Generally speaking, bitcoins and other cryptocurrencies are stored and accessible via wallets. Getting a wallet can be as easy as signing up with a service like Coinbase or Cash App , downloading an app to your mobile device, or as complex as running special wallet software on your computer. However, it is important to note that your crypto does not actually exist “in” your “wallet.” But your coins exist on the blockchain, which is the immutable record of transactions and wallet balances. Your wallet, in fact, allows you to interact with the blockchain.
There are basically two types of wallets you can store and access your bitcoins with. The first type is a custodial wallet and the second type is a non-custodial wallet. You see, wallets are comprised of key pairs- a public key and private key. The public key is the wallet address you can share with others to receive payment. The private key is used to send funds out from your wallet. A custodial wallet is one in which you do not have access to the private key. And a non-custodial wallet, you alone control your crypto with the private key.
If you bought Bitcoin from Coinbase or Uphold, your crypto is held in a custodial wallet. They are essentially acting like a traditional bank holding and moving your funds on your behalf. It’s important to note that with a custodial wallet, you may be able to access funds in the account if you forget your login credentials; kind of like if you lost the password for your banking app. Most custodial wallets require your identity details, otherwise known as “KYC” (Know Your Customer), and can assist you in the recovery of the account in question by verifying your identity.
Coinbase (web and phone app)
Cash App (phone app)
Uphold (web and phone app)
A non-custodial wallet is a wallet in which you alone control with access to the private key. A non-custodial wallet is kind of like a safe you stash your money in, and you alone have the key to access it. Similarly, if you lose your private key, you lose access to your funds… forever. Being your own bank involves due diligence!
There are also different types of non-custodial wallets; full node wallets and wallets that use remote nodes. Full node wallets contain the entire distributed ledger or blockchain. That’s a lot of data! So if you don’t keep your full node wallet online constantly, you will need to sync to the current block to spend your funds. This can take quite some time. Wallets that user server nodes, like Electrum and Coinomi, load quickly and do not occupy much space on your device.
For beginners custodial wallets like Cash App or Coinbase provide you with a wallet app to easily access your funds. If you like the idea of being your own bank with full control of your crypto use a non-custodial wallet like Coinomi or Coinbase Wallet. Please read the instructions very carefully on backing up your account/wallet. Remember if you lose your private key and/or password you forever lose your funds. Always backup! And NEVER, I repeat NEVER share your private key or backup seed phrase to anyone. Anyone with access to your private key or backup seed will have access to your funds! If anyone every ask for your private key or seed phrase, it’s a scam!