Cryptocurrency wallets safeguard digital assets like Bitcoin, Ether, or NFTs. Wallets do not technically hold cryptocurrencies, but rather the keys that let someone access their tokens. Every wallet has an address, and anyone can view its activity on a blockchain explorer.
There is an important distinction between self-hosted wallets and custodial ones offered by companies like Coinbase and PayPal. The latter are not stored on blockchains, but instead on trading platforms, whose centralized servers log who owns what. This means that someone else, usually an exchange or a brokerage, controls the crypto.
Self-hosted wallets include MetaMask, Exodus, and Coinbase Wallet (a different product than Coinbase’s core “wallet” offering). They require users to keep track of a secret private key—a long string of random characters—or else use a 12- or 24-string of random words known as a “seed phrase” or “recovery phrase” in order to access their crypto.
The benefit of a self-hosted wallet is that users are entirely in control of their crypto, meaning funds won’t be lost if a company goes out of business or sanctioned by a government agency. The drawback is the user must be vigilant about protecting their private key and seed phrase. Any third party that obtains this information can steal funds from the wallet, and if a user loses the phrase, the money is effectively gone forever.
Self-hosted wallets are also useful for connecting directly to applications on the blockchain, such as the DeFi protocol Aave or the NFT marketplace OpenSea.
Another type of wallet stores cryptocurrency in small computers that look like USB sticks. This is called a hardware wallet, or a cold wallet. Cold wallets are considered safer because, unlike hot wallets, their owners only connect to the internet to process transactions. Popular brands include Ledger and Trezor. Of course, cold wallets are exposed to other risks, like physical theft.
Go deeper:
Etherscan—an Ethereum blockchain explorer that details the activities of all Ethereum wallets
See also:
Cryptocurrencies
Staying safe in crypto—avoiding scams
Try it:
MetaMask—a popular crypto wallet
Ledger—a popular hardware wallet