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Understanding Crypto Storage: Which Wallet Suits Your Preferences?

2023-01-06

Main Takeaways

  • There are several types of crypto wallets available, including hardware, software, and custodial.

  • When picking a suitable wallet, you should consider four key factors: security, convenience, compatibility, and control. 

  • Do your research, be wary of untrustworthy platforms, and pick a wallet accordingly.

Here’s everything you need to know to get started with storing your crypto. 

Every crypto user, especially those new to the space, should understand the different storage methods available for their crypto. There are hardware, software, and custodial wallets. 

So which one is the best? We at Binance believe there’s no straight answer. Wallets come in all shapes and sizes, each with their own strengths. 

Many of our users, for instance, prefer the convenience of a centralized exchange (CEX), while others may want an offline solution immune to cyberattacks — also known as a hardware wallet.

Four Factors to Consider When Choosing a Crypto Wallet

We encourage you to do the proper research and make your own choice when deciding how to store your crypto. To help you pick a wallet, we’ve outlined four key factors every user should consider:

  1. Security

  2. Convenience

  3. Compatibility

  4. Control

Security

The basic, most fundamental requirement for storing crypto is security. Make sure you choose a method that safeguards your keys and more importantly, minimizes the risk of your funds being stolen. 

If you’re using a custodial wallet, make sure you do the proper due diligence and verify that your funds are being held by a reputable company. If you opt for a hardware wallet, the crypto is fully in your hands and as such, it’s your responsibility to safeguard it. 

As always, do your own research (DYOR). Things to look for in a trustworthy exchange include an experienced security team, proof of healthy financial reserves, stringent know-your-customer (KYC) regulations, and a proven track record of safeguarding user funds.

We also recommend that you refer to our comprehensive Academy guide for more information on securing your crypto. 

Convenience

Some storage methods might be less ideal for say, a day trader who needs instant access to their funds or an inexperienced user who’s unfamiliar with the concept of holding their own private key.

If you’re looking for convenience, a custodial wallet is ideal. Web2 users are likely to be more familiar with this method and are typically not ready to make the switch to a non-custodial wallet. 

You’ll always have access to your account as long as you memorize your username and password. And if you have two-factor authentication (2FA) — a security setting we highly recommend switching on — make sure you don’t lose access to your authentication method. 

Compatibility 

With so many cryptocurrencies available on the market, you should check which tokens your wallet is compatible with and ensure that it supports deposits and withdrawals of the coins you’re holding or interested in trading.

Control

How much control the wallet has over your funds is another crucial factor to consider when selecting the type of crypto wallet you want to use. Storage options, like hardware or software wallets, give you full control of your private keys, while others, like exchanges, hold these keys on your behalf.

If you’re comfortable with managing your own crypto funds, you should opt for a method where you hold your private keys. If you prefer greater convenience and accessibility, you can use a trusted exchange. 

Pick Your Wallet: Hardware, Software, or Custodial

Hardware 

Security-wise, many in the crypto space consider hardware wallets the gold standard of safety. It’s a physical device specifically designed to store private keys, a string of data that functions as a password to access your funds. Unlike the other methods we’ve mentioned, hardware wallets don’t require any Internet connection, making them immune to online attacks. 

However, hardware wallets and other non-custodial storage methods have one common flaw: if you lose access to your key, your funds will likely be gone forever.

There’s no password reset button or customer service person to contact if something goes wrong. You might’ve heard stories of people who forgot their passphrases, accidentally discarded their hardware wallets, or mistakenly gave their keys to a scammer.

So remember to keep your keys safely stored — preferably inside a safe — and never share them with anyone.

Software

As the name implies, software wallets are digital, usually connected to the Internet, and executed on an electronic device. Common examples of software wallets include desktop, mobile, and web wallets. 

Exchanges and browser-based wallets fall under the category of web wallets; some are custodial — meaning they hold the keys for you — while others are non-custodial. 

Desktop wallets are programs you need to install on your computer, and unlike web wallets, they provide you with full control over your keys and funds. 

Similar to desktop wallets but used on mobile devices, mobile wallets allow users to manage their funds through smartphone applications. One such widely used application is Trust Wallet, an open-source and decentralized mobile wallet that supports over three million cryptocurrencies across some 60 blockchain networks. Trust Wallet also provides, among other features, NFT storage, in-app staking, and a built-in DeFi browser. 

Though software wallets provide a healthy balance between convenience and security, you should still be wary of downloading harmful programs and viruses onto your devices.

Custodial 

Using a custodial wallet means a third party will hold and manage your private key. A common example is an exchange, a website that allows you to trade cryptocurrencies. 

For a large portion of users, exchanges provide the easiest way to manage their crypto funds. There are no private keys to memorize, the user interfaces are often intuitive and easy to use, and they usually have large customer support teams that can help users with various issues. 

A non-custodial method, on the other hand, essentially requires you to “be your own bank” — this means you are entirely responsible for the safety of your wallet and funds.

If you opt to store your crypto on an exchange, you should ensure the platform is compliant with local regulations and preferably, has some form of an insurance safety net designed to protect users from worst-case scenarios. 

Binance, for instance, holds regulatory licenses, registrations, and approvals in 14 jurisdictions and employs one of the industry’s strongest compliance teams. We hold all user assets at a 1:1 ratio, which anyone can verify using our recently developed Merkle Tree Proof-of-Reserve (POR) system. And for emergencies, we have a $1B insurance fund — known as the Secure Asset Fund for Users (SAFU) — designed to mitigate any damage to users. 

Manage Your Crypto Your Way

For crypto storage, there’s no clear-cut winner as to which option is the best. Every type of wallet comes with its own strengths and weaknesses. Some offer convenience and a more user-friendly experience, while others are less susceptible to hackers and scammers. It’s up to you to decide which type of wallet best fits your needs. 

For more information on storing your crypto, read the following: