In relation to blockchains, a wallet is anything that manages access to cryptocurrencies and tokens. Wallets keep valuables, credentials, and items for access rights (such as cash, licenses, credit cards, key cards) in one place, for easy access and use. On the blockchain, cryptocurrencies play a similar role to cash, while cryptographic tokens are a universal tool for handling rights and assets. Off-chain wallets appear in different forms, from paper wallets to hardware wallets to dedicated wallet apps, while on-chain wallets are recognized as smart contracts.
What is a hot wallet?
Hot wallets are a form of digital storage. They can be accessed on any personal device as they are connected directly to the internet. They are connected to a larger server and initiate financial transactions for cryptocurrency via browser-based webpages. They provide a simple way to manage cryptocurrency investments, but this simplicity comes with risks. Using digital storage to manage funds makes them vulnerable to getting hacked despite many integrating additional security features.
What is a cold wallet?
Cold wallets, also sometimes referred to as hardware wallets, store all cryptocurrency assets or tokens offline. Cold wallets are physical pieces of hardware and must be connected to a device to be used for any activity. By storing everything offline, the security risk is greatly reduced as funds are not easily accessible online to hackers or scammers. However, having a physical wallet means that it could be lost or stolen which is a risk that comes with opting for a cold wallet rather than a hot one.
What is a smart contract wallet?
A smart wallet is a wallet managed by a smart contract instead of a private key. They offer increased trust and security by providing a transparent system. Features include daily limits, approvals, multiple signatures, and recovery mechanisms.
Custodial vs Non-Custodial
On the other classification, wallets are divided to custodial and non-custodial wallets. Custodial wallets are the ones that third-parties keep and maintain control over your cryptocurrencies on your behalf. Non-custodial wallets are wallets where you take full control and ownership of your cryptocurrencies. By using a custodial wallet, you trust an external party to store your coins safely. This may be convenient as you do not need to worry about private key security but you only have to worry about account credentials security just like how you would have to protect your email account. However, by trusting a third party with your cryptocurrencies, you open yourself up to the risk of the custodian losing your cryptocurrencies through mismanagement or hacks.
By using a non-custodial wallet, you trust no external party and only yourself to ensure that your cryptocurrencies are safe. However, by using a non-custodial wallet, you pass the burden of security to yourself and you have to be fully equipped to store your private keys safely. If you lose your private keys, you will lose access to your cryptocurrencies too.
In Walliro, you are enabled to work with a non-custodial, multisig smart contract wallet ensures security. In Walliro, there is no third party to endanger your privacy or digital assets. Since it’s a multisig wallet, users are able to delegate control of their assets to a range of one signer to more. Since it is non-custodial you are the only one who can manipulate your properties.