- HD Wallet
Hd comes from Hierarchical deterministic.
value presented to the user as a 12-word (but can be more) set using several languages (the most common is English, of course).
Through this standard algorithm, this 12-word set (or more) leads to the creation of the private keys you need to secure your wallet.
example:
ridge repair file pave remove sorry local nation bar gentle trigger boost
this could be stored like this:
Card 1: ridge repair file XXXX remove XXXX local XXXX bar gentle XXXX boost
Card 2: XXXX XXXX file pave remove sorry local nation XXXX gentle trigger XXXX
Card 3: ridge repair XXXX pave XXXX sorry XXXX nation bar XXXX trigger boost
Their use case: Almost every crypto mobile app uses this system to help the user backup their wallet.
2. Multisig wallets
A multi-signature wallet is a process to which a crypto transaction (either funds or calling a smart contract) needs multiple verification outlets to be confirmed before the transaction is sent
Use case:
- To stop one person from running off with the loot
- To reduce key person risk in case one person is incapacitated or loses their keys.
They are usually used in companies or big organisations to hold LARGE amounts of crypto.
There’s a detailed explanation in this post, if you have time to read it: https://medium.com/hellogold/ethereum-multi-signature-wallets-77ab926ab63b
One of the safest multisig wallet is https://wallet.gnosis.pm/#/wallets
3. Custodian Wallets
A custodial wallet is a wallet in which your private keys are stored by a third party. Thus, you do not have full control over your funds, which makes these wallets a dubious choice.
However, they have some advantages:
- You can manage your funds very quickly and at any time when there is an Internet connection;
- No chance to lose your private key and lose access to your money;
Disadvantages:
- The custodian has control over your money;
- Your crypto-coins can be seized by a court decision;
- If your wallet gets hacked, your coins may go missing;
- In the case of a fork, there is a chance to not receive your coins.
The custodial wallet is very similar in its function to the principles of a bank, meaning you do not fully control your money inside of it. Yes, the money remains yours, but it is in the hands of another company.
Every exchange (unless it’s an decentralised exchange like dydx etc)
Non Custodian Wallets
The user holds the keys.
It can be either a web wallet, mobile wallet, hardware wallet or printed on a piece of paper.
Advantages:
- You have control over your money
- It’s almost impossible for someone to hack it
Disadvantages:
- there’s a technical barrier that stops people to understand how it works
- there’s a chance you’ll loose the wallet and all your money
