How to Choose The Right Crypto Wallet For You in 5 Steps

A crypto wallet holds the private keys that control your digital assets on the blockchain. Most commonly, these wallets are applications, such as browser extensions or mobile apps. However, hardware wallets offer a more secure alternative as well, although at a cost. In this guide, we’ll review the most important things to consider and how to choose a crypto wallet that meets your needs.

Crypto exchanges provide custodial wallets to store your cryptocurrency after you buy or sell crypto or make a trade. The exchange holds the wallet’s private keys. While convenient, exchanges also have a checkered past, marred with breaches, hacks, and locked accounts that prevent access. One saying in crypto has proven correct over time: “Not your keys, not your coins.” Let’s learn how to choose a crypto wallet that protects your private keys and lets you navigate the crypto sphere your way.

The Types of Wallets to Choose Between

The way you expect to use your crypto and the amount of crypto you hold often drive the decision regarding which type of wallet to use. Hot wallets make it easier to interact with decentralized applications (dApps), but they store the private keys on an internet-connected device. Cold wallets store the private keys offline.

The type of device you’ll use with your wallet also plays a role. For example, some mobile wallets support iOS but not Android. Others, including hardware wallets, might support Windows and macOS but not Linux. Some crypto wallets are only available as a browser extension, which makes them compatible with any desktop operating system but creates some security concerns.

You’ll also want to consider public and private key control. Exchange wallets are custodial, meaning the crypto exchange holds the keys. Non-custodial wallets give the user control of the keys. By some estimates, as much as $1.38 billion in crypto was stolen in the first half of 2024, with compromised seed phrases and private keys being the most common attack vectors. This number is likely underreported due to crypto’s unregulated nature.

Let’s examine some of today’s best crypto wallet choices in more detail, starting with hot vs. cold wallets.

Hot Wallets vs Cold Wallets

First, let’s discuss hot wallets versus cold wallets. The distinction between the two centers on whether the private keys are generated and stored on a device that’s connected to the internet. Anyone who gains access to the private keys can control your crypto assets on the blockchain. Connected devices can create a risk.

• Hot Wallets: A hot wallet is an app or browser extension that generates and stores the wallet’s private keys on a device that connects to the internet. The obvious concerns focus on hacks and bugs that could expose your private keys. However, these apps are much easier to use and offer some functionality that may not be available with cold wallets, such as no-fuss connections to decentralized applications.
• Cold Wallets: A cold wallet generates and stores the wallet’s private keys offline. In most cases, a cold wallet refers to a hardware device that connects to a computer or mobile device when you need to access your crypto or authorize a transaction. When the device is not connected, transactions cannot be approved. In this respect, hardware wallets act like a sort of two-factor authentication, denying transactions you haven’t approved on a device you physically control.

Many hot wallets support select hardware wallets, such as Ledger devices. This combination of wallets lets you connect physical devices to dApps while securing the private keys controlling your crypto on a separate device.

Desktop vs Mobile

Navigating the crypto world is easier on a desktop device than on a mobile device. However, you’ll find many of the leading crypto wallets support both platforms, allowing you to do your crypto thing at home or on the go. For example, MetaMask, Trust Wallet, and Coinbase Wallet all provide mobile apps as well as browser extensions.

Desktop wallets come in the form of standalone apps or (more often) browser extensions. Generally, hardware wallets offer better support for desktops as well.

Mobile wallets for Android or iOS are mobile apps, many offering access to a selection of dApps built into the interface. However, connecting to apps running in a separate browser app can be challenging in some cases.

Most desktop and mobile wallets support simple features like sending, receiving, and swapping one crypto for another. However, a desktop wallet is often easier for more complex interactions, such as navigating DeFi applications.

Custodial vs Non-Custodial

Custodial versus non-custodial refers to whether a third party controls the private keys or you control them. For example, if you have a trading account with a crypto exchange like Coinbase, the exchange holds the keys to a custodial wallet on your behalf.

Custodial Wallets

With a custodial wallet, you access the wallet’s funds by logging into the exchange and using the crypto you hold there to trade, but you don’t have access to the private keys. By contrast, if you download a crypto wallet and withdraw your crypto from the exchange to your new wallet, you control the private keys to the new wallet.

Custodial wallets are vulnerable to breaches, such as someone gaining access to your exchange account. In some cases, exchanges may also freeze accounts, blocking access to your account or the ability to withdraw. On the other hand, custodial crypto wallets provided by exchanges offer the easiest solution if you’ll just be trading and don’t keep much money on the platform.

Non-Custodial Wallets

By contrast, non-custodial crypto wallets, like MetaMask, allow only you to control the wallet’s private keys. In most cases, this is achieved by using a 12 or 24-word seed phrase that generates the wallet’s private keys through cryptography.

However, this also makes you responsible for safeguarding your wallet’s seed phrase (and private keys). If you ever lose access to the seed phrase, you won’t be able to access your crypto. Additionally, if someone else gets your seed phrase or private key, they can access your crypto.

5 Questions to Consider When Choosing a Wallet

Let’s examine some key factors and questions that can help you choose a crypto wallet. These center on the way you expect to use your crypto as well as security and cost.

1 ) Network Support: Which Blockchain Do You Need to Use?

The type of wallet you choose might depend on which cryptocurrencies you want to use. For example, you can’t send Ether (ETH) to a Bitcoin wallet. Each blockchain is an island unto its own in that regard. If you want to use the Ethereum blockchain, you’ll need a wallet that supports the Ethereum chain. The same applies to Bitcoin, Solana, Sui, and countless other chains. However, many time-tested non-custodial wallets support more than one type of cryptocurrency.

2 ) Wallet Activity: What Do You Want to Use The Wallet For?

Consider how you’ll use your crypto. Simple storage or sensing and receiving don’t require special features. However, if you plan to use your crypto for on-chain activities, such as decentralized finance (DeFi), you’ll want a wallet that is well-supported by the protocols you need to use. For example, Aave, one of the leading lending and borrowing platforms, supports several browser-extension wallets, as well as Torus, a wallet that uses social logins to secure your private keys.

3) Custodial vs Non-Custodial: Would You Like Private Key Control?

As discussed earlier, custodial wallets mean that a third party, like a crypto exchange, controls the private keys. New traders find this easier, which makes onboarding easier for the exchange. However, in addition to security concerns, this structure also limits how you can use your crypto. Although the earlier Aave screenshot shows Coinbase Wallet as an option, it does not refer to a custodial wallet on the Coinbase exchange. The exchange limits what you can do with funds stored in a custodial wallet. If you expect to venture off the exchange, a non-custodial wallet opens up a broader range of options.

4) Security: What Features Do You Need?

Some wallets support enhanced security features, such as biometric authentication or even air-gapped technology, which removes the need to connect your wallet to any device when authorizing transactions. Some wallets also provide warnings before connecting to known scams or insecure applications. Many also provide warnings before buying a scam token.

5) Cost: Do You Want a Free or Premium Wallet?

Although free wallet apps can be full-featured, some use cases may make an investment in a premium wallet worthwhile. In most situations, this refers to buying a hardware wallet that stores your private keys offline. Depending on which wallet you buy and the features you need, expect to invest $50 to more than $500. Entry-level hardware wallets likely meet the needs of most beginners.

However, well-tested hot wallets can provide reasonable security for storing small amounts of crypto, and most are free to use. In a later section, we’ll discuss how to use a hot wallet in combination with a cold wallet to get the best of both worlds.

1) Which Network Do You Need to Use?

The crypto networks you need to use drive the decision when choosing a crypto wallet. Several popular wallets support multiple networks. However, for some tasks, you may also want to use a specialized wallet that supports one blockchain or a group of similar chains, such as EVM-compatible networks. EVM is an abbreviation for Ethereum Virtual Machine, a smart contract environment used by dozens of blockchains.

The Most Popular Wallets and Their Supported Networks

First, let’s compare some of the leading wallets to learn which chains they currently support. Be aware that these can change over time. For example, Phantom, a popular Solana wallet, recently added support for EVM chains. However, Coinbase Wallet stopped supporting four chains in 2023.

Notably, while some wallets may support storage and sending or receiving for specific cryptocurrencies, support for additional on-chain activities may be limited. Research the wallet you’re considering for compatibility with the protocols you expect to use. In some cases, support for chains must be “enabled” and won’t be immediately apparent.

Wallet	Bitcoin (BTC)	Ethereum (ETH)	Ripple (XRP)	Solana (SOL)	BSC (BNB)	Dogecoin (DOGE)	Cardano (ADA)	Tron (TRON)	Avalanche (AVAX)
MetaMask	🗶	✅	🗶	🗶	✅	🗶	🗶	🗶	✅
Trust Wallet	✅	✅	✅	✅	✅	✅	✅	✅	✅
Ledger Nano S Plus	✅	✅	✅	✅	✅	✅	✅	✅	✅
Trezor Model One	✅	✅	🗶	🗶	🗶	✅	🗶	🗶	✅
Exodus	✅	✅	✅	✅	✅	✅	✅	✅	✅
Coinbase Wallet	✅	✅	🗶	✅	🗶	✅	🗶	🗶	✅
Atomic Wallet	✅	✅	✅	✅	✅	✅	✅	✅	✅
Best Wallet	🗶	✅	🗶	🗶	✅	🗶	🗶	🗶	🗶
Rabby	🗶	✅	🗶	🗶	✅	🗶	🗶	🗶	✅

Deciding Between a Multi-Chain Wallet or Specialized Wallets

As the name suggests, multi-chain wallets provide support for multiple blockchains. In the table from the previous section, four of the wallets supported all the blockchains we checked. Specialized wallets support one blockchain or a group of similar blockchains. For example, MetaMask and Rabby both support dozens of EVM-compatible blockchains. However, neither wallet supports BTC, XRP, Dogecoin, or Cardano.

While specialized wallets don’t offer broad blockchain support, they often excel at specific tasks. For instance, if you want to use your crypto in decentralized finance applications on an EVM chain, a specialized wallet like MetaMask or Rabby will make the experience much easier. Multi-chain wallets represent a tradeoff in usability, in many cases, providing support for more chains but adding complexity to web3 navigation.

Similarly, specialized wallets may offer additional features specific to the blockchain you’re using. For example, efficient use of Bitcoin can require occasional management of Unspent Transaction Outputs (UTXOs). Specialized Bitcoin wallets like Sparrow and Electrum support UTXO optimization. Multi-chain wallets are unlikely to support this feature, leading to higher transaction fees without explanation.

Privacy features can also distinguish specialty wallets from multi-chain wallets. For example, Sparrow (Bitcoin only) supports connections to Bitcoin nodes via The Onion Router (TOR), which enhances privacy by masking your true IP address.

When to Choose a Multi-Chain Wallet

Multi-chain wallets bring several advantages, most of which center around convenience and simplicity. Let’s examine situations in which you may want to choose a multi-chain wallet over a specialized crypto wallet.

Examples: Trust Wallet, Atomic Wallet, Exodus, Coinbase Wallet

• You want to hold several types of cryptocurrency. If your crypto usage is limited to holding and occasionally sending or receiving, the simplicity of a multi-chain wallet makes this easy to do with several types of crypto assets.
• Swaps from within the wallet are important. Many multi-chain wallets allow users to swap from one crypto asset to another without visiting an exchange. For example, Trust Wallet supports cross-chain swaps.
• You don’t want to manage multiple seed phrases. Generally speaking, each wallet you use for a specific chain has its own seed phrase. If you hold ten cryptocurrencies, this could mean safeguarding ten separate seed phrases. A multi-chain wallet accomplishes this task with one seed phrase.

When to Choose a Specialized Wallet

There’s a proper tool for every job, and that time-tested adage also applies to crypto wallets. Specialized wallets excel at specific tasks, such as interacting with smart-contract protocols, trading on decentralized exchanges (DEXs), or managing UTXOs for chains like Bitcoin. Let’s look at use cases in which a specialized wallet may be a better choice.

Examples: MetaMask, Rabby, Phantom, Solflare, Sparrow, Electrum

• You need support for hardware wallets. Specialized wallets typically offer better support for hardware wallets, allowing you to keep larger balances safe without sacrificing connectivity.
• Interacting with smart contracts is a priority. A specialized wallet like Rabby or MetaMask makes navigating EVM chains easy. Similarly, Phantom Wallet and Solflare integrate well with Solana dApps. Often, staking support leads users to specialized wallets first.
• You value higher security. Maintaining code to support multiple chains is challenging and prone to errors. Specialized wallet projects typically focus on one chain or similar chains, allowing the team to address security issues specific to that chain.
• Community support is important to you. Specialized wallets like Sparrow and Electrum develop a vibrant community of knowledgeable users. If you need to learn how to do something more complex, you’ll likely find the answer on the discussion boards. By contrast, any given chain is just one of many with multi-chain wallets, and advanced features for each chain are likely not supported.

2) What Do You Want to Use The Wallet For?

Over half of all total value locked (TVL) in crypto resides on the Ethereum blockchain. TVL measures assets used in smart contracts. Much of this value is locked in longer-term applications, such as staking. By contrast, other applications, such as lending or meme coin trades, benefit from a more nimble solution that lets users exit a position quickly.

Cold wallets are best for long-term holdings, whereas hot wallets are best for use cases that require more frequent access. Let’s compare hot and cold wallets to better understand which use cases and priorities suit each wallet type.

Primary Concern	Hot Wallets	Cold Wallets
Seed Phrase Security	Hot wallets generate and store the wallet’s private keys on an internet-connected device.	Cold wallets generate and store private keys on a device that’s not online.
Frequency of Access	Hot wallets are best suited for users needing frequent crypto funds access.	Extra steps to access crypto funds make cold wallets better suited to long-term storage or storing larger balances.
Convenience	By design, hot wallets offer more convenience and newbie-friendly user interfaces.	Hardware wallets often come with an easy-to-use app but still require extra steps to transact.
dApp Connectivity	DeFi and dApp users benefit from the enhanced connectivity offered by hot wallets.	Although cold wallet software suites may offer some built-in apps, connecting to external apps may not be possible without using an additional hot wallet.
Typical Usage	Hot wallets are well-suited to daily trading, interacting with dApps, and real-world purchases.	Cold wallets provide secure storage for long-term holdings or larger crypto balances.

Next, let’s explore a few questions that can help you choose the right crypto wallet.

A) Will You Be Actively Trading or Holding For The Long Term?

A cold wallet offers a more secure option if you intend to buy and hold for a longer period of time. However, you aren’t limited to a cold wallet. Leading hardware wallets like Ledger and Trezor can work with specialized wallets like MetaMask or Electrum. We’ll explain this strategy of using hot and cold wallets together in more detail later.

A hot wallet offers a more convenient solution if you expect to use your crypto often and the value is relatively low.

B) Do You Place More Value on Security or Convenience?

This consideration hinges on the value of your coins in large part. If you have more to protect, investing in a cold wallet that offers protection against online threats by storing your private keys offline may be wiser. Again, it is possible to pair cold storage with supported hot wallets.

However, hot wallets are much more convenient than cold wallets as standalone solutions. In most cases, a password or fingerprint is all that stands between you and your next trade or transaction. By contrast, using a cold wallet requires connecting it (or sending a QR code if using an air-gapped wallet). The spy-game allure may not last if you value convenience. If you place more value on security, a cold wallet is the clear choice.

C) Are You Planning to Hold a Small or Large Amount of Crypto?

Convenience aside, a cold wallet offers a much more secure storage option if you plan to hold a large amount of crypto. If you’re stepping out the back door momentarily, you probably don’t lock your house. If you’re going away for a week, you lock the doors and windows, set the alarm, and put the lights on timers. Risk management decisions hinge on the level of exposure.

Considering this, the amount of crypto at risk may not merit the costs and lost convenience of using a hardware wallet.

D) Do You Want To Access DEXs and dApps?

Decentralized applications, including DeFi and web3 gaming, are among the more popular blockchain uses. However, you’ll likely need a hot wallet to use these applications. Some crypto holders store smaller amounts of crypto in hot wallets for easy access to DEXs and defi platforms while using a cold wallet to store larger amounts. Pairing a hot wallet with a cold wallet lets you use larger amounts of crypto in trades on smart contracts while still protecting your private keys offline.

3) Do You Want Control Over Your Own Private Keys?

Almost all wallet apps and cold wallets give you control over your private keys. A handful use workarounds like social logins to abstract the complexity of crypto wallets. On the other hand, custodial wallets, such as those available through crypto exchanges, do not give the user control over the private keys. Instead, custodial wallets let you access your funds through a login to the platform.

Let’s review these types of wallets again because they differ regarding who controls the private keys.

• Non-Custodial Wallets: With non-custodial wallets, sometimes called self-custody wallets, you control the private keys. Although most users never see the private keys, they are generated from a seed phrase, also known as a recovery phrase. The user is responsible for storing the seed phrase safely.
• Custodial Wallets: With a custodial wallet, a third party controls the private keys. Users never see the seed phase or the private keys. Instead, they log on to a platform to perform actions with their account, including trades, withdrawals, or sending and receiving.

When to Choose a Non-Custodial Wallet (Private Key Control)

Many users choose to withdraw their crypto from exchanges to a non-custodial wallet when they are done trading or after a purchase. The reasons behind this often center on maintaining control of their crypto funds. However, this step also allows you to use your crypto in other ways, such as spending on everyday transactions or using decentralized applications.

Most exchange wallets never encounter a problem, but several risks arise from using a custodial wallet.

• Frozen Withdrawals: During the FTX collapse of 2022, the FTX exchange halted withdrawals. Customers were unable to use their funds.
• Locked Accounts: Exchanges can lock individual accounts without warning, sometimes without explanation. Reasons might include failed logins, identity verification, flagged transactions, or identifying the source of funds for trades to comply with regulations. Resolving a locked account can take time, or it may never be resolved. Given crypto’s volatility, a locked or frozen account can become costly.
• Exchange Hacks: Although many exchanges invest heavily in security measures and use cold storage for most funds on the platform, hacks can and do occur. One of the most famous exchange hacks occurred in 2011 when 647,000 Bitcoins were stolen from the Mt. Gox exchange.

Using a non-custodial wallet allows you to sidestep these risks, although the timing of withdrawals to a self-custody wallet becomes critical. However, you should use a non-custodial wallet only if you have a secure way to back up your seed phrase offline. This seed phrase allows you to restore your wallet if it becomes inaccessible due to hardware failure or other reasons.

When to Choose a Custodial Wallet (No Private Key Control)

Crypto exchanges and brokerages offer non-custodial wallets. Users do not get access to the seed phrase or private keys, and your crypto usage may be limited to activities on the platform or sending and receiving. However, this type of wallet is much easier to use. You don’t need to store the seed phrase securely because you don’t have access to it. Instead, you must practice good password safety and enable two-factor authentication to secure your funds. Be aware of the risks mentioned in the previous section, including frozen funds and exchange hacks.

If you expect you’ll only use crypto on the exchange itself and practice good account safety, a custodial wallet offers a much easier way to store your crypto, using a login similar to using online banking or payment services.

4) What Level of Security Do You Need?

Crypto wallets offer various security features, such as two-factor authentication or offline key storage. However, there’s little crossover between these features and wallet types, with specific features common to a certain kind of crypto wallet. For example, many mobile wallets offer biometric authentication, but this feature isn’t common to hardware wallets.

Generally speaking, custodial exchange wallets rank lower in security features. This is mainly because the exchange holds the wallet’s private keys, and users have little transparency in how these keys are safeguarded. Additionally, accounts without two-factor authentication are only protected by a login.

Security Features	Benefit and Wallet Type
Two-Factor Authentication (2FA)	Most custodial wallets offer SMS-based verifications or support authenticator apps. 2FA can prevent remote users from accessing your funds if your login is compromised.
Biometric Authentication	Mobile apps for exchanges (custodial) or non-custodial wallet apps may support fingerprint logins.
Seed Phrase Backup	Custodial wallets allow you to view and back up your seed phrase. You can use this seed phrase to recreate your wallet and private keys. Non-custodial wallets do not give users access to the seed phrase or private keys.
Anti-Phishing	Specialized non-custodial wallets like Rabby offer anti-phishing and scam detection features that can help protect your crypto assets from fraudsters.
Airgapped Transactions	QR-enabled hardware wallets or specialized apps that let you turn a spare phone into an air-gapped cold wallet allow you to authorize transactions without connecting a separate device.
Offline Seed Private Key Storage	Cold wallets, such as hardware wallets, store your private keys offline, safeguarding against online threats.
Multi-Sig Support	Multi-signature wallets require authorization from more than one private key.

Let’s examine some of these features in more detail to better understand their benefits and limitations. Crypto wallets and their corresponding security features usually fall into one of three categories: basic security, enhanced security, or highest security.

A) Basic Security: Password, 2FA, and Biometric Authentication

Wallets with basic security include exchange wallets. This type of wallet is designed to be user-friendly and allow easy access to funds. For example, you can access many exchange wallets with just a username and a password. Features like two-factor authentication may be optional and might include SMS-based authentication, which is a less safe option.

• Password: Basic security wallets use a username-password combination as a first layer of security. Breaches or reusing the same username-password combination on various online platforms can both put funds at risk.
• Two-Factor Authentication: Two-factor authentication 2fa requires the user to approve a login on a device that they control. SMS verifications are vulnerable to port-out scams, which then send the account approval code to a device controlled by someone else. As an alternative, many exchanges now support authenticator apps, such as Google Authenticator, which provide a more secure option.
• Biometric Authentication: Some exchanges support biometric authentication, such as using a mobile app in combination with a desktop web login or allowing access to your account through a standalone mobile app.

Examples of basic security wallets include exchange wallets like Coinbase and Binance or brokerage accounts like Robinhood and eToro. Notably, basic security wallets do not give users access to the wallet’s private keys. As such, funds can be frozen, or withdrawals can be suspended.

B) Enhanced Security: Seed Phrases, Private Key Control, Hardware

Wallets with enhanced security give users control over the wallet’s seed phrases and private keys. You’ll find some crossover here because both hot and cold self-custody wallets offer private key control. However, cold wallets fall into the next category (highest security) due to their offline cold storage.

Seed Phrases: Enhanced security wallets typically use a seed phrase that allows you to restore the wallet or, in some cases, use the wallet with multiple wallet apps.
Private Keys: Each wallet address has a unique private key used to authorize transactions. The wallet’s private keys are generated by a seed phrase but can be exported individually if you want to use just one of the wallet addresses elsewhere.

Examples of enhanced security wallets include specialized wallets like MetaMask (EVM chains) or Sparrow (Bitcoin only). Notably, many enhanced security wallet apps also support connections to hardware wallets that offer cold storage.

C) Highest Security: Offline Cold Storage, Multi-Signature Wallets

The highest-security options range from cold storage (storing the private keys offline) to hidden wallets and even wallets that require signatures from two or more external wallets. Let’s explore some of the more advanced features that may be available with the highest-security wallets, which are often hardware devices like Ledger or Trezor.

• Offline Cold Storage: Storing the wallet’s private keys offline helps protect crypto funds from online threats, such as malware or wallet app vulnerabilities.
• Multi-Sig Support: Wallets that support multi-sig can be set up to require authorization from two or more external wallets. Groups often use multi-sig wallets but individuals can also use these wallets to double up on security.
• Hidden Wallets: Some hardware wallets support hidden wallets that become visible only with a password. In this case, even if someone gains access to the wallet’s seed phrase, which exposes the private keys for other wallet addresses, the hidden wallet address and private key remain concealed.
• Airgap Wallets: Some hardware wallets and wallet apps support QR-code-based transactions that eliminate the need to connect a hardware wallet by USB or Bluetooth. Airgapped wallets remain offline, protecting your private keys from risks associated with wired or wireless connections.
• Secure Element: Many newer hardware wallets use a Secure Element chip to store your private keys. This specialized type of chip provides tamper resistance and is used in credit cards, passports, and mobile phones.
• NFC Technology: Modern credit and debit cards use Near Field Communication (NFC) as one method to authorize transactions. Some hardware wallets now employ the same technology, using an NFC-enabled card to authorize transactions with a companion app.

Don’t expect to find all of these features in a single wallet or app. You may need to prioritize according to your expected usage and risk level. Hardware wallets, such as time-tested brands like Ledger or Trezor, are among the highest-security crypto wallets. A wave of new players now also offers innovative crypto wallets. For example, Ellipal has become popular for its airgap wallets.

5) Are You Looking for a Free or Premium Option?

The highest-security options typically require an investment. Hardware wallet prices begin at about $50 and can cost hundreds of dollars for premium models. On the other hand, exchange wallets are free to use. However, there’s also a middle ground with free-to-use wallet apps, such as MetaMask or Electrum, which give you control over your private keys.

• Free (Basic Security): Exchange wallets are free but come with security tradeoffs. You do not control the private keys. Expect limited support for external protocols and dApps, or perhaps no support at all.
• Free (Enhanced Security): Wallets like MetaMask and Sparrow give you control over your private keys and offer support for external hardware wallets. Most wallets in this category are free to use but may offer paid services within the wallet, such as top-ups or swaps. If you choose this option, look for time-tested apps with open-source code and an active community.
• Paid (Highest Security): Although enhanced security wallets offer multi-sig support and provide control over your private keys, you’ll need a hardware solution in most cases for offline storage. When purchasing a hardware wallet, always buy directly from the manufacturer, and do not use wallets found lying around or given to you. Wallets from and untrusted source may be compromised.

The Hot-Cold Wallet Strategy: How to Use Both Together

Electrum, MetaMask, Rabby, Sparrow, and several other well-supported wallet apps allow users to connect to select hardware wallets. This option allows users to protect larger balances with offline key storage while allowing them to interact with dApps or perform other tasks, such as managing UTXOs for Bitcoin or similar cryptocurrencies.

The hot wallet, such as MetaMask, connects to dApps, such as the Uniswap DEX, to swap cryptocurrencies or manage liquidity positions. However, with this structure, the private keys for specific wallet addresses are held on an external hardware wallet. The hot wallet app passes the transaction to the hardware wallet for authentication. If the transaction looks correct, you authorize it using the hardware wallet. Without the hardware wallet, the hot wallet cannot process transactions for the protected wallet addresses.

Many experienced crypto users utilize both hot and cold wallets, sometimes using these two options together as described or sometimes keeping them completely separate. The idea is similar to how we interact with traditional currencies, carrying some pocket money while keeping larger amounts in the bank or securely hidden.

Conclusion

Learning how to choose a crypto wallet requires examining your needs and risk level. Exchange wallets offer the easiest solution but do not give you access to your private keys. As a result, the risk is that funds could be stolen or your account could be compromised. Hot wallets give you control over your private keys but may still be susceptible to vulnerabilities. Hardware wallets offer the best protection because they store the private keys offline. However, the added security comes at a cost. You’ll need to buy a hardware wallet if your needs demand the extra security of offline private key storage.

FAQs

What is the best type of wallet for beginners?

Exchange wallets offer the easiest onboarding experience. However, hot wallet apps, like Coinbase Wallet or Trust Wallet, also offer a user-friendly interface and give you control over your wallet’s private keys.

When should you change from a hot wallet to a cold wallet?

Consider moving to a cold wallet if your crypto asset balances are high or if you expect your cryptocurrency to significantly grow in value.

Is it worth combining a hot and cold wallet?

Yes, if you have a significant amount of cryptocurrency, using a hot wallet in combination with a cold wallet allows you to store your larger balances securely while still having access to smaller balances and the ability to connect to third-party dApps with reduced risk.

What is the most secure type of storage for wallets?

Cold storage is the most secure way to store crypto. With cold storage, the private keys that control your crypto assets on the blockchain are stored offline.

What is the most important factor when it comes to choosing a wallet?

In addition to matching the wallet’s features to your needs, it’s crucial to choose a crypto wallet you trust. Newer wallet apps may have yet-undiscovered vulnerabilities. Hot wallets with open-source code, active development, and vibrant user communities or hardware wallets from well-established makers often make the safest choices.

References

• Stolen crypto doubled to $1.38 billion in the first half of 2024, research firm says (cnbc.com)
• How to Perform Cross-chain Swaps in Trust Wallet (trustwallet.com)
• Top 150 biggest blockchains in the world, based on share of total value locked (TVL) (statista.com)
• A timeline of cryptocurrency exchange FTX’s historic collapse (abcnews.go.com)
• Russian Nationals Charged With Hacking One Cryptocurrency Exchange and Illicitly Operating Another (justice.gov)

Source: cryptonews.com