To hold and transfer cryptocurrencies, you need to have a crypto wallet. It can be categorized based on the following:
1. Who is holding the recovery phrase?
2. Is it always connected to the internet?
Based on the answer, a wallet can be either custodial or non-custodial and hot or cold.
What is the custodial crypto wallet?
A custodial wallet is a wallet in which a third party holds the private keys. This means the third party has full control over your funds, while you only have to permit to send or receive payments.
What is the non-custodial crypto wallet?
It is a type of blockchain wallet that lets you be your bank. This implies that users fully control their funds and the associated private key.