Crypto Wallets Explained: Hot Wallets, Cold Wallets and Smart Accounts

Frequently Asked Questions

01.What is a custodial vs non-custodial wallet?

In a custodial wallet, a third party (exchange or service) holds the private keys on your behalf. In a non-custodial wallet, you hold the private keys yourself. The rule of thumb: not your keys, not your coins. Custodial wallets offer convenience but introduce counterparty risk. Non-custodial wallets give full self-sovereign control.

02.What is EIP-7702 and how does it affect EOAs?

EIP-7702, included in Ethereum's Pectra upgrade (targeting May 2025), allows an Externally Owned Account (EOA) to temporarily delegate its execution to a smart contract for the duration of a single transaction. This gives EOAs smart account capabilities like batching and gas sponsorship without requiring a full migration to ERC-4337.

03.What is a smart account (ERC-4337)?

A smart account is a wallet governed by a smart contract instead of a single private key. ERC-4337 enables smart accounts without changes to the Ethereum protocol by introducing a new transaction type called a UserOperation, processed by Bundlers and routed through a singleton EntryPoint contract. Smart accounts enable gas sponsorship, social recovery, session keys, and multi-sig by default.

04.What is the difference between a hot wallet and a cold wallet?

A hot wallet is connected to the internet, storing the private key in software (browser extension or mobile app) for instant transaction signing. A cold wallet stores the private key on an air-gapped hardware device (like a Ledger or Trezor) and requires physical confirmation to sign, making it significantly more resistant to remote attacks.