What Is a Crypto Wallet?
A crypto wallet is an app or physical device that allows you to access your cryptocurrency.
All crypto exists only on the blockchain, but a wallet allows you to complete transactions, making the crypto usable. Before wallets, sending crypto was a manual task requiring entering long keys each time. Now, crypto wallets store most of the keys you need to complete transactions, making the process easy and fast.
“Crypto wallets do not actually hold your crypto assets; instead, they are tools for interacting with the blockchain.”
Vaultavo, 2022
Think of them like your bank account, which records what you own and allows you to send and receive funds.
How Do Crypto Wallets Work?
Cryptocurrency isn’t actually stored in a wallet, but the wallet identifies all of the crypto you own through the blockchain to show you the sum of your holdings. These platforms also allow you to easily send and receive crypto to and from other wallet addresses.
Your wallet has two key components: your unique wallet address (called public key, similar to your bank account number) and private keys that confirm you own the wallet. You receive the private keys when you create the wallet, and you need to store them carefully to prevent unauthorized access or losing access to your crypto.
To send crypto, you log into your wallet app, select the “Send” feature, and enter the amount and wallet address you’re sending to. You typically need to confirm the transaction by entering your password.
To receive crypto, you simply give someone your wallet address, and the funds will be deposited. Never share your private keys with anyone.
What Are The Types Of Crypto Wallets
There are three main types of crypto wallets: software wallets, hardware wallets, and paper wallets.
Software Wallets
Software wallets, also known as hot wallets, are apps or platforms connected to the internet that allow you to access and use your crypto.
Some exchanges provide hot wallets (Coinbase Wallet), but there are also standalone platforms that connect to multiple decentralized apps (Metamask). These allow you to actively send and receive crypto from anywhere, as they’re always online and are best for funds you plan to use soon.
As with any app connected to the internet, hot wallets can be susceptible to unauthorized access, as data leaks or lapses in security can give hackers the ability to access your wallet.
Hardware Wallets
Hardware wallets, also called cold wallets (like Ledger), are physical devices that hold the access keys to your crypto on the blockchain. They’re fully offline and are used for storage rather than actively making transactions.
They connect to your hot wallet or exchange through a USB cord or Bluetooth for you to use the funds. You can think of hardware wallets as a safe, as they can only be accessed in person, but they’re the only copy that exists of the funds.
If you lose your cold wallet, you can buy a new one and retrieve the funds from the blockchain by typing in your private key. Keep it very secure in your home and away from extreme heat and other forms of damage. We recommend Ledger wallets for storing your crypto offline.
Paper Wallets
Paper wallets are another offline storage method for your crypto.
You generate a public and private key as you would with a hot wallet, but rather than store them online, you print them out and store them safely. Hot wallets act similarly to hardware wallets and are typically free to create, but they’re far less robust and reliable.
While paper wallets are immune to online attacks, there’s a significant risk of losing or damaging the paper and losing access to your cryptocurrency for good.
Crypto Wallet Security
Keeping your cryptocurrency safe, as with any form of money or valuables, should be a top priority. Depending on your goals and situation, there are considerations for both software and hardware wallets.
Hot Wallet Security
A hot wallet is a necessary tool for any crypto trader, but be sure to choose a reputable platform and use the following best practices.
Always set up multi-factor authentication (MFA), use strong passwords that you change regularly, and look for wallets that encrypt all of their data. Use one of our trusted crypto wallets to increase your chances of keeping your crypto secure.
Cold Wallet Security
Cold wallets can add a layer of security by removing the risk of online hacks, so consider using a Ledger wallet or similar tool to store crypto that you aren’t actively using. Ensure you have a secure place to store your cold wallet, like a safe or secret location.
Vaultavo. (2022). Cryptocurrency Wallets.
https://vaultavo.com/wp-content/uploads/2022/12/Cryptocurrency-Wallets.pdf
Coinweb requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial process.
