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Read this article →Before you buy crypto, you’ll first need to set up a crypto wallet. But with so many options—like hardware versus software wallets, and custodial versus non-custodial wallets—it can be hard to know where to begin. The type of crypto wallet you use will depend on your personal needs and preferences—but whichever type you choose, security should be your number one priority.
In this article, we break down some important security considerations with each major type of crypto wallet.
Your first decision when choosing a crypto wallet will be between a custodial and non-custodial wallet. This major distinction is centered on your wallet’s private keys—and who controls them. Similar to a bank card PIN, your private key is like a unique alphanumeric password that allows you to spend or send cryptocurrency out of your wallet.
With a custodial wallet, your wallet’s private keys are under the care of a central authority (much like a traditional bank account). Most often, that’s a centralized crypto exchange (CEX). In this case, the CEX holds your private keys and is responsible for securing the funds in your wallet.
The security benefits of using a custodial wallet include:
The security disadvantages of using a custodial wallet include:
On the other hand, non-custodial wallets give you complete control of your private keys—shifting the responsibility of securing your crypto from a CEX to yourself.
The security benefits of using a non-custodial wallet include:
The main security disadvantage of using a non-custodial wallet is:
When it comes to custodial and non-custodial wallets, there’s a tradeoff between trust and responsibility. Custodial options require much less personal responsibility, but you’ll need to trust a CEX. Non-custodial options don’t entail trusting a CEX, but you’ll take on much more personal responsibility.
The next major distinction between crypto wallets is hardware versus software. The key difference between these types of wallets is how you access them and how they access the Internet. Note that hardware wallets are always non-custodial, but software wallets come in both custodial and non-custodial varieties.
There are a wide variety of software wallets—essentially programs that are available for devices like your computer, phone, or Web browser. Software wallets can come as desktop or mobile apps, browser extensions, or as Web apps that you access through a website (like a CEX-hosted crypto wallet). Brave even makes a browser-native crypto wallet (Brave Wallet) that’s built right into the Brave browser, requiring no additional downloads.
Software wallets are considered “hot” wallets because they’re installed on devices that are almost always connected to the Internet, which might make your private keys more vulnerable to hacking attempts.
In addition to this main security concern, the different types of software wallets have their own security considerations, such as:
Hardware wallets differ from their software counterparts by storing your private keys on a physical device—similar to a flash drive—that syncs with your computer or mobile device through a USB or Bluetooth connection. Hardware wallets are always non-custodial; they store your private keys on the device itself.
Although hardware wallets must connect to the Internet to broadcast a transaction, private key transaction signing happens offline. As a result, the private keys are never visible online. When hardware wallets aren’t in use, they don’t have an Internet connection, which is why they’re also known as “cold” wallets. For this reason, even a malware-infected computer or mobile device can’t access your funds when stored in a non-custodial hardware wallet. Many people use hardware wallets for long-term storage of larger amounts of crypto that they don’t need frequent access to.
The main security benefits of using a hardware wallet include:
The security disadvantages of using a non-custodial wallet include:
This guide considers the most important security considerations involved with choosing a crypto wallet. While security is the single most important factor when it comes to storing crypto in a wallet, you’ll ultimately want to evaluate a wallet’s security alongside its features and functionality, ease of use, and other factors.
Keep in mind that many people use a combination of different crypto wallets for different purposes, like a software wallet for everyday use, and a hardware wallet for long-term storage.
The highly secure, browser-native Brave Wallet is a good option for those looking for the best of both worlds. It’s built right into the Brave browser and connected to the Internet for quick access, and you can use it to manage your hardware wallets for more secure crypto storage. Try Brave Wallet today.
Brave Wallet users can shop online with crypto at thousands of BitPay merchants
Read this article →Looking to invest in cryptocurrency? It's important to consider a crypto wallet first. This beginner's guide will help you understand what a wallet is and how to use it.
Read this article →Looking to find out how to set up a custodial cryptocurrency wallet? Check out our easy-to-follow guide on choosing and setting up a custodial wallet.
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