What is a Cryptocurrency Wallet (And How Does It Work)?

If you are getting into cryptocurrency trading, you will need a cryptocurrency wallet to keep your digital assets safe.

Cryptocurrencies like Bitcoin and Ethereum have seen significant increases in value over the years and holders of these digital currencies need a place to store them securely.

This is where the best crypto wallets come to play.

They help make storing, buying, selling, and sending your cryptocurrency an easy task.

Read on to learn about how cryptocurrency wallets work and the different types.

What is a Cryptocurrency Wallet?

A cryptocurrency wallet (aka crypto wallet or Bitcoin wallet) is a device, app software, or tool that helps secures your cryptocurrencies.

Similar to holding fiat money in a leather wallet so you can easily access it when paying for a purchase, a crypto wallet enables easy access to your crypto holdings so you can make everyday transactions.

It goes even further by making it easy to exchange your coins, transfer them, and to check your balance at any point in time.

Unlike a regular cash wallet or bank safe, a crypto wallet does not physically hold your crypto. Instead, they remain on the blockchain while the wallet creates and keeps your ‘private’ and ‘public’ keys.

A public key is like your bank account number, and you can share it with anyone who is sending you cryptocurrency.

Your private key is like your bank account password and is the gateway to accessing your funds. If someone gains access to your private keys, they can steal your crypto.

By using a crypto wallet, you retain control of your private keys and your funds, as opposed to leaving it on an exchange’s hot wallet where the private keys are outside of your control.

Types of Cryptocurrency Wallets

There are two broad types of cryptocurrency wallets: hot wallets and cold wallets.

Hot Crypto Wallets

A hot cryptocurrency wallet refers to a crypto wallet that is connected to the internet at all times.

Hot wallets come in various forms and include wallets offered by a cryptocurrency exchange to its users, mobile wallets, desktop wallets, and web wallets.

They are also known as software wallets.

Pros and Cons of Hot Wallets

Hot wallets are easily accessible and support fast access to your crypto as you can quickly log-in and start trading.

For example, an online wallet provided by an exchange like Coinbase or Binance is always connected and ready to go.

These wallets are also free. Depending on the type, you may be able to install an app on your phone or desktop to start using it.

Hot wallets can often hold a variety of crypto, including those that are not very popular. If you can buy the crypto on an exchange, you can simply keep it there.

A main downside of an online wallet is that you are exposed to hacking attempts. Many crypto exchanges have been hacked over the years. To avoid losses due to hacking and theft, a majority of exchanges now keep most of their crypto in cold storage.

Also, you may not have access to your private keys.

A popular saying in the crypto world is that “not your keys, not your coins”. When you don’t control your private keys, you are dependent on a third-party or intermediary to protect them for you.

A hardware wallet (cold wallet) solves this problem by giving you full control of your private keys.

Cold Crypto Wallets

A cold wallet is a device that stores your public and private keys and facilitates cryptocurrency transactions without access to the internet.

Also known as “hardware” wallets, cold wallets are non-custodial and give you full control over your assets.

When you buy a hardware wallet, you get a physical device that you need to keep securely. If you lose the device and don’t have your seed phrase, you may lose access to all your funds.

Pros and Cons of Cold Wallets

Since they don’t need access to the internet to work, cold wallets are generally more secure than hot wallets.

They often come in small sizes (similar to a USB stick) and can be carried comfortably around if you need to.

Cold wallets are encrypted and require a password before you can access them.

This means that if you lose your hardware wallet, it would be difficult for a thief or finder to steal your coins.

Also, a cold wallet gives you a passphrase or recovery seed you can use to recover your private keys if the wallet gets lost. Your crypto never leaves the blockchain.

With a cold wallet, you retain full control of your private keys which can be both a good and bad thing.

Cold wallets are pricy. Expect to pay anywhere from $60 to $180 for a decent hardware wallet such as Ledger or Trezor.

If you are careless and tend to lose things, having a cold wallet may be less secure than simply having a cryptocurrency exchange manage your digital assets on your behalf.

It takes a bit of work to access your crypto on a hardware wallet. You need to follow a few steps and during the initial setup, some technical know-how may be required.

Cold wallets may be limited in the assets they support. It takes a while before they support newer altcoins or those recently made available following an initial coin offering.

How About Paper Wallets?

A paper wallet is a form of cold storage wallet that gives you control over your private keys.

Like a hardware wallet, paper wallets are not connected to the internet. They used to be popular but have fallen out of favor following the creation of electronic hardware wallets.

Paper wallets were made by printing off your keys on a piece of paper in the firm of QR codes. You can scan the codes when conducting a transaction.

This form of Bitcoin or crypto storage has some problems including:

  1. Your paper wallet can fade over time resulting in a piece of junk that is unreadable.
  2. You are stuck with using a single key for multiple transactions which is not ideal.
  3. Modern printers may store information online and potentially expose your private key to a hacker.
  4. Creating a private key manually involves work. If you use a key generator online, you expose yourself to potential theft.

Best Hardware Crypto Wallets

Below are some of the best hardware Bitcoin and cryptocurrency wallets you can use.

1. Ledger Nano X

Ledger Nano X is the new generation hardware wallet produced by Ledger, a company founded in 2014. Over 1.5 million Ledger wallets have been sold worldwide as of this writing.

The Ledger Nano X supports over 1,800 coins and tokens including popular ones like Bitcoin, Ethereum, and Ripple.

It uses a propriety operating system, BOLOS, and a secure element rated CC EAL5+ that protects your private keys.

This wallet is user friendly and supports Bluetooth connectivity to smartphones, plus it has an LED display that simplifies validations.

Ledger Nano X costs $119 USD or $159 CAD.


  • Offers maximum security via cold storage
  • Supports 1,800+ different coins and tokens
  • Can install up to 100 applications at the same time
  • Made with durable stainless steel and plastic
  • Supports Bluetooth connections
  • Supports staking e.g., with Tron and Polkadot


  • Fairly expensive at $119 USD
  • Has suffered security breaches in the past

2. Trezor Model T

The Trezor Model T is an advanced cryptocurrency hardware wallet designed by SatoshiLabs. It supports more than 1,200 coins and utilizes open-source security software.

Trezor doubles as a password manager and you can use it as an authenticator to manage your digital footprint.

After setting up your Trezor wallet, you get a 12-word recovery seed you can use to recover your wallet if your device becomes lost or stolen.

This device has a touchscreen display so you can easily confirm transactions.

Trezor model T is sold for 159 EUR.


  • Uses transparent security hardware technology
  • Has a colour touchscreen and hardware case is ultrasonically welded for enhanced security
  • Created by a reputable company
  • Supports over 1,200 coins
  • Easy backup and recovery options
  • Multi-use as password manager and 2UF authentication
  • Great customer service support


  • It is a bit expensive

3. Ledger Nano S

This hardware wallet is the flagship product by Ledger and one of the most popular crypto wallets.

It supports several cryptocurrencies and can hold up to 6 applications at any one time.

When combined with Ledger Live, you can extend the wallet’s functionality and also pair it with several other wallets.

Ledger Nano S retails for $59 USD


  • Relatively easy to setup
  • Cheap compared to alternatives
  • Connects with many other wallets
  • Supports 1,800 coins and tokens


  • Doesn’t support Bluetooth connections
  • App installations limited to 6 depending on the size

4. Trezor One

Trezor One was one of the first crypto wallets introduced to the Bitcoin world.

It supports 1,000+ coins and tokens including Bitcoin (BTC), Litecoin (LTC), Stellar (XLM), Ethereum (ETH), and several others.

While its newer version, the Trezor Model T has more functions, crypto HODL’ers on a budget can get the Trezor One and maintain their peace of mind.

It retails for 49 EUR or $79 USD.


  • It is more affordable
  • OLED screen enables easy verification
  • Also works as a password manager


  • Does not support microSD cards
  • Monochrome display does not have a premium look (unlike Trezor Model T)

5. KeepKey

KeepKey is a cryptocurrency wallet developed by Shape shift. It supports Bitcoin, Bitcoin Cash, Ethereum, Litecoin, Dogecoin, Dash and several ERC-20 tokens.

Since this wallet does not have an operating system, it is marketed as being “malware proof.”

Users get a 12-word recovery sentence when they set up the device and can use this to recover their private keys if needed.

KeepKey has a display so you can view transactions and verify them directly from the wallet.

It retails for $49 USD.


  • Competitively priced
  • Uses open-source software
  • User-friendly with a large display
  • Can recover private keys if the device is lost or stolen using 12-word recovery sentence


  • Supports only 50+ coins and tokens
  • Bulkier than close competitors

Best Software Crypto Wallets

The top software cryptocurrency wallets work on desktop, mobile devices, or are accessible via a cryptocurrency exchange.

1. Exodus

Exodus is a software crypto wallet for desktop and mobile devices.

It supports more than 130 cryptocurrencies, and you can easily pair it with a hardware wallet like Trezor.

You can trade directly from your wallet or send and receive coins using a QR code or address.


  • User-friendly and great for beginners
  • Non-custodial and gives you control over your assets
  • Free to download


  • Is connected to the internet and could potentially be hacked
  • Supports less cryptocurrencies
  • Software is not fully open-source

2. Mycelium

This open-source software wallet is available on Android and iOS devices. You can use it for a variety of coins including Bitcoin, Ethereum, Tether, USDC, Binance USD, and a few others.

Once installed on your device and setup, it encrypts your private keys to your mobile device.

You should always make a backup in the event you lose your device.

Mycelium is compatible with hardware wallets like Trezor, Ledger, and KeepKey.

It also gives you the power to control how much you spend on transaction fees i.e. what you pay for miner fees.


  • Transparent open-source software
  • Compatible with the popular hardware wallets
  • Can integrate with paper wallets for cold storage


  • Does not offer a desktop app
  • Support can be slow

3. Electrum

Electrum is a Bitcoin wallet released in 2011. To get it from a reliable source, you should visit electrum.org.

It is available on multiple devices including Windows, Linux, OSX, and Android.

When you set up the software wallet, you can create a secret phrase that comes in handy if you ever need to recover your funds.

Electrum is compatible with third-party hardware wallets like Trezor and Ledger.

Similar to Mycelium, you can control your transaction fees on this wallet.


  • Private keys are encrypted to your device
  • Open source software
  • Supports 2-factor authentication
  • Supports multisig


  • Supports only Bitcoin
  • Not very user-friendly

4. Coinbase

If you are looking to keep your coins on a cryptocurrency exchange wallet, the Coinbase Wallet is a great option.

This wallet is available on iPhone and Android phones and supports over 500 tokens and NFTs.

If you are a Coinbase user, you can connect your trading account to the wallet, however, a Coinbase account is not required to use the wallet.


  • Gives you control of your private keys
  • Available worldwide
  • Generates a 12-word recovery phrase you can use to recover your assets or move them elsewhere


  • Limited funding/deposit options
  • Connected to the internet with potential exposure to hacking
  • High fees

Other cryptocurrency exchanges that are also well known for their hot wallets in the United States are SoFi, Robinhood, Gemini, eToro, Webull, and Crypto.com.

In Canada, you can take a look at Coinsmart, Bitbuy, NDAX, and Coinsquare.

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