What are the different types of digital wallets?

While there are various types of digital wallets, they all contain a “private key”, which is like a complex password which grants total control over the wallet. Digital wallets vary in how the private key is stored, and who retains control and responsibility for the private key – each with their own advantages and disadvantages.

Hot wallets and cold wallets:

• Hot wallets, or online wallets, such as web-based, mobile, and desktop wallets, are convenient although susceptible to online attacks, as their private key is stored on a device which is connected to the internet.

• Cold wallets, or offline wallets, like paper and hardware wallets, store private keys offline, so that they are not exposed to online threats at any time.

Self-custody and managed custody:

Another classification is based on whether the wallet is custodial or non-custodial/self-custodial, determined by who holds the private keys.

• In a custodial wallet, a third party controls your private keys and, consequently, your assets. Typically, storing assets at an exchange would be considered custodial storage, as the private keys are managed by the exchange.

• On the other hand, a non-custodial or self-custodial wallet grants you full ownership and control over your digital assets. Typically, storing assets on your DAU Key or on DAU Vault would be considered self-custodial storage.