In the same way, traditional fiat currency banks operate differing kinds of banking styles and options available to their customers, crypto wallets offer different styles of wallets available to their users to fit their preferences.
1. Custodial Wallets vs Non-custodial Wallets
The main difference in the style of crypto wallets is the difference between custodial and non-custodial options. Custodial wallets are more beginner-friendly and perhaps a better place to start for novices to crypto. Custodial wallets, importantly, are managed by 3rd-parties who hold the private keys for you. This is often fintech or large exchange platforms that have to comply with global regulations, are accessible, and support fiat-to-crypto conversions.
Having money in custodial wallets makes it user-friendly for beginners and allows people to have that trust in the system, meaning you only need to focus on finding the best investments for your assets. This means you have access to things like easy account recovery and integrated banking services. Many prefer this sort of insurance. However, you have less control over your assets, and there is a risk that there is a centralized hack or data leakage, which you could fall victim to.
Non-custodial wallets give full control of private keys to the user. They have become increasingly popular as they embody the essence of self-sovereign finance. Whilst they offer a host of pros including self-control and no reliance on third parties, they also require the user to have good security practices to protect their assets from unwanted threats and, due to the self-autonomy involved, put the onus of risk onto the user, which may see things like lost keys being unrecoverable.
Whilst for years, custodial wallets have been the more favourable option, data seems to show recent years have seen an increase in the number of users using non-custodial wallets. Implementation of social recovery, biometric logins, and cloud backup with these wallets has made them safer and more user-friendly than ever before in 2025.
2. Hot vs Cold Wallets
These wallets are another style being used on the market. Hot and cold wallets typically refers to internet connectivity with hot wallets being connected to the internet and cold wallets operating offline.
Hot wallets are continuously connected to the internet and allow people to easily access daily transactions, but are more susceptible to hacking. Meanwhile, Cold wallets offer offline storage facilities. Many in crypto adopt a hybrid approach by using the two. This typically sees people using hot wallets for spending their crypto and cold wallets for saving.
