- Some crypto wallet options, like the ones provided by major crypto exchanges, are easy to use and don’t require any kind of maintenance or complicated decisions.
- The different kinds of crypto wallets include: Cold Wallets, Hot Wallets, Paper Wallets, Hardware Wallets, Software Wallets (Desktop, Mobile), and Web Wallets.
- Hot wallets are connected to the internet, which makes them easy to use and super fast. Cold wallets aren’t connected online unless you actively use them, making them both slower and more secure.
There are 4 main types of crypto wallets, and they can be broken down further into multiple subcategories. The sheer variety can be intimidating even for cryptocurrency enthusiasts! For the rest of us, it feels insurmountable.
But there’s no need to get overwhelmed by all of these options, though. Which crypto wallet you want to use is actually a pretty straightforward decision once you know what’s available. You’ll need to consider the security of the wallet, how convenient it is to use, and how much time you actually want to spend on crypto trading.
Some options, like the wallets provided by major crypto exchanges, are very easy for beginners to pick up. They don’t require any kind of maintenance or complicated decisions, either. On the flip side, you’ll likely want to have multiple crypto wallets and understand them well if you’re going to hold large amounts of crypto or complete hundreds of trades.
We gathered together this ultimate list of crypto wallets and compared them all so you don’t have to.
The different types of crypto wallets are:
- Cold Wallets vs. Hot Wallets
- Paper Wallets
- Hardware Wallets
- Software Wallets (Desktop, Mobile)
- Web Wallets
Cold Wallets vs. Hot Wallets
The terms cold wallet and hot wallet might sound familiar to you. Their names are inspired by two different kinds of storage solutions, called cold storage and hot storage.
As these names imply, hot wallets are well-suited to frequent, intensive use. Cold wallets are the opposite. They’re less convenient to use and tend to be left for long periods of time.
Hot wallets are connected to the internet, which makes them easy to use and super fast. If you trade frequently or make many trades at once, hot wallets are a must-have. The trade-off is that security can’t be as strong through a Wi-Fi connection. Everything connected to the internet is vulnerable to hacking.
That internet connection is what defines the difference between hot and cold wallets. Cold wallets are never connected to the internet unless you’re actively using the keys, a feature that makes them both slower and more secure. You have to go through the process to connect your cold wallet to the internet before you can access your funds.
What cold wallets give up in terms of convenience they get back in safety. This type of wallet is always stored on a physical device, so the only way to lose the information in it would be to physically misplace or destroy the wallet. Since you have to buy the physical cold wallet, they’re more expensive than hot wallets.
Most people use a mixture of the two wallets. Often, they will have a kind of hardware wallet (covered later in this article) as cold storage and a couple of different hot storage solutions.
One of the oldest kinds of crypto wallets is called paper wallets. They’re a form of cold storage that uses a paper wallet generator app to create QR codes, which act as keys, on physical pieces of paper.
In the past, paper wallets were a very popular form of crypto wallet because they were completely safe from hacking. The only way to have your keys stolen is for someone to physically steal the wallet from you!
At this point, paper wallets are somewhat outdated and obsolete. Most people believe that the risks of damaging or losing a fragile paper wallet are too great to be worth it. If you lose the wallet, then you lose access to all of your keys, and thereby, all of the crypto you’ve purchased.
Printed paper is also vulnerable to being physically degraded, like being ripped, fading, or having ink transfer. You have to think hard about how you want to store your paper wallet, if it’s even worth it to have one at all.
Hardware wallets are another type of cold wallet, and they’re the most widely used today. These wallets take the form of physical electronic devices, often resembling a USB stick, that you can store your keys on. Your keys will be stored without a regular connection to your computer, much less the internet.
Like other cold storage, hardware wallets have great security compared to a wallet connected to the internet. The cost of buying the wallet (usually between $80 and $120) is definitely worth it for people who own large amounts of crypto and need to keep it secure.
Depending on the company, hardware wallets are generally secured by a PIN. Some companies ensure that the wallet will automatically erase itself after a certain number of failed PIN attempts. So while older forms of cold storage were still susceptible to theft, hardware wallets are safe even to that.
Many of the best crypto wallets for sale today are made by companies specializing in hardware wallets, like Arculus or Ledger.
Software Wallets (Desktop, Mobile)
Hot wallets are where crypto purchases begin. Out of all the hot wallets available, software wallets dominate the market. This kind of wallet requires installing an app on your smartphone (in the case of mobile wallets) or a software application on your computer (in the case of desktop wallets).
A number of major crypto exchanges make their own software wallets. Some of the most popular ones include Coinbase, Gemini, and Kraken. And of course, every crypto exchange that has a mobile app technically has its own software wallet.
They’re more secure than purely web wallets, which we’ll cover down below. At the same time, software wallets will let you access your cryptocurrency keys instantly from anywhere. Software wallets are still managed by the user and the user has complete control over their private keys.
The primary drawback of a software wallet is the same for all hot wallets– they’re less secure than their cold wallet counterparts. It’s unlikely that you’ll lose crypto from your software wallet, but it’s not impossible. We suggest always having a form of cold storage if you purchase large amounts of crypto.
The final form of crypto wallet, web wallets, are a kind of fully-online hot wallets. You can do everything on them, from sending cryptocurrency to storing it, entirely on your web browser.
In most cases, these web wallets are hosted by a crypto exchange or other crypto company. The provider often manages all of your private keys themselves and is thereby referred to as a custodian.
Although having a custodian is the most common setup for web wallets, some let you keep control over your keys. Coinbase, for example, won’t act as a custodian and instead will let you manage your private keys on your own.
Web wallets are by far the least secure. They’re connected to the Internet at all times, so the companies behind this kind of wallet invest time, money, and expertise into making sure they have top-notch cybersecurity.
It’s not recommended to keep large amounts of crypto in a web wallet. At the very least, you should use a software wallet, but it’s best to keep crypto stockpiles in a hardware wallet.
How To Pick The Best Crypto Wallet: Step by Step
There are four things you need to consider when picking which crypto wallets you’re going to use:
- Coin Options
Let’s look at the implications behind each one.
The main convenience factor is whether or not the wallet is hot or cold (in other words, if it’s connected to the internet). Constant Internet connections make all of your crypto transactions very quick and easy. Additionally, there will be no physical object for you to worry about or keep track of.
You’ll also want to consider how convenient different cold storages are since it’s often unsafe to only have hot wallets. For example, a hardware wallet tends to be very easy to store without any real issues like degradation. They’re very convenient compared to, say, a paper wallet.
Security should be your main concern with cryptocurrency. The last thing you want is to get hacked, especially if you have lots invested in the blockchain.
The most secure form of crypto wallet is a cold wallet. Out of these cold storage solutions, hardware wallets will be the absolute safest. Paper wallets lose out on safety because they can be lost or damaged.
Using software wallets as opposed to web wallets in combination with hardware wallets for larger funds is a good way to balance security pitfalls.
Not every wallet can store every kind of coin. Paper wallets only store one coin, but they can store just about any cryptocurrency you want so long as you’re willing to have multiple paper wallets.
Most hot wallets, whether they’re software or web, are hosted by cryptocurrency exchanges. These companies will list the kinds of crypto you can buy, sell, trade, and store on their website or within their app.
Hardware wallets also have limitations on which currencies they can store. Some of them are compatible with over a 1,000 different kinds of coins, but others can only store the most common and widespread cryptocurrencies.
Before you decide on a crypto wallet, check to make sure that it will be able to store the coins that you’re planning on investing in.
Fees and Costs
Unfortunately, the costs of owning cryptocurrency go beyond the price of the coin. All forms of cold storage are going to cost more upfront than types of hot storage, whether you use hardware wallets or paper wallets.
This is because cold wallets are physical items, so you have to be able to cover that cost. But even amongst hot wallets, most crypto exchanges will charge fees in order to first purchase your cryptocurrency.
Some exchanges, like Kraken, will give you more coin and trading options if you buy their Pro subscription. All of these little costs can add up.
What To Know Before Using a Crypto Wallet
There are a couple more details you should know before you use a crypto wallet. Firstly, let’s go over what a crypto wallet actually does and does not do!
You can’t store cryptocurrency directly in a wallet. Only private keys, also known as the ‘passwords’ you use to access your crypto, are inside a wallet. These keys record transactions and how much crypto you have without any actual cryptocurrencies ever being inside the wallet.
You also need to know the danger involved with all crypto wallets. Cryptocurrencies, NFTs, and ICOs are all inherently a risk that you’re taking the moment you purchase them. They’re a risky investment not only because of their relative instability compared to stocks but because of hackers or otherwise losing your keys.
For these reasons, security is incredibly important when it comes to wallets. Most people have multiple wallets because it’s easier to keep things secure, but you should also consider every kind of crypto wallet to be a risk. It’s just a fact of financial blockchain technologies.
Now that you know all about the different types of crypto wallets, we hope you can make the best choices regarding your cryptocurrency investments.
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