A crypto wallet maintains the secret keys that manage your digital assets on the blockchain. Most frequently, these wallets are software, like browser extensions or mobile apps. However, hardware wallets offer a more secure solution as well, although at a cost. In this article, we’ll discuss the most important factors to consider and how to choose a crypto wallet that matches your needs.
Crypto exchanges provide custodial wallets to hold your cryptocurrency after you purchase or sell crypto or complete a trade. The exchange holds the wallet’s private keys. Exchanges have a troubled history, tainted by hacks, breaches, and locked accounts that limit access, despite their convenience. One phrase in crypto has proven right over time: “Not your keys, not your coins.”
The Types of Wallets to Choose Between
The method you anticipate to utilize your crypto and the amount of crypto you possess often determine the decision over which type of wallet to use. Although hot wallets store the private keys on a device with an internet connection, they facilitate communication with decentralized apps (dApps). The private keys are kept offline in cold wallets.
Another factor is the kind of gadget you plan to utilize with your wallet. For example, certain mobile wallets support iOS but not Android. Others, such hardware wallets, might support Windows and macOS but not Linux. certain crypto wallets are only available as a browser extension, which makes them compatible with any desktop operating system but raises certain security risks.
Additionally, you should think about both private and public key control. Exchange wallets are custodial, meaning the crypto exchange retains the keys. Non-custodial wallets offer the user control of the keys. By some estimations, as much as $1.38 billion in crypto was stolen in the first half of 2024, with compromised seed phrases and private keys being the most prominent attack vectors. This number is likely underreported due to crypto’s unregulated nature.
Starting with hot vs. cold wallets, let’s take a closer look at some of the top cryptocurrency wallet options available today.
Hot Wallets vs Cold Wallets
First, let’s discuss hot wallets versus cold wallets. The distinction between the two centers on whether the private keys are generated and stored on a device that’s connected to the internet. Anyone who gains access to the private keys can control your crypto assets on the blockchain. Connected devices can create a risk.
Hot Wallets: A hot wallet is an app or browser extension that generates and stores the wallet’s private keys on a device that connects to the internet. Hacks and bugs that could reveal your private keys are the obvious concerns. However, these apps are much easier to use and offer some functionality that may not be available with cold wallets, such as no-fuss connections to decentralized applications.
Cold Wallets: The private keys of a cold wallet are created and kept offline. In most cases, a cold wallet refers to a hardware device that connects to a computer or mobile device when you need to access your crypto or authorize a transaction. Transactions cannot be authorized if the device is not connected. Hardware wallets function similarly to two-factor authentication in this regard, blocking transactions on a device under your physical control that you have not authorized.
Many hot wallets support select hardware wallets, such as Ledger devices. With this wallet combination, you can link physical devices to dApps while keeping the private keys that control your cryptocurrency safe on a different device.
Desktop Versus Mobile
Navigating the crypto realm is easier on a desktop device than on a mobile one. However, you’ll find many of the major crypto wallets support both platforms, allowing you to do your crypto thing at home or on the move. For example, MetaMask, Trust Wallet, and Coinbase Wallet all provide mobile apps as well as browser extensions.
Desktop wallets are standalone apps or (more often) browser extensions. Generally, hardware wallets offer better support for desktops as well.
Many mobile apps that offer access to a variety of dApps integrated into the interface are mobile wallets for iOS and Android. However, there are situations when it can be difficult to connect to apps that are running in a different browser app.
Simple functions like sending, receiving, and exchanging one cryptocurrency for another are supported by the majority of desktop and mobile wallets. However, more complicated activities, such navigating DeFi apps, are frequently simpler with a desktop wallet.
Custodial vs Non-Custodial
Custodial versus non-custodial refers to whether a third party controls the private keys or you control them. For example, if you have a trading account with a crypto exchange like Coinbase, the exchange stores the keys to a custodial wallet on your behalf.
Custodial Wallets
On the other hand, you can only manage the private keys of non-custodial crypto wallets, such as MetaMask. This is often accomplished by employing a 12- or 24-word seed phrase that uses cryptography to create the wallet’s private keys.
But it also means you have to protect the seed phrase (and private keys) in your wallet. You won’t be able to access your cryptocurrency if you ever lose the seed phrase. Additionally, if someone else acquires your seed phrase or private key, they can access your crypto.
