Cryptocurrency is stored on the blockchain to which it is native. Wallets do not store cryptocurrency. Instead, wallets store private keys. Whenever you want to access your cryptocurrency, you need your private key.
Public key is a publicly known address from which your cryptocurrency is sent and received. Private key is used to access the funds associated with a public address and should be known only to the account owner.
You can store your private keys—and, by extension, your cryptocurrency—by using either a custodial or non-custodial storage method. There are pros and cons to each method.
A wallet is a device, platform or service that lets you access and interface with your private keys. Hot wallets exist online or on an internet-connected device. Cold wallets are physical devices which are not connected to the internet. Relatively speaking, hot wallets are more convenient whereas cold wallets are more secure.
There are several types of wallets.
- Exchange wallets are generated upon signing up to an exchange and are almost always custodial.
- Web wallets are accessible via a web browser or mobile app.
- Desktop wallets are downloadable programs you can install on your computer in the same way you would a web app.
- Mobile wallets are arguably the most user-friendly wallet type and are accessible via a downloadable or in-built app.
- Hardware wallets are physical devices and are considered the most secure wallet type.
Choosing a wallet comes down to many factors, including:
- Your reason for own cryptocurrency
- How much you value usability
- Reputation of the wallet creator
- Price of wallet
- Types of supported cryptocurrencies
The most widely used hardware wallets are Ledger and Trezor. Tips for buying a hardware wallet include:
- Only ever buy from the manufacturer’s official website or an authorised reseller approved by the manufacturer.
- Scammers may sell hardware wallets for cheaper and not disclose that the wallets are pre-seeded.
Security tips for private-key storage include using a password manager and never keeping a digital copy or taking a photo of your seed phrase.