General Information
What are the different types of digital wallets?
Digital wallets are tools used to store, manage, and transact with digital assets. While all digital wallets contain a private key, (a secure cryptographic key that grants full control over the wallet), there are various ways in which the private key can be stored, and different methods for managing that key. These differences create various types of digital wallets, each with its own advantages and disadvantages.
Here are the most common categories of digital wallets:
Hot Wallets vs. Cold Wallets
Hot Wallets (also known as online wallets) are wallets that are connected to the internet, which makes them more convenient but also more vulnerable to online attacks. Hot wallets can be web-based, mobile, or desktop applications. The private key is stored on a device that is online, which can expose it to potential threats. You can create hot wallets using the DAU Vault App.
Cold Wallets (also known as offline wallets) store the private key in an offline environment, offering enhanced security by keeping it disconnected from the internet. This significantly reduces exposure to cyber threats. Cold wallets come in the form of hardware wallets (such as DAU Key or Ledger) or paper wallets, which store the keys physically. While cold wallets are more secure, they require additional steps to access and use. You can also use the DAU Vault App with the DAU Key to secure your assets offline.
Custodial Wallets vs. Self-Custodial Wallets
Custodial Wallets are wallets where a third party (such as an exchange or service provider) controls and manages the private keys on behalf of the user. In this case, the third party, such as Binance wallets, has full control over your assets, meaning that if the third party is compromised, your assets may also be at risk.
Self-Custodial Wallets (also known as non-custodial wallets) allow users to retain full ownership and control over their private keys, which means that the user is responsible for securing their assets. No third party has access to your keys. Examples of self-custodial wallets include DAU Vault and DAU Key. These wallets provide greater security and control, but they also come with the responsibility of safeguarding the private keys.
