More than just a place to store and protect your digital funds, a crypto wallet, sometimes called a blockchain wallet, is also what you’ll use to buy, sell, trade and invest your cryptocurrency. Some wallets will let you store your NFT (non-fungible token) collection, engage with decentralized apps and get involved in DeFi. In essence, a good crypto wallet operates as your wetsuit, mask and oxygen tank so you can deep dive into the sea of blockchain safely.
What Is a Crypto Wallet?
A crypto wallet is a hardware device or software service that allows you to store, send and receive cryptocurrency. Put simply, it works by letting you access the crypto coins you own that exist on a blockchain.
Crypto wallets are different from e-wallets, like Apple Pay, Paypal and Cash App, which are digital wallets stored on smartphones that connect to traditional credit cards and bank accounts, as well as store things like plane tickets.
Cryptocurrency Wallet Types
When looking at the different types of crypto wallets, keep in mind you aren’t limited to one type. There exist several different combinations. For instance, many of the major hardware wallets integrate with mobile and browser-based wallets. You can also have some funds in a hot wallet and maintain the rest offline in a hardware wallet. That’s the advantage of cryptocurrency, it gives you complete autonomy over how you want your funds stored, managed and protected.
These crypto wallets operate similar to a bank and are most often associated with crypto exchanges. The main thing to note with a custodial wallet is that the company is in charge of managing and protecting your private key (like your crypto bank account number). This makes it easier for you, the user, to login and start buying and trading cryptocurrency right away, and it puts less pressure on you to protect your account. The downside is that if the company is hacked, you can end up losing funds.
Noncustodial (or Self-Custody) Wallets
This type of wallet gives the user complete control over the account. While you may download the crypto wallet companies software or service, only you have access to your private keys. These types of wallets are more private and secure, the third-party provider can’t shut down your account and you can easily recover your funds if something happens to the wallet provider. But the onus is on you to keep your private key secure.
These crypto wallets come in the form of a physical device. Hardware wallets are often considered the most secure because it keeps your funds offline and from being hacked.
This includes desktop, mobile and browser-based wallets.
These allow you to store cryptocurrencies on a desktop application and often offer both online and offline functionality.
These involve a crypto wallet application tied to your mobile phone, allowing you to trade and manage your finances on the go.
These are crypto wallets tied to a browser application or a website. It can facilitate a more streamlined experience because it allows you to store passwords and manage information on the web.
These are crypto wallets where your funds are always connected to the internet, making it easier to transact but also more susceptible to hackers.
These are crypto wallets that are entirely offline, keeping your funds more secure but also adding an extra step to enter your funds online to start trading or spending them.