A cryptocurrency wallet is a tool that allows you to interact with the blockchain. It does this by helping you create and manage a pair of private-public keys that allow you to sign transactions and hence, do activities like transfer assets, exchange between cryptocurrencies and earn interest.
Cryptocurrency wallets come in two primary form:
- A hot wallet
- A cold wallet
Regardless of their form, you can interact with them using a piece of software (e.g. Ledger Live), a browser extension (e.g. Metamask), a physical device (e.g. Ledger X), a digital service (e.g. BitGo) which acts as an interface to the underlying wallet.
The interface itself can connect to a hot wallet, a cold wallet or both, depending on which interface you’re using.
The Metamask interface, for example, allows you to manage both a hot wallet and cold wallet from the same interface. Metamask is highly regarded as one of the best interfaces to manage hot and cold wallets for individuals.
Professional firms might not want to use Metamask to manage their wallets because it doesn’t offer certain features important to institutions.
Instead, they often use a institutional-grade digital service like BitGo Custody or Fireblocks to gain access to both hot and cold wallets via a third party interface, which offer features like multi-signature wallet management, secure key storage, audit and logging etc.
Lastly, wallets can be organized depending on whether they are custodial or non-custodial.
In a custodial wallet, someone else (e.g. an exchange or a centralised lending platform) manages your cryptocurrencies on your behalf by managing your private keys for you.
In a non-custodial wallet, you manage your own private keys. This means you take full responsibility for your cryptocurrencies stored on your wallet and if lost, nobody else has any way to recover them on your behalf.