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Cryptocurrency Wallets—how to store your Crypto

Henning Taeger
Henning Taeger
Henning is a writer and editor here at Dollargeek who is passionate about personal finance and cryptocurrency. He enjoys sharing his knowledge about financial management and cryptocurrency with readers, helping them make informed decisions about their money. In his spare time, Henning can be found playing the latest video games or jamming on his guitar. He is constantly on the lookout for new ways to improve his financial literacy and stay up-to-date on the latest trends in the world of cryptocurrency.

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Crypto Wallet
Table of Contents

Introduction

The world of cryptocurrency has undeniably become one of the hottest buzzwords in the investment and finance industries over the past few years, as it has arguably now entered into mainstream investor culture. 

Whether you’re a newcomer to this burgeoning industry or an experienced investor looking for a more in-depth understanding, you will undoubtedly come across terms such as “wallets” and “keys.”

Below is a brief overview of what crypto wallets are and how they work.

What is a Crypto Wallet?

A cryptocurrency wallet is a digital wallet that supports the storage of cryptocurrencies, such as Bitcoin, Ethereum, and so on. 

Just like you store your physical cash in a physical wallet, you can store your crypto assets in a digital one.

This wallet allows users to safely store their funds and instantly transact with anyone in the world without having to provide any personal data to third-parties.

While the concept of a crypto wallet is similar to that of a physical one, there are some key differences that make it more secure, such as the fact that cryptocurrency wallets don’t actually store any coins. 

Instead, they retrieve information from an address stored on the public ledger to receive funds, display balances, and anything else they may need to transact on the blockchain. More importantly, these wallets are also secured by strong cryptography, which ensures that transactions can only be authorized by the owner of the wallet and nobody else.

There are many different types of crypto wallets and various factors that need to be considered when choosing the best cryptocurrency wallet for you. Some of the most popular wallets include MetaMask, Trust Wallet, BitGo, Trezor and Ledger Nano S.

What are private and public keys?

A private key is a string of randomly generated characters that provides sole access to your funds on a cryptocurrency wallet. It is essentially a more secure password to gain access to your cryptocurrency wallet account. 

If someone happens to get ahold of your private key, they will have access to all of your funds. For this reason, it is incredibly important that you store your private keys in a safe place and never share them with anyone else.

The public key is a public address string that you can use to receive funds on the blockchain. In essence, it works as an alias and allows people to send you cryptocurrencies without having any personal information about you. 

Why would I use crypto wallets?

One of the biggest advantages of using crypto wallets is their decentralized nature, which allows you to transact with anyone in the world without having to provide any personal information. 

Private keys and public addresses are critical in the way this functions, as they provide complete anonymity and privacy, which is required to ensure complete freedom from third-parties such as banks and governments.

Also, storing your funds in a wallet that you control gives you full, sole access to your funds at all times, which is essential when attempting to access your funds from locations defunct of your traditional bank.

You can conduct local and international transactions 24 hours a day, seven days a week, without interruption, downtime, or transaction limits.

Crypto wallets offer full support for multiple cryptocurrencies, allowing you to receive and exchange between the different types of tokens. 

Furthermore, it is advisable to store larger amounts of money in crypto wallets rather than on an exchange to avoid losing money due to hacks and other unfortunate mishaps. 

If your funds are stored on an exchange and that exchange ends up falling victim to theft or fraud, there’s nothing you can do.

With a wallet that you have full control over, however, you would be able to access your funds from any device at any time (as long as you have your private keys).

What kind of cryptocurrency wallet should I use?

Now that you understand what a crypto wallet is and how important it is to every crypto holder, it’s time to figure out which type of wallet you should consider when looking to store your crypto assets. There are two major kinds of cryptocurrency wallets: cold wallets and hot wallets.

Cold wallets

Cold wallets are considered the most secure type of cryptocurrency wallet. They are typically hardware or paper wallets that don’t need to be connected to the internet to store and access funds, making them immune to cyberattacks. 

Many experts highly recommend using cold wallets due to their heightened security level and ability to shield users from potential threats.

A cold wallet can be any portable device, even a USB device, can be a portable wallet as long as it contains your private key. However, there are different kinds of examples of a cold wallet and among the many include:

Paper wallet

A paper wallet allows you to store your tamper-resistant Bitcoin wallet on paper. It is a popular cold wallet choice for people, as private keys and public keys are printed on paper for easy access. 

Usually, it is printed in the form of a QR code that can be scanned; since they are relatively safe, it is perfect for storing numerous cryptocurrencies. A paper wallet works with a software wallet to help transfer your funds from your software wallet to the public address.

Physical Bitcoin

Although Bitcoin is a non-tangible financial utility that can neither be seen nor touched, there exists a physical Bitcoin that serves as a kind of hard wallet. 

The physical Bitcoin looks like a physical metal coin that has been shaped to look like a Bitcoin sign and has a private key carefully hidden under its tamper-free sticker or tag. This physical Bitcoin can be purchased easily and can also support other currencies like Litecoin and Bitcoin Cash.

Hardware wallet

A hardware wallet is a noncustodial wallet that can be any kind of offline hardware. It can be a USB device, a Bluetooth device, or that abandoned second computer in your home. Although it still requires the internet at most times, it is still considered an offline wallet as transactions need to be signed offline before they are carried out online.

Hot wallets

Hot wallets are the opposite of cold wallets, and the term “hot” refers to their connection to the internet, which is the opposite of a cold wallet that is held in an offline environment. A hot wallet can either be an application or a website that is hosted by the cryptocurrency exchange or company and owned by you. 

Since they are often connected to the internet, they are less secure than cold wallets and your tokens are more vulnerable to theft or hacking. Hot wallets can be classified into desktop, online, and mobile wallets.

Desktop Wallets

Desktop wallets are cold wallets that store your private tokens on a desktop device. It is also a hot wallet as it can be plugged in and removed from the internet, so it is perfect for crypto holders who prefer easier accessibility to their funds. 

A desktop wallet can only be downloaded and accessed on a desktop computer. It can be connected to various sites that offer access to the blockchain.

Mobile Wallets

Similar to online wallets, mobile wallets are another kind of online wallet that is built specifically for mobile devices. It is easily accessible and has a user-friendly interface that allows crypto holders to interact with it properly.

Online Wallets

Online wallets are another kind of wallet that runs fully on the internet and allows users to access them at anytime.

It can be accessed with a mobile desktop or a mobile browser, and your private key is securely safeguarded and managed by a third party. Hence, they are custodian wallets.

Conclusion

A crypto wallet is an important financial tool that stores your cryptocurrency keys and allows you access to your tokens. They come in different forms and can either be hot or cold. 

For crypto holders with large sums of tokens, a cold wallet is advised as it offers optimal security and keeps your financial resources safe from theft and other unfortunate events.

Hot tokens are also safe, but do not provide the same kind of security as a cold wallet.

Owning a cold wallet is relatively expensive, as the price can range from $50 to $200, while a hot wallet is usually free.

It is always important to keep your private keys safe, as overexposure can compromise the funds stored in your crypto wallet.

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