A crypto wallet allows you to store, send, and receive cryptocurrency on the blockchain. Your wallet is a combination of a public and a private cryptographic key that are used together to access your cryptocurrency.
Each crypto wallet also has a wallet address. Your wallet address is used to send and receive cryptocurrency. This means that you can safely share your wallet address with others.
Depending on the type of crypto wallet you have, your access to your private keys and recovery phrase will vary.
There are two types of crypto wallets - software wallets and hardware wallets.
Two types of crypto wallets:
A software wallet, or hot wallet, is a browser or mobile app based wallet. There are two kinds of software wallets - custodial wallets and self-custodial wallets.
A custodial wallet is a wallet in which an exchange (the wallet provider) holds your private keys and securely stores your funds. This is similar to how a traditional bank is responsible for securing your account and funds.
When you use a custodial wallet, you log in with a username and password to make transactions. This password, if forgotten, can usually be replaced, which makes a custodial wallet an easy option to buy, sell, and hold cryptocurrency.
A self-custodial wallet is a wallet in which you hold your private keys and are responsible for securely storing your funds.
When you set up a self-custodial wallet, you are given the private key and recovery phrase. It is important to remember that anyone who has access to your recovery phrase can access your wallet. Do not share your recovery phrase with anyone else.
You can connect your self-custodial wallet to access the full range of DeFi and web3 decentralized applications (dapp), including Uniswap. Self-custodial wallets have limitations as well, though — no one can help you regain access to your funds if you lose the private key and recovery phrase.
A hardware wallet, or a cold wallet, is a hardware device that stores your private keys on a secure device.
A hardware wallet is a type of self-custodial wallet.
Your private keys are not stored on an online server, which makes a hardware wallet the most secure option. If you lose your recovery phrase, you can lose access to the crypto you own.