What is a Cryptocurrency Wallet?
A cryptocurrency wallet, much like popular digital wallets for storing Vietnamese Dong (VND) like MOMO, Zalopay, MOCA, and YOLO, is used to store different types of coins and tokens within the cryptocurrency market.
A cryptocurrency wallet isn’t only a place to store coins and tokens; it also records transaction histories. Each wallet has a unique address to identify it and store specific coins or tokens.
Types of Cryptocurrency Wallets (Crypto Wallets / Blockchain Wallets)
To simplify, cryptocurrency wallets can be divided into two main types:
Hot Wallets
Hot wallets are stored online and require an internet connection to access information and make transactions. As shown in the diagram above, all of the cryptocurrency wallets mentioned are hot wallets. Hot wallets can be further categorized into two types:
Wallets on Centralized Exchanges (CEX Wallets)
To trade coins, users need to register an account on an exchange platform, where they will receive various wallet addresses for different coins.
As shown in the diagram, there are exchange wallets like P2P wallets, which are used to store coins purchased with local currency. Each exchange offers various wallets for different trading purposes. For instance, Binance provides a P2P (Funding) wallet, a Spot wallet for trading all listed coins, and a Futures wallet for leveraged futures trading. Each exchange may use unique wallet names according to their functionality.
These types of wallets are ideal for short-term trading, as they enable quick buying and selling on the exchanges. The top exchange platforms today include Binance, Huobi, Coinbase, and KuCoin.
Software Wallet
A software wallet can be used on mobile or computer devices to display and access your assets on the blockchain network where they reside. This type of wallet is managed directly by the user, unlike exchange-based wallets that rely on third-party control. Your assets are stored across the blockchain network, distributed among various nodes. To access your assets, you’ll need a security key, usually a 12 or 24-word phrase or a complex alphanumeric code.
Security keys are the only way to access these wallets, so it’s essential to store them carefully. Losing your keys means losing access to your assets permanently.
Different software wallets may display and manage assets differently, depending on the blockchain network (e.g., ERC20, BSC, TRC20). When sending or receiving coins or tokens, be sure to select the correct network to avoid loss of assets.
Popular software wallets include MEW Wallet, Trust Wallet, Metamask, Exodus, Coinomi, and TronLink. In this document, we’ll primarily discuss Trust and Metamask wallets due to their robust multi-platform support.
Comparison Between Exchange Wallets and Software Wallets
| Exchange Wallets | Software Wallets | |
| Nature | Wallets hosted on trading platforms, managed by the exchanges. | Self-managed by users through private keys, accessible through mobile or computer applications. |
| Account | Requires account registration and identity verification on the exchange. | No account registration is needed; the wallet address is the user’s identifier. |
| Security | Password-protected with additional security layers (e.g., email, SMS, authenticator apps). | Protected by private keys, typically a 12 or 24-word phrase. |
| Use Case | Ideal for quick trades or short-term coin holding. | Best for long-term coin holding (investments) or decentralized transactions. |
| Risks | Support available for account issues, but relies on a third party, making it susceptible to hacking, account suspension, or platform closures. | Higher security; however, losing or having private keys stolen results in permanent asset loss. Vulnerable to hacking if used improperly. |
Cold Wallet
Cold wallets are stored on devices that don’t have internet connectivity, offering enhanced security against hacks. There are two main types of cold wallets:
- Paper Wallet: A type of cold wallet in the form of a printed document containing a private key, wallet address, and QR code for transactions. It’s safe from online threats but can be damaged or lost, risking permanent loss of assets.
- Hardware Wallet: A device resembling a USB drive that remains disconnected from the internet. When transactions are needed, it connects to a computer via USB.
This overview has covered different types of cryptocurrency wallets, also known as crypto or blockchain wallets. In upcoming sections, we’ll dive into how to set up software wallets, focusing on two of the most popular options: Trust and Metamask wallets.
