What is a crypto wallet?

A crypto wallet lets you send, receive, and store crypto.

The two main types of crypto wallets are software wallets and hardware wallets.

Other types include paper wallets, and custodial wallets, which are wallets that are hosted on centralized exchanges.

What’s the best crypto wallet for you? It depends on what you want to use it for.

If you’re storing a large amount of crypto for a longer period of time, it’s safest to keep it on a hardware wallet. If you interact with your crypto regularly, or want to explore DeFi, you’ll need a software wallet.

What is a crypto wallet?

A crypto wallet lets you send, receive, and store crypto.

Technically, your wallet is an interface between you and your secret recovery phrase and private keys, which control the ability to spend your crypto. 

Your crypto isn’t stored in your wallet, but on the blockchain. Your crypto wallet lets you interact with your crypto.

Some wallets offer extra features and services, such as exchanging, staking, and connecting to dapps.

What are the different types of crypto wallets?

There are two main types of crypto wallets:

  • Software wallets
  • Hardware wallets

Software wallets

Software wallets connect to the internet, which is why they’re also called hot wallets. Because they’re connected to the internet, software wallets are convenient for frequent use.

However, wallets that are connected to the internet are more vulnerable to being hacked. It’s good to remember that a software wallet is only as safe as the device you keep it on. 

Make sure you always have access to your software wallet by writing down its secret recovery phrase.

While software wallets are good for daily use, they’re not as safe as cold wallets. A good rule of thumb is to never keep more crypto in a software wallet than cash you would feel comfortable keeping in a regular wallet.

Software wallets are generally available as one or more of the following:

  • Mobile app
  • Desktop app
  • Browser extension

It’s easy to send, receive, exchange, and stake crypto from all software wallets. Choose a browser extension wallet if you want to connect to dapps.

You can find some software wallets to consider here: Popular software wallets.

Benefits of software wallets
Cons of software wallets
  • Security depends on device
  • More vulnerable to attack

Hardware wallets

Hardware wallets are physical devices that generate a secret recovery phrase offline, so your crypto is at less risk of being hacked.

Hardware wallets are a type of cold wallet. Cold wallets never expose their secret recovery phrases to the internet.

You will only see your hardware wallet’s secret recovery phrase once, when you initially set it up. Make sure you write it down and keep it safe. If anything happens to the physical device, you’ll still be able to access your funds with its secret recovery phrase.

You can connect your hardware wallet to your computer, and sign transactions, while keeping the wallet’s secret recovery phrase and private keys completely offline.

Hardware wallets can only communicate with other devices when they are physically plugged in. As a result, hardware wallets are much less vulnerable to hackers. 

Choose a hardware wallet for long-term storage, or if you have large amounts of crypto. Better yet, long-term storage of large amounts of crypto.

Which hardware wallet should you choose? Find some options here: Popular hardware wallets.

Benefits of hardware wallets
  • Safe and secure offline storage 
  • Invulnerable to hackers
  • Invulnerable to viruses
Cons of hardware wallets
  • Less accessible
  • Lacks some functionality of hot wallets
  • Possible to lose the device

Paper wallets

A paper wallet is a physical copy of your public key (address) and private key.

You can make a paper wallet by writing down your keys on a piece of paper, hence the name. For something more substantial, you can also engrave your keys on metal.

Paper wallets are secure against hackers and malware, but not against physical damage, loss, and theft.

While it’s highly recommended to write down your secret recovery phrase as a backup for your self-custody wallet, creating a paper wallet from a key pair (address and private key) is not recommended. Why? Andreas Antonopoulos said it best in his YouTube video: For the last time, stop using paper wallets!

Custodial wallets

Custodial wallets are wallets hosted on a centralized platform, like an exchange.

If you store your crypto on a custodial platform, you don’t really own your crypto, because you don’t have access to the private keys or secret recovery phrase.

If anything happens to the platform, like it goes bankrupt or gets hacked, you run the risk of losing your crypto.

What’s the difference between storing crypto in a self-custody wallet and on a custodial exchange?

Self-custody wallets

Self-custody means that your crypto is in your custody and not anyone else’s. You have total control, and total responsibility, over your secret recovery phrase and private keys, thus your funds.

Both hardware and software wallets are self-custodial, which means they give you access to your secret recovery phrase and private keys.

Your wallet’s secret recovery phrase and private keys control spending your crypto. That’s why, if you have a self-custody wallet, it’s crucial to keep your secret recovery phrase safe.

Your secret recovery phrase can restore your wallet on a different device, or on a different wallet, if the wallet is compatible.

For example, if you have a secret recovery phrase from MetaMask, you can restore it into a MyEtherWallet, and your crypto will appear like magic. 

This is why when you download a wallet onto a new device you won’t see your crypto. You have to restore your wallet by entering your secret recovery phrase.

With great power comes great responsibility. If you lose access to your secret recovery phrase, no one can recover it for you, and your crypto will be lost.

Wallets on custodial exchanges

Custodial means that someone else has custody of your private keys.

All centralized exchanges are custodial.

Centralized exchanges are a great way to buy, sell, and trade crypto, but they are not ideal for storing your crypto.

If your crypto is stored on a centralized exchange, and something happens to the exchange – for example it is hacked, or goes bankrupt – you will lose your crypto.

The one benefit to custodial wallets is that if you forget your account details, or your password, you can still access your crypto. You can verify your identity to regain access to your account.

Where should I store my crypto?

There’s a famous saying in crypto – not your keys, not your coins. 

What this means is that if you don’t have access to your secret recovery phrase or private keys, you don’t really own your crypto.

Because of this, it’s a good idea to move your crypto from an exchange to a self-custody wallet. 

Hardware wallets are useful for storing large amounts of crypto for longer periods of time, whereas software wallets are good to store smaller amounts of crypto that you interact with frequently.

Further reading

Want to learn more about secret recovery phrases, self-custody, and choosing a wallet? Visit: