-snip-
A couple of things I would add to your post.
There are Exchange wallets, hard wallets and soft wallets.
I wouldn't call exchanges "wallets", but rather "accounts", since as you rightly point out, you have no control and no ownership over your coins or your keys.
Downsides: you can't really trade against fiat unless you know someone who is selling, that you trust, that you can send your coins to.
I trade more-or-less exclusively directly from my hardware wallet by using decentralized and peer-to-peer exchanges.
full nodes are unpractical at best, recommended for people who run mining operations or large amounts of any given currency because they need to be connected to the internet and up to date before you're able to send your money away from them.
Full nodes are more important than that. In fact, running your own node and validating transactions yourself is the only way to trustlessly use bitcoin. Every other lightweight wallet, SPV wallet, software wallet, mobile wallet, etc., is trusting someone else's full node to relay the correct information.
Now client wallets are things like Electrum or Jaxxx or others wallet providers that connect to a given node to get the blockchain information, these can be encrypted like the previous two but is not necessary.
Why is this not necessary? You should absolutely be using the built in encryption mechanisms on your software wallets. It protects you from both physical access to your computer as well as malware.