Once you’ve talked to a few “barstool” cryptocurrency experts, you’re likely to have heard about cryptocurrency wallets.

But chances are, you’re not 100% sure what that is, how they work, or what types of cryptocurrency wallets are available.

Our beginners guide to cryptocurrency wallets will answer these questions and more to get you up-to-speed quickly.


What is a cryptocurrency wallet?

A cryptocurrency wallet is a way to store your cryptocurrency (and “private keys”). Just like a real wallet stores your cash, a cryptocurrency wallet stores your coins.


What is a wallet address?

Every cryptocurrency wallet has an identifier called an address that acts like a bank routing and account number.

Since no two wallets for a given coin will ever have the same address (which looks like a random string of numbers and letters) the address allows you to uniquely identify the recipient when you are trying to transfer crypto from one wallet to another.


How does a cryptocurrency wallet work?

Wallets hold your cryptocurrency and secure it using two “keys,” a public key and a private key. The combination of the recipient’s public key and your private key is what makes a cryptocurrency transaction possible.

If anyone else obtains the private key of your wallet, they can withdraw your funds, which is why it’s absolutely essential to keep your private keys secure.


What types of cryptocurrency wallets are there?

There are FIVE basic types of cryptocurrency wallets falling into two broad categories:

Hot Wallets: The first category, hot wallets, are entirely software-based and include (1) online wallets, (2) desktop wallets, and (3) mobile wallets.

Cold Wallets: Unlike hot wallets, so-called cold wallets are based in atoms, not just bits, and include (4) paper wallets and (5) hardware wallets.


What’s the difference between the types of crypto wallets?

Glad you asked because we’ve got a handy comparison chart right here:

OnlineDesktopMobilePaperHardware
SecurityLowModerateLowHighHigh
CostLowLowLowLowHigh
Easy of UseEasierEasierEasierEasierHarder
Coin SupportHighHighHighModerateLow
RetrievableNoNoNoNoYes
Own Your KeysNoNoSometimesYesYes

As you can see, it can be difficult the balance the different pros and cons when choosing the “best” crypto wallet for your needs. Fortunately, there’s nothing wrong with using a combination.

With that, let’s take a close look at the five types of cryptocurrency wallets.

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What is an online cryptocurrency wallet?

Coinbase Your Accounts - Web

The “Accounts” interface on the Coinbase website as of January 4, 2017. // Image via coinbase.com

Also called a cloud or “exchange” wallet, here your coins are stored on a remote server.

However there is one big problem… with an online wallet, your private key is also on the server, which could be a security risk.

Pros
  • Quick to access funds
  • Supports many devices
  • User-friendly UIs


Cons
  • Private keys stored online
  • Exposure to hackers, ransomware, etc


Examples


What is a desktop cryptocurrency wallet?

MultiBit Desktop Bitcoin Wallet

An example of the now defunct MultiBit desktop Bitcoin wallet. // Image via multibit.org

Desktop wallets are downloaded and installed on a single computer and they are only accessible from that one particular machine.

It is a safer alternative than an online wallet, but can still prove to be inconvenient because you will not get access to your money unless you are on the device from which you downloaded the wallet.

Also note that most coins offer their own software wallet that you can find on their website.

Pros
  • Quick to access funds
  • Supports many devices
  • User-friendly UIs


Cons
  • Private keys stored online
  • Exposure to hackers, ransomware, etc


Examples


What is a mobile cryptocurrency wallet?

Bread Mobile Wallet

Illustration representing a software Bitcoin wallet. // Image via breadapp.com

Mobile wallets are very convenient… just download an app to your phone. And, having access to your investments while on the go can make it much easier to integrate crypto with your everyday life.

However, be warned: mobile wallets are the least secure form of wallets as mobile devices are commonly lost or stolen or otherwise busted. And since the private key is stored on the device, if the that happens you won’t be able to access your coins. No Bueno!

Some mobile wallets also provide the functionality of exporting your private keys which makes them even riskier.

Pros
  • Quick to access funds
  • Supports many devices
  • User-friendly UIs


Cons
  • Private keys stored online
  • Exposure to hackers, ransomware, etc


Examples


What is a paper cryptocurrency wallet?

Example of a paper bitcoin wallet

Example of a paper bitcoin wallet // Image via O’Reilly Labs

A paper wallet is a document that contains copies of the public and private keys that make up a wallet. Often it will have QR codes so that you can quickly scan them and add the keys to a software wallet to make a transaction.

The benefit of a paper wallet is that the keys are not stored digitally anywhere, and are therefore not subject to cyber-attacks or hardware failures.

The disadvantage of a paper wallet is that paper and ink can degrade, and paper is relatively fragile – it’s definitely worth keeping well away from fire and water for obvious reasons. Furthermore, if you lose a paper wallet, you’ll never be able to access the coins sent to its address.

Pros
  • A great place to hold large amounts of coin for a long period of time
  • Provides a safety net against hackers and people with malicious intent since it is completely offline


Cons
  • Susceptible to external damage, theft and general human carelessness
  • Potential to lose/damage restoration details


Examples


What is a cryptocurrency hardware wallet?

Trezor wallet in Hand

Person holding a TREZOR cryptocurrency hardware wallet. // Image via Trezor.io

A hardware wallet is another form of “cold” storage, except instead of paper, your coins and keys are stored on a small hardware device that looks and acts much like a USB drive.

On a hardware wallet, the private keys are generated on the device and never leave it, giving you a major privacy advantage. Plus, if the device is lost or stolen a new device can be rebooted on command and you won’t lose any of your crypto.

On the flip-side, hardware wallets cost money, are a little harder to use than software wallets, and add a step or two if you want to trade your crypto.

Pros
  • A great place to hold large amounts of coin for a long period of time
  • Provides a safety net against hackers and people with malicious intent since it is completely offline


Cons
  • Susceptible to external damage, theft and general human carelessness
  • Potential to lose/damage restoration details


Examples


Closing Thoughts

That’s if for our beginners guide to cryptocurrency wallets. By now you should be pretty well-versed in the difference between software and hardware cryptocurrency wallets, along with the pros and cons of each.

If you’re ready to invest in a hardware wallet, here’s a guide to the best cryptocurrency hardware wallets available, narrowed down to just the top contenders to help make your decision easy.