Types of Wallets
Types of Wallets on Cardano
When it comes to managing your Cardano (ADA), choosing the right wallet is essential for ensuring the safety of your funds. There are several types of wallets available on the Cardano network, each designed for different levels of convenience, security, and functionality.
Jamie will walk you through the different types of wallets you can use to store and manage your ADA securely.
🏦 Custodial Wallets
A custodial wallet is a wallet where a third-party provider, such as an exchange or service, controls the private keys on your behalf. In other words, you trust the service provider to secure your funds.
Benefits
- Ease of use: No need to manage private keys or seed phrases.
- Backup options: The service provider often offers backup and recovery options in case you lose access.
Drawbacks
- Lack of control: You do not control your keys, which means your funds are vulnerable to hacks or service failures.
- Privacy: The service provider may have access to your data and transaction history.
Examples: Coinbase, Binance, and other exchange wallets.
🔑 Non-Custodial Wallets
A non-custodial wallet gives you complete control over your private keys, meaning you are solely responsible for securing your funds. Non-custodial wallets are more secure since only you have access to your keys.
Benefits
- Complete control: Only you have access to your keys and funds.
- Privacy: Transactions are anonymous, and third parties cannot access your data.
Drawbacks
- Backup responsibility: You must keep your seed phrase safe. If you lose it, you lose access to your wallet and funds.
- Security risks: If your device is compromised, your private keys could be exposed.
Examples: Begin Wallet, Yoroi, Daedalus.
❄️ Cold Wallets (Offline Wallets)
A cold wallet is a wallet that is not connected to the internet. This provides an extra layer of security against online hacks, making it ideal for long-term storage of your ADA.
Benefits
- Maximum security: Because it’s offline, cold wallets are highly secure and immune to online attacks.
- Ideal for long-term storage: Best used for holding ADA that you don’t need to access frequently.
Drawbacks
- Inconvenient: Not suitable for everyday transactions, as you must manually connect it to a device for any interaction.
- Physical risk: Cold wallets must be physically secured, as losing the device or key could result in losing access to your ADA.
Examples: Hardware wallets like Ledger and Keystone, Paper wallets.
✍️ Multi-Signature Wallets
A multi-signature (multi-sig) wallet requires multiple private keys to authorize a transaction. This makes it harder for hackers to access your funds, as they need to compromise more than one key.
Benefits
- Extra security: Multiple signatures are required to approve transactions, providing an additional layer of protection.
- Shared control: Multi-sig wallets are ideal for families, businesses, or teams who want shared control over the funds.
Drawbacks
- Complexity: Setting up and managing multi-sig wallets is more complex than traditional wallets.
- Cooperation needed: All parties involved must work together to approve transactions, which can slow down the process.
Examples: Custom multi-sig setups or wallets like Mesh Wallet or Eternl.
✅ Jamie’s Notes
- Non-custodial wallets are the most secure choice for individual users who prioritize control and privacy.
- Custodial wallets are great for beginners who prefer ease of use and don’t want to deal with managing keys.
- Cold wallets are the most secure for long-term storage but are less convenient for regular transactions.
- Multi-sig wallets offer enhanced security, especially for shared ownership or organizational control.