Crypto wallets are an integral part of buying, selling, and using cryptocurrencies. Available as both hardware and software wallets, as well as custodial and non-custodial wallets, they keep your crypto safe and accessible.
Using a crypto wallet, you can send and receive cryptocurrencies like Ethereum and Bitcoin. So, how do they work, why are they important, and what are the best crypto wallets available right now?
What are Crypto Wallets and how do they work?
Cryptocurrency wallets don't hold the actual tokens. They are stored on the blockchain, a type of digital ledger. Instead, the wallet stores the secure keys that give you access to your crypto.
Rather than thinking of a crypto wallet in the context of a cash wallet, think of it like a bank account or online banking app. As opposed to holding assets of actual value, it simply gives you access to them, and by using your crypto wallet, you can send and receive crypto at will.
There are two pieces of information:
- A public key is an identifier for your wallet. You can share this with exchanges and individuals so they can send you crypto.
- A private key gives the holder access to the crypto wallet. It should be kept secure.
These keys are used in a process known as Public Key Cryptography (PKC). Essentially, the public key encrypts the transaction, and the private key decrypts it and authorizes the transaction.
How to Transfer Crypto to a Crypto Wallet
To receive funds in your crypto wallet, just share your public wallet ID with the person/service that wants to send you crypto. You can send it to them directly, or if you're withdrawing from a crypto exchange, investment account, or other service, there should be an option to enter your wallet ID.
To send crypto, you will need the recipient's public wallet ID. From there, simply open your crypto wallet, enter the ID, choose the amount, and then confirm.
All wallet transfers generate a unique transaction ID. This alphanumeric string serves as a digital signature to confirm payment and track the transaction.
If you're waiting on a crypto payment, request this ID to track the payment status.
Crypto Wallets vs. Traditional Digital Wallets
A digital wallet like Google Wallet and Apple Pay functions similarly to a crypto wallet, but there are some key differences.
Whereas your crypto wallet stores token information, a digital wallet manages fiat currencies. Digital wallet services are also centralized, as they are managed by service providers and supported by card issuers.
Cryptocurrency wallets are decentralized, so there is no interference from banks, card providers, or service providers. The user is fully responsible for their own wallet, and if anything happens to that wallet, it can't be recovered by fraud protection schemes.
Types of Crypto Wallets: Complete comparison guide
Cryptocurrency wallets are usually defined by one of the following:
- Connectivity: "Hot" means it connects to the internet; "cold" means it does not.
- Control: The individual fully controls a non-custodial wallet; a third-party (usually a crypto exchange) manages a custodial wallet for the user.
- Technology: Hardware wallets are physical devices; software wallets are desktop/mobile apps.
There is no general best or better type—it depends on what you prioritize in a crypto wallet:
Hardware Wallets: Best for Long-Term Security
Hardware wallets are "cold" wallets, as they store private keys on physical, offline devices that resemble a USB stick. Unlike software wallets, they are not exposed to malicious online attacks, such as malware and phishing.
These wallets use secure cryptographic signing within the hardware, so the private key is never exposed. Many also contain high-level tamper-proof features.
If no one has your crypto wallet, no one can steal crypto, making hardware wallets ideal for long-term storage of large amounts of crypto.
The downsides of using a hardware crypto wallet are that initial costs are higher than with a software wallet, and it's vulnerable to loss, damage, and theft.
Software Wallets: Best for Daily Transactions
Software wallets are more accessible than hardware wallets. It's a far more convenient option for frequent traders, as you can access a "hot" wallet at any time and from any place.
With a software crypto wallet on your phone, you can trade quickly and easily, thus responding to sudden market changes.
They tend to be cheap (or free) and include various integrated features, such as portfolio tracking and exchange access.
Internet connectivity means they are vulnerable to hacks, but users can protect themselves by securing their wallet, computer/phone, and staying vigilant in the face of scams, hacks, and phishing attempts.
Custodial vs. Non-Custodial Wallets
Who controls your private keys? How you answer that question will tell you whether you have a custodial wallet or a non-custodial wallet.
If you join an exchange, your crypto will typically be held in a custodial wallet. It's your crypto, but they hold the keys. You benefit from the exchange's advanced security protocols, but if they are hacked, you could lose everything.
With a non-custodial wallet, you're fully responsible for your keys.
A non-custodial wallet is the better option for serious traders who want full control and know how to protect their keys. If you're a complete beginner, aren't very tech-savvy, and prioritize convenience over control, consider keeping your funds on the exchange where you buy them.
Best Crypto Wallets [current_year]: Expert Reviews & Recommendations
We checked the market and tried an endless number of options—these are our best crypto wallets for [current_year]:
Ledger Flex: High-End Hardware Crypto Wallet
Ledger is one of the biggest and most trusted names in hardware wallets, and the Flex is its best-value wallet. It's an e-reader-type device that supports over 15,000 crypto tokens and features a small E-Ink touchscreen for easy accessibility.
It's a cold wallet, so it's always offline, but it can pair to the Ledger Live app using Bluetooth. A secure, tamper-proof chip protects keys and signs transactions, and its simple interface and user-friendly controls make it an ideal wallet for beginners.
There are over 100 apps available throughout Ledger Live, and these work intuitively on the device. The major downside is that the wallet can only hold a few of these apps at a time, so we needed to constantly delete and clear space before adding new ones.
The $249 retail price will be a stumbling block for some, but it's easily one of the best crypto wallets, and it represents fantastic value.
- Pros: Very secure. Lots of token options. Connects to Ledger Live.
- Cons: Limited app storage.
- Crypto Wallet Type: Hardware.
- Price: $249.
Zengo Wallet: Perfect Crypto Wallet for Beginners
Zengo supports a wide range of cryptocurrencies and is very easy to use, but the main reason it sits near the top of our crypto wallets list is its multi-party computation (MPC) technology.
This tech replaces private keys and seed phrases with two "secret shares"—one on the Zengo server and the other on your phone. They are never exposed to one another, and even if one is hacked, your assets remain safe. Ultimately, it's a more convenient way to access your assets, yet it doesn't jeopardize security.
The app is available on iOS and Android and has high average review scores on both. It's free to download and use, but there is a subscription option if you want more features.
There are a few downsides, including higher transaction fees and a smaller token selection than some alternatives. However, for beginners, it's by far one of the best crypto wallets.
- Pros: Beginner-friendly. Intuitive. No private keys. Secure.
- Cons: Higher fees. Fewer token options.
- Crypto Wallet Type: Software.
- Price: Free.
Exodus: Great All-Round Option
Although it doesn't stand out as much as the other options on this crypto wallets list, Exodus is an excellent option worthy of a mention. It's a software wallet with a simple interface and support for most mobile and desktop platforms.
It supports over 250 tokens. It's sufficient for most traders, but far fewer than other options. Exodus also supports staking and NFTs and connects to offline wallets for added security.
Speaking of security, it's one of the few areas where this wallet falls short. It lacks the depth of other options on this crypto wallets list, and doesn't have multi-signature support or two-factor authentication.
- Pros: Easy to use. Supports offline crypto wallet integration. Many in-app features.
- Cons: Few security options. Limited token selection.
- Crypto Wallet Type: Software.
- Price: Free.
How to choose the Best Crypto Wallet for You
In the above crypto wallets list, we've accounted for different use cases, ensuring there's something for everyone. How and why you use your wallet will ultimately determine which wallet is best for you. Consider the following:
How Experienced Are You?
Experienced users have more flexibility when it comes to choosing the perfect wallet. They know how to use them and how to keep them safe. They have also been around this industry long enough to have a firm grasp on what features they need.
If you're new to crypto in general, look for more beginner-friendly options, such as the Zengo Wallet.
Will You Be Using it Regularly?
Hardware wallets are great for long-term storage, providing a level of security not offered by software wallets. But they can be fiddly and restrictive if you're buying and selling cryptocurrency every day.
It's akin to comparing a cash wallet to a digital wallet. With a cash wallet, you can only use your money/cards when you have the physical wallet. A digital wallet, however, is available whenever you're on your computer or phone.
Are You Tech Savvy?
There are always risks, whether it's physical theft with a hardware wallet or hacking with a software wallet. If you're not clued up on these risks and can't fully protect yourself from malicious attacks and theft, a simple, support-backed option may be best.
The Zengo Wallet is a good choice, but you can also simply keep your assets in a custodial wallet managed by a crypto exchange.
Will You Use Any Advanced Features?
There's no point sacrificing features you need for ones you don't. Some advanced features, such as multi-signature support, protect your crypto assets and are advisable. Others, such as NFT management, integrated apps, and touchscreens on hardware wallets, are optional.
Setting Up Your First Crypto Wallet: Step-by-Step Guide
The setup process varies by wallet, but it's always straightforward. Here's how to set up all of the wallets from the above crypto wallets list:
Set up Your Ledger Flex Wallet
- Hold the button on the right side of the wallet to turn it on.
- Follow the on-screen instructions.
- Select "set up with Ledger Live mobile".
- Scan the QR code with your phone.
- Pair the devices and confirm that the codes match.
- Choose "set name" and name your wallet.
- Click "choose my PIN" to set a wallet PIN (4 to 8 digits).
- Create a Secret Recovery Phrase.
Set up Your Zengo Wallet
- Download the Zengo Wallet app from the Google Play or iOS App Store.
- Enter and then verify your email address.
- Secure your wallet with a PIN or Face ID.
- Create your Recovery Kit.
Set up Your Exodus Wallet
- Download the Exodus Wallet on your desktop.
- Open the wallet.
- Click the settings (gear) icon.
- Create a password in the "security" tab.
- Store your private key/recovery phrases safely.
- Follow the onscreen instructions to verify your recovery phrase.
How to keep your wallet safe
Security starts with the wallet itself. Choose a hardware/software wallet that uses multiple layers of security, including tamper-proof features, multi-factor authentication, and multi-signature support. The Ledger Flex and Zengo Wallet, both mentioned in our list of the best crypto wallets above, are excellent options for this.
- Beyond that, it's your responsibility to secure the wallet and the crypto keys within. Follow these tips to stay safe:
- Store hardware wallets in secure locations.
- Don't share private keys with anyone.
- Use long and secure passwords when prompted.
- Don't tell anyone where your wallet is stored.
- Be wary of suspicious emails, and don't click the links.
- Ignore calls/texts from people asking you to transfer crypto.
- Secure your phone and computer.
Frequently Asked Questions
How do cryptocurrency wallets work?
They use PKC cryptography to pair public and private keys. The public key can be shared publicly and used to initiate a transaction. The private key then authorizes and verifies the transaction. Wallets are used to manage, send, and receive crypto, but while they store secure and important information, they don't store the actual assets.
What are the best cryptocurrency wallets for beginners?
The Zengo Wallet is one of the best for beginners. It's intuitive, user-friendly, and swaps seed phrases for a far simpler process. Check out our crypto wallets list above for more information.
How do I track my crypto wallet transactions?
You can track specific transactions and explore full transaction histories using your wallet or a blockchain explorer, such as Blockchair, Solscan, BlockCypher, and Breadcrumbs.
Is transferring crypto between wallets taxable?
It's not taxable if you are simply moving your crypto from one owned wallet to another wallet. However, it's taxable if the transaction involves a capital gains profit or is transferred to someone else.
What happens if I lose access to my crypto wallet?
If you still have your seed phrase—a series of words used to restore access—you can recover your wallet and the crypto within. If you lose your private keys and seed phrase, and it's a non-custodial wallet, it's very difficult to recover. Try contacting the wallet provider or hiring a crypto recovery service.