Types of Crypto Wallets Explained: Which Is Best for You?

Types of Crypto Wallets Explained: Which Is Best for You?

There are five types of crypto wallets: hardware wallets, web wallets, mobile wallets, desktop wallets, and paper wallets. Some are safer than others.

Types of Crypto Wallets Explained: Which Is Best for You?
Liz Aldrich

Published Dec 1, 2021Updated Jan 18, 2022

Crypto

Crypto

Technology

Technology

Active Investing

Active Investing

Is it better to use a hot wallet or a cold wallet for your crypto? No, we're not talking about storing your Bitcoin in the freezer.

Different types of crypto wallets offer different benefits. Some are highly secure but make it difficult to access your crypto on the fly, while others are almost as easy as using a debit card—and just as easy to hack. There's no perfect crypto wallet for every situation, but understanding the different types of crypto wallets can help you choose the best one for your needs. Here's what you need to know.

How crypto wallets work

In simple terms, crypto wallets are devices that "store" your cryptocurrency the way a physical wallet stores your cash. In reality, crypto is stored on blockchain and crypto wallets store the keys that give you access to manage your crypto, whether you're checking your balance, receiving crypto from someone else, or spending it. In that way, a crypto wallet is more like a bank account. 

While you can keep your crypto on a crypto exchange, such as Coinbase or Gemini, they hold the keys to your cryptocurrency—and, in a way, your crypto. They give you access to your crypto, but you don't get control over how it's secured. The only way to own the keys to your crypto is to open a crypto wallet.

Hot vs cold crypto wallets

There are a number of different types of crypto wallets, but before we dive into those, it's important to understand the difference between hot and cold crypto wallets. A crypto wallet that uses hot storage is connected to the internet, making it more convenient to access but less secure. On the other hand, a crypto wallet that uses cold storage isn't connected to the internet, which keeps your crypto far more secure but also means accessing your crypto on the fly can be a bit of a pain. 

While cold crypto wallets are more secure, the most trustworthy hot crypto wallets are still pretty safe. If you invest in crypto and have quite a bit saved up that you plan to hold long term, it can make sense to store the majority of it in a cold wallet but keep a small amount you might want to access in a hot wallet.

Types of crypto wallets

There are five different types of crypto wallets: hardware wallets, web wallets, mobile wallets, desktop wallets, and paper wallets. Web-based wallets, mobile wallets, and desktop wallets are all different types of software wallets. Here's what you need to know about the way different types of crypto wallets work and the pros and cons of each one.

Hardware wallets

  • Cold storage
  • $40 to $180
  • Most secure, least convenient

 

A hardware crypto wallet is a portable, physical device such as a USB drive, a hard drive or a hard disc that stores your private keys. Hardware wallets are often considered the most secure type of crypto wallet because they aren't connected to the internet, making it very difficult for someone to hack the device and steal your private keys. Some hardware wallets do need to be connected to a computer or bluetooth in order for you to manage your crypto, which does make them slightly less secure (although more convenient) than those that don't need to be connected to a computer at all. Hardware wallets come with a recovery seed, which is a 12 to 24 word phrase, that you can use to recover your crypto if you lose the physical device.

Some of the most popular hardware wallets include Ledger, Trezor, and Coldcard. The lower end models typically sell for around $40 to $59 while the high-end models can go for $119 or more. The more expensive hardware wallets come with additional features such as a touchscreen and bluetooth capabilities, and they usually support a wider range of cryptocurrencies.

Web wallets

  • Hot storage
  • Small flat fee or a percentage of transactions completed
  • Least secure, most convenient

 

Also known as crypto exchange wallets or online wallets, web wallets are accessed through your browser and often hosted by a crypto exchange such as Coinbase. Accessing a web wallet is similar to logging on to your online bank account. These wallets are extremely user-friendly and make for fast transactions, but they're also considered the least secure method for storing your crypto as they're easier to hack. 

Coinbase Wallet is one of the most popular crypto wallets as it's easy to use and allows you to trade over 500 different tokens. Guarda also offers a web wallet that supports over 400,000 different tokens. With both of these web wallets, you can log in and buy or sell crypto in minutes. Most web wallets either charge a small flat fee of $0.99 to a few dollars, or they charge a percentage on your transactions.

coinbase
Coinbase

4.4

Crypto

Mobile wallets

  • Hot storage
  • Small flat fee or a percentage of transactions completed
  • Less secure, more convenient

 

Similar in convenience to a web wallet, mobile wallets are accessed through an app on your mobile phone. They typically use QR codes to complete transactions, which makes it extremely easy to make purchases with Bitcoin while you're out and about. That said, these wallets are connected to the internet and vulnerable to cyber attacks. What's more, some mobile wallets are hosted by crypto exchanges and are therefore still custodial wallets, which means you don't actually own your private keys.

Coinbase and Binance offer a mobile app that's a custodial mobile wallet. If you're looking for a non-custodial mobile wallet, Exodus and Atomic are popular options that balance ease of use with security. For an extra layer of security, MetaMask offers a mobile wallet that can be paired up with a hardware wallet.

Desktop wallets

  • Hot or cold storage
  • Free
  • More secure, less convenient

 

Desktop wallets are crypto wallets that are installed on your desktop computer like any other software program. Some of these wallets connect to the internet, but most can be accessed without an internet connection, making them more secure than web wallets and mobile wallets. These crypto wallets tend to come with several layers of security, so they can be more difficult to use for crypto beginners. That said, they're second in security to hardware wallets and a popular favorite due to the fact that you don't have to drop cash upfront to purchase a physical device.

Exodus, Atomic, and Electrum are some of the most popular desktop wallets. These wallets can be downloaded to your desktop for free, although completing transactions can incur fees.

Paper wallets

  • Cold storage
  • Free
  • Moderately secure, less convenient

 

Paper wallets are a piece of paper containing your keys or a QR code that gives you access to your crypto. These paper wallets are completely offline, so they're secure in the sense that they can't be hacked. However, if you don't live alone or have a safe place to store your paper wallet, it would be very easy for someone to steal the piece of paper with your keys and access your crypto. Also, most paper wallets are meant to be single-use and don't allow partial transactions, making them inconvenient if you plan on spending any of your crypto. Now that hardware wallets are available, paper wallets have largely become a thing of the past.

You can generate a paper wallet yourself by using a secure program to generate your keys, printing them out, and then deleting the program afterward.

Choosing the best type of crypto wallet for your needs

Hardware wallets tend to be the preferred choice for most serious crypto investors, although some still prefer paper wallets. Paper wallets are more prone to user error, but if used properly, they can be just as secure as a hardware wallet.

While hot wallets are often advised against by crypto enthusiasts, many people still prefer them for storing smaller amounts of crypto they plan to use for purchases or trading on a regular basis. Desktop wallets offer a good happy-medium between security and convenience. Web wallets and mobile wallets are the least secure of the bunch, but they're extremely easy to use and make for fast on-the-go transactions.

In the end, the best crypto wallets depend on your needs and how you plan to use your crypto. Make sure you do your research before choosing a crypto wallet, and opt for more security over less when possible.

True or False:

It's estimated that about 20% of already mined Bitcoins have been lost due to people losing their keys, wallets, and recovery methods. This means that the number of Bitcoins currently in circulation is 20% lower than the number of Bitcoins that have been mined.

True or False:

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