A crypto wallet can be considered your digital purse. You can use a crypto wallet to hold multiple digital assets (also called "tokens"). Instead of dollars or euros, you may use it to store cryptocurrency (like Ethereum or Bitcoin). And instead of a physical picture of your BFF, spouse or children, you may use it to store what is called an NFT. For example, a song from your favorite artist, that you bought on the PlayTreks marketplace.
How does a crypto wallet work?
It's important to realize that the digital tokens (like currencies and NFT's) itself are not stored in your purse. Unlike a normal wallet, which can actually hold the cash, crypto wallets technically don’t store your crypto. Your holdings (assets, funds, digital money) all live on the blockchain. They can only be accessed using a private key. Your keys prove your ownership of your digital money and assets. They allow you to make transactions. If you ever lose your private keys, you lose access to your money and assets. That’s why it’s important to keep your wallet safe, or to use a trusted wallet provider. If you want to read more on this topic, check out the article how do I keep my crypto wallet safe?
What types of crypto wallets exist?
Crypto wallets come in many forms. Ranging from simple-to-use apps to more complex security solutions. We give you a breakdown of the available solutions, grouped into the often used terminology of "hot" and "cold" wallets.
  • Hot wallets
    A hot wallet is connected to the internet. Keys are stored in an app or other software, which is why they're also often referred to as software wallets. They come in a few forms:

    • Online wallets (also called web wallets). In this case, the wallet is stored online in a platform. The platform stores your wallet information and the only thing you have to remember is your username and password to access the platform. Online wallets are the most convenient way to get started in crypto and offer a balance of security and easy access. 

    • Device-specific wallets, usually referred to as desktop wallets, mobile wallets or browser-based wallets. In this case, the wallet is stored on a device. For example in your browser. For starters, desktop wallets are considered to be among the safer options of crypto storage as far as hot wallets go.
Users of hot wallets should always realize that they are are fully dependent on the personal security measures they take to protect their own devices, and (for online wallets) the security measures taken by the platform of choice.
  • Cold wallets
    A cold wallet is typically not connected to the internet. While that makes it much more secure, it’s also much less convenient to use. Cold wallets also come in multiple forms.

    • Hardware wallets
      When using a hardware wallet, your keys are stored in a thumb-drive device that is kept in a safe place and only connected to a computer when you want to use your crypto. The idea is to try to balance security and convenience. A well known hardware wallet is Ledger (which looks like a USB stick).

    • Paper wallets
      This may seem a bit odd when talking about digital wallets - but actually it's possible to keep your crypto wallet on paper. In this case, your Keys are written on a physical medium and stored in a safe place. This make it nearly impossible to use your crypto assets, because as digital money it can only be used online.
Custodial vs non-custodial wallets
The listing above was broken down in "hot" and "cold" wallets, which is a common way of categorizing crypto wallets. There's another way to group them: custodial and non-custodial wallets, which can also be referred to as centralized vs decentralized wallets.
By its very definition, a custodial wallet (centralized wallet) means that a third-party is holding onto your private keys for you. In most cases, it's the exchange or platform where you bought the crypto from.
Non-custodial (or decentralized) wallets on the other hand, require you to hold your own private keys, giving you complete control.
Applying this to all the wallet solutions we mentioned above, we can state that an online wallet (or web wallet) is a custodial wallet, because the provider keeps your keys for you. All others are non-custodial: they require you to keep the private keys yourself.
What is the best type of crypto wallet?
Summarizing, hot wallets make sending, receiving, and using your crypto as easy as using any online bank account or payment system. However, the fact that a hot wallet or software wallet is connected to the internet, makes it vulnerable to online attacks — which could lead to stolen funds.
Paper and hardware wallets are harder for malicious users to access because they are stored offline, but they are limited in function and risk being lost or destroyed.
Taking into account all the above, we at PlayTreks advise to only use hot wallets when dealing with small amounts of crypto. On top of that, we advise choosing a device-specific wallet over an online wallet.