Breaking news! The president has made an announcement regarding federal student loan forgiveness.
Refi now and save money before rates rise again. Learn more

What Is a Crypto Wallet?

By Carla Tardi · September 23, 2022 · 10 minute read

We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey. Read more We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide. We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right. Read less

What Is a Crypto Wallet?

A crypto wallet is a place to store your cryptocurrencies when you’re not using them. Knowing how to properly secure your assets with a crypto wallet will go a long way toward helping to keep your crypto safe from hackers. Cryptocurrency wallets come in different forms. By learning about the types of cryptocurrencies and wallets, deciding how much money you want to put into cryptocurrencies, and knowing how you plan to use them, you can decide which type of wallet is best for you.

Cryptocurrency Wallet Definition

As cited above, a crypto wallet is a place to store your cryptocurrencies. You may think of a crypto wallet as being similar to how a tangible leather wallet holds fiat currency — your $1s, $5s, and $20s. When secured properly in wallets, cryptocurrencies are difficult to counterfeit or steal.

To understand what a crypto wallet is, it’s important to know how cryptocurrencies are created and used. So, we review cryptocurrency briefly below.

The Importance of Crypto Wallets

Cryptocurrency wallets are used to store your private keys. These keys must be matched with your public keys to move crypto from one wallet to another. Some wallets can be used to store multiple types of cryptocurrency, while others can store only one kind of crypto.

Some wallets are convenient for buying and selling crypto quickly, but other kinds of wallets may be more secure.

Public and Private Wallets

Your public wallet address is what you give to someone when you want them to send you cryptocurrency. Anyone can look up that address and see how much you hold and your past transactions. However, the address is simply a string of numbers and letters, so unless someone knows it belongs to you, your holdings and transactions are anonymous. This transparency combined with anonymity is part of what appeals to many people about cryptocurrencies.

Crypto holders do not publish their private wallet address, nor do they give it to anyone. That would be like giving someone the password to your email account or a password-protected document containing personal information. The private key is what’s used to sign off on transactions. So, if someone has access to both your public and private keys, they now have control over your holdings. However, the chances of a hacker matching up potential public and private keys are highly improbable because of the way they’re encrypted.

The two main categories of crypto wallets are hardware (“cold”) and software (“hot storage”) wallets.

Safe and secure crypto trading.

With 30 coins available, our app offers a secure way to trade crypto 24/7.

Get up to $100 in Bitcoin after your first trade2.


Types of Cryptocurrency Wallets

1. Hot Wallets (Software)

When you choose to have a crypto exchange store your holdings, the exchange uses what’s called a “hot wallet.” The reason it’s hot is that it’s connected to the internet at all times — so, always online, hot with electricity.

Web-based wallets:

You can access hot storage wallets on the internet by logging into exchanges or wallet-service providers. Some popular hot storage exchanges include Coinbase and Gemini. These exchanges hold your private keys. Although they implement the best, multi-layered, and most current security tech possible, exchanges are still vulnerable to hacks.

In general, it’s best not to store large amounts of crypto in online exchanges. You can move your crypto holdings into the exchange when you want to send or sell it, but otherwise it’s wise to keep it in cold storage.

Desktop wallets:

Desktop wallets are types of software that you can download onto your PC or Mac desktop computer. They store and manage your private keys, just like any other wallet would, but they frequently have a few more features than you’ll find in other types of wallets. These are somewhat more secure, as they often give you access to your private keys, and are stored directly on your computer.

However, if your computer or phone breaks or gets lost, your crypto holdings could be lost along with it. In the unfortunate event that this does happen, if you have written down both your public and private keys, you likely would be able to recover your funds. If given the option, it’s always a good idea to keep a second copy of your address written down in a safe place.

Mobile wallets:

A mobile wallet is software that you can install on your mobile smartphone if you intend to manage your finances from your hone. As with an old-fashioned physical wallet (with all the slots), mobile wallets can store the important cards you use frequently — your credit, debit, ID, gift, and transit cards. In this way, you can conduct transactions using a mobile device instead of a physical card.

Hot Wallet Advantages and Disadvantages

Advantages

Disadvantages

Don’t need to worry about losing your private keys; exchange keeps them If your computer or mobile device is lost or stolen, you could lose all your funds
Reputable exchanges have state-of-the-art security Even with top-notch security, exchanges are still vulnerable to hacks because always online
Immediate access to your funds; convenience; always online Third-party dependent; most exchanges don’t give access to your private keys; you never have full control of your account
Ease of use; good for beginners to store small amounts of crypto Centralized servers sometimes cannot handle unlimited number of transactions: possibility of periodic delays

2. Cold Wallets (Hardware)

Cold storage hardware wallets are offline, and may be in the form of a physical hardware device or a piece of paper. Yes, you can simply write down your public and private address on a piece of paper and use that to recover your funds.

Although vulnerable to loss, fire, or flood, a paper wallet is arguably the most secure type of wallet, as it doesn’t connect to any device, software, or network which could be broken or compromised. You can even create a printout of a QR code for your cold wallet to make it easier to use.

It’s possible to generate paper wallets from reputable sources such as Bitcoinpaperwallet and BitAddress. If you do use one of these services, make sure you go through the steps to disconnect from the internet as you create the wallet. Once your wallet is created, you might want to laminate it or seal it in a plastic bag to store in a safe place.

Popular hardware wallets include the Trezor and Ledger devices. These are physical devices that plug into your computer, and store your private keys. This way, your private keys are never online, but you can still conveniently buy and sell digital assets without needing to upload an address from a piece of paper. Both Trezor and Ledger support multiple types of cryptocurrencies.

You can also purchase physical coins, such as physical Bitcoin (BTC) that come preloaded with a certain amount of the cryptocurrency. These can be useful for offline trading, may be a fun collector’s item, and generally are created with a tamperproof seal to hide the private key. A further delineation of hardware wallets are hardware security modules (HSMs). These devices handle only the keys and signing of data, but not the signing of complete transactions.

Cold Wallet Advantages and Disadvantages

Advantages

Disadvantages

Very secure; don’t connect to any device, software, or network that could become compromised Vulnerable to loss, fire, or flood, or other kind of destruction
Highly portable; can carry with you, attached to any computer Might need technical knowledge to set up
Come with option to set up recovery phrase Longer transaction times; can be expensive

3. Paper Wallets

Typically, a paper wallet contains both a public and a private key, which is what you need to trade on your crypto account. These keys are just two strings of characters and two quick response (QR) codes that you may print out on a piece of paper — thus, a paper wallet. They are considered noncustodial cold-storage wallets, which means that you control the keys yourself (some are controlled by crypto exchanges), and they are not connected to the internet.

The cryptocurrency industry no longer recommends using paper wallets, as today there are safer methods of storing and trading crypto. Some still like them, however, and you can still create a paper wallet if you wish.

Pros and Cons of Crypto Wallets

Many crypto enthusiasts prefer using their own non-custodial wallets due to the added security and personal independence. The ability to hold one’s own private keys is the main difference between a crypto wallet and exchange.

At any rate, there are pros and cons to such a thing. Let’s start with the pros.

Some of the pros of using crypto wallets include:

•   Ability to take full control of your funds

•   No risk of a third-party like an exchange being compromised

•   Anyone can use a crypto wallet anywhere in the world to transact with others

While these benefits make using a personal wallet worth it to some, others may find the drawbacks to be too much to handle. This is part of the reason some people prefer to keep their funds on a crypto exchange vs. a wallet.

Some of the cons of using crypto wallets include:

•   Additional user responsibility and risk of making errors

•   If something happens to the wallet or you lose your backup and password, all funds will be lost

•   Most wallets are less beginner-friendly than exchanges

Pros and Cons of Crypto Wallets

Pros

Cons

Ability to take full control of your funds. Additional user responsibility and risk of making errors.
No risk of a third-party being compromised. If something happens to the wallet or you lose your backup and password, all funds will be lost.
Anyone can use a crypto wallet anywhere in the world to transact with others. Most wallets are less beginner-friendly than exchanges.

Storing and Securing Your Crypto Wallet

The most important part of selecting your wallet type is making sure that your stored crypto and your crypto transactions are secure. Many of the most popular exchanges store your private keys for you, but don’t give you access to them. Though it can be convenient to hold crypto in exchanges, not having access to your private keys could make you vulnerable to hackers and even scams. So, you may decide to use cold storage for your crypto holdings, moving only as much into hot storage as you plan to send or sell at any given time.

Part of trying to keep your information secure might include being wary of any emails you receive that come from exchanges or wallet apps. Check the email address to make sure it’s legitimate, and never send your private keys over email; even better, don’t send them at all. It’s always wise to double-check all of your transactions before hitting the send button, And check the website address when you visit an exchange or online wallet. Fake email and website addresses can look convincingly similar to the real ones.

Crypto Wallets: A Quick Review

Although cryptocurrency wallets are used mainly to store and transact cryptocurrencies, there are other uses for this technology. Tokens or digital information stored on a blockchain could represent anything from goods in a supply chain, or a plane ticket, to a set of dental records. Blockchains can also store personal information such as your identity, tax history, voting information, and more. In the future, we may find ourselves using blockchain-based wallets in many facets of our lives.

Before you purchase cryptocurrencies, think about how you plan to use and access them. If you’re planning to purchase crypto and hold it for the long term, a secure cold storage wallet is probably your best option. If you want to access cryptocurrency from your phone, you may want to download an app from a particular exchange or wallet provider.

Also, think about which cryptocurrencies you want to hold and look into the options available for each coin. Doing your due diligence on both the coin and the wallet might help keep you from getting scammed. Despite that some exchanges have been hacked, there are plenty of reputable options to choose from.

Getting Professional Insights and a New Cryptocurrency Wallet

Cryptocurrencies are still new, volatile, and risky. For this reason, you may not be ready to start trading them.

Or, you may be excited about jumping in early while the industry is young. Either way, gaining professional insights into your investment strategy and using state-of-the-art tools can help you build a strong, diversified portfolio.

On SoFi Invest, investors can start trading cryptocurrencies with as little as $10. New SoFi members who buy at least $50 worth of crypto in the first seven days are eligible for a bonus of up to $100 in bitcoin. See full terms at sofi.com/crypto. You may trade cryptocurrencies like Bitcoin, Cardano, Dogecoin, Ethereum, and Litecoin, 24/7. Plus, SoFi takes security seriously and uses a number of tools to keep investors’ crypto holdings secure from theft.

Trade crypto and get up to $100 in bitcoin! (Offer is available through 12/31/22; terms apply.)

FAQ

Do you need to have a crypto wallet to trade cryptocurrencies?

The short answer is “Yes.” Crypto wallets are not flat, physical objects with storage slots that can be made of fine leather or synthetics. But, as with your fiat cash, cryptocurrency is an asset that needs to be stored somewhere safe when you’re not using it. So, in that sense, you do need to have a place to keep your crypto holdings — whether we call it a “wallet,” or something else.

You do have choices, however, as there are various types of wallets. Among the first things to decide is whether you want to keep your own wallet or have a crypto exchange store your holdings for you. Some believe that a good goal might be to work toward keeping your crypto holdings yourself, in a cold storage wallet. But, if you’re just getting started in crypto, or if you lose or misplace things easily, then it might be wise to keep the crypto in hot storage with a regulated, reputable exchange.

What kind of crypto wallet is safest?

One way of answering this question would be to search the internet for “safer, safest, secure, and most secure,” crypto wallets. You’ll find that more than 150 makes and models of hardware wallets return — some with pictures of the small electronic devices and some with just descriptions. You also may choose to limit your search to your favorite news feeds, crypto portals, and so on — whatever’s most comfortable. Just make sure that they are professional and reputable sites.

You could start with say the first 10 hits that come up. Check to see if any makers’ names recur repeatedly. Then, note how many times those repeat names are cited as being the “best for security,” or something like that.

Once you’ve determined that XYZ model has the best security features, then you may consider other qualities that are important for you, personally. After safety, the sites rank the wallets’ features in terms of “the best for…” android users, advanced users, digital storage, beginners, mobile users, Bitcoin-only investors, desktop, simplicity, durability, coins supported, accessibility, software, and — well you get the picture.

In this way, you can be assured that you’ve found a highly rated safe wallet, with the extra features and conveniences you want and need.

How easy is setting up a cryptocurrency wallet?

In this instance, the word “easy” is highly relative. While setting up a crypto wallet might be relatively easy for a developer or engineer, it might be confusing, frustrating, or downright painful for those who are not technically minded.

As a newcomer to crypto, can you even imagine reading through a set of small-print instructions that are long, dense with new terminology that you may not know, and which might even have been (poorly) translated from another language!

For some, the concept of a crypto wallet may indeed be easier to grasp than its setup instructions. But here’s where technology might come to our rescue — in the form of online videos! It could be a good place to start. And written instructions don’t usually come with devices any more anyway. So, browse the internet for videos about how to set up XYZ crypto wallet in a style that appeals to you, and enjoy!


Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.
SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal. Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or prequalification for any loan product offered by SoFi Bank, N.A., or SoFi Lending Corp.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.


Photo credit: iStock/Elena Perova
SOIN19149

1 SoFi will assess a fee for each crypto transaction outside of automatic direct deposit purchases. For more information, visit sofi.com/invest/buy-cryptocurrency.

You need both a SoFi Invest crypto account and a SoFi Invest active investing account to get access to no-fee crypto purchases with direct deposit. Active investing and brokerage services are provided by SoFi Securities LLC, Member FINRA/SIPC. Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.

2 Terms and conditions apply. Earn a bonus (as described below) when you open a new SoFi Digital Assets LLC account and buy at least $50 worth of any cryptocurrency within 7 days. The offer only applies to new crypto accounts, is limited to one per person, and expires on December 31, 2022. Once conditions are met and the account is opened, you will receive your bonus within 7 days. SoFi reserves the right to change or terminate the offer at any time without notice.

First Trade Amount Bonus Payout
Low High
$50 $99.99 $10
$100 $499.99 $15
$500 $4,999.99 $50
$5,000+ $100

All your finances.
All in one app.

SoFi QR code, Download now, scan this with your phone’s camera

All your finances.
All in one app.

App Store rating

SoFi iOS App, Download on the App Store
SoFi Android App, Get it on Google Play

TLS 1.2 Encrypted
Equal Housing Lender