Types of Crypto Wallets | Ledger
| KEY TAKEAWAYS: |
| — Crypto wallets are essential for managing digital assets and participating in Web3. — Many users struggle to understand the different types of wallets and their security implications. — Ledger devices offer the best balance of security and usability for users. |
Beyond just storing your private keys, today’s crypto wallets are your passport to the blockchain, enabling the multifaceted web3 experience we know today. However, there are countless different wallets to choose from: some focus on connectivity with dapps, while others focus on security. Then there are wallets designed for specific apps, metaverses, and even experimental digital assets like Bitcoin Ordinals.
If you’re new to crypto or want to learn more, you might wonder, “How many different types of crypto wallets are there?” or “Which type of crypto wallet is best for me?”
In this guide, Ledger Academy will take you through all of the different types of crypto wallets, how they differ, and which you might want to choose for yourself.
What is a Crypto Wallet?
A crypto wallet secures the private keys that grant access to your cryptocurrencies, allowing you to send, and receive digital assets. Some wallets may also have additional functions, allowing you to participate in decentralized finance (DeFi) protocols, purchase (and display) NFTs, explore metaverses, and much more.
Types of Wallets: Custodial vs Non-Custodial Wallets
Understanding the distinction between custodial and non-custodial wallets is crucial for managing your cryptocurrency securely. This difference fundamentally affects your control over your digital assets.
Custodial Wallets
Custodial wallets are controlled by a third party which then allows you to manage, usually via an account similar to web2 services. Wallets offered by centralized exchanges such as Coinbase, Binance, and Kraken fall into this category.
Using a custodial wallet requires placing a high level of trust in the service provider, as they have the power to seize your funds or lock you out of your account. Of course, you could also lose your funds if the centralized entity holding them goes under, as when FTX infamously crashed in 2022.
Ultimately using a custodial wallet means you don’t really own your funds, and is contrary to the founding principles of crypto. Remember: not your keys, not your coins.
Centralized Exchange Wallets
Centralized exchange wallets, offered by platforms like Coinbase, Binance, and Kraken, are a common starting point for users entering the world of cryptocurrency. These wallets provide custodial services, meaning the exchange controls your account and allows you to access it using a familiar username and password process.
This setup gives control over your funds to the exchange.
| Pros | Cons |
| Integrated with exchange services, allowing for seamless trading and asset management. Offers features like fiat on-ramping, or peer-to-peer trading, making it easy to buy and exchange crypto with traditional currencies. | Custodial by nature, meaning the exchange controls your private keys, limiting your ownership. Regulatory issues or local laws could restrict access to your funds. Service outages can lock you out of your assets, even during critical trading periods. |
For those who prioritize ownership and security, exploring non-custodial wallet options where you retain full control of your private keys is the only viable option.
Non-custodial Wallets
Non-custodial wallets put you in full control of your crypto assets by allowing you to hold your private keys with no intermediaries involved. This means only you can access and manage your funds.
While they may take a bit more effort to set up, they offer greater autonomy, security, and true ownership. However, with this level of control comes responsibility: if you lose your private keys or recovery phrase, you could lose access to your assets—forever.
Types of Non-Custodial Wallets: Hot Wallets vs Cold Wallets
Non-custodial crypto wallets come in two main types: hot or cold wallets.
Hot wallets such as MetaMask and Phantom are free and operate via software on an internet-connected device, such as a laptop or smartphone. This makes them very convenient, especially for newcomers, but it’s important to note that their connection to the internet is also their biggest shortcoming. That’s because crypto wallets connected to the internet are vulnerable to online threats.
Cold wallets operate offline instead. While there are a few different types of cold wallets, such as paper wallets or sound wallets, the best combination of security and usability comes in the form of a hardware wallet. This is a physical device that keeps your private keys isolated from your internet connection, protecting you from the risks of malware and hacking.
Types of Hot Wallets
Desktop Wallets
Desktop wallets are software applications installed on personal computers. These non-custodial wallets allow users to send, receive, and manage cryptocurrencies, interact with decentralized applications (dApps), explore metaverses, and participate in token swaps.
Desktop wallets generate and store users’ private keys on the device, offering enhanced security by storing data locally. While this local storage can reduce exposure to online threats, users must remain vigilant against malware and potential hacking attempts targeting their computers. Furthermore, a compromised desktop system could lead to unauthorized access and potential loss of funds, emphasizing the importance of robust security measures and regular backups.
| Pros | Cons |
| Offers self-custodyFree to download and use | Vulnerable to online threats such as malware |
Mobile Wallets
Known best for their convenience, mobile wallets are smartphone apps that store your private keys, allowing you to manage your digital assets on the go. These wallets are best known for their convenience. Features like QR code scanning simplify transactions, while integration with other apps enhances functionality. Many offer real-time price alerts and transaction notifications.
However, the convenience of mobile wallets comes with risks. While device theft or loss could put your funds at risk, mobile wallets are highly susceptible to SIM Swap attacks. Additionally, because smartphones are connected to the internet, they are susceptible to hacking, malware, and viruses. What’s more, users must also be cautious of accidental transactions due to the wallet’s always-accessible nature.
| Pros | Cons |
| Highly portable and convenientFree to download, install, and use | Vulnerable to online threats |
Web Wallets and Browser Extensions
Web wallets operate via web pages. This is the least secure type of software wallet as your private keys are typically stored within your account information on the platform’s server. It’s recommended to stay away from platforms like this at all costs.
Browser extension wallets have a similar weakness, as they are perpetually connected to the internet, and either store your private keys on your host device or within your browser’s data store. In any case, these types of wallets are always connected to the internet, leaving them vulnerable to online threats.
| Pros | Cons |
| Free and easy to download | Leaves your private keys vulnerable to online threats |
Types of Cold Wallets
Cold wallets significantly reduce the risk of unauthorized access or hacking attempts by keeping sensitive information isolated from the internet. Their offline nature creates a formidable barrier against remote exploitation.
Paper Wallets
Paper wallets are a low-tech form of cold storage for cryptocurrencies. They are printed pieces of paper with a crypto address’s public and private keys written/printed on them. Generating a paper wallet requires paper wallet generator software. To ensure it generates your private key securely, you must make sure you follow the generation process when your device is offline. Once you’ve generated your keys, you can print them.
These days, paper wallet generator software gives you the option to print your keys as a QR code to make storing and interacting with the wallet simpler.
While paper wallets are secure from online threats, they are extremely vulnerable to physical damage. Plus, malicious paper wallet generators are also an easy way for hackers to steal from you, so make sure if you use one, it has a good reputation.
| Pros | Cons |
| Immune to online hackingFree Can be easily hidden or stored in secure locations | Potential for human error when recording private keysVulnerable to physical damage or lossReceiving change to a paper wallet involves setting up a change address each time. This is inconvenient when it comes to managing Bitcoin etc.Prone to fraudulent private key generator websites/softwareNot compatible with blockchain platforms and appsVulnerable to physical theft |
Hardware Wallets
Hardware wallets are the solution to the problems that cold wallets like paper wallets present. They are physical devices designed specifically for securing cryptocurrency private keys. These portable units store private keys in a secure chip, isolated from internet-connected devices. Depending on the hardware wallet provider, this chip may also be resistant to physical hacking. Since they are isolated from online threats, hardware wallets are widely considered the most secure method for managing digital assets.
For example, Ledger devices generate and store private keys offline in a secure element chip, resistant to physical hacks such as glitching and laser fault injections. They also drive their screens directly with that secure chip, meaning you can trust the details a Ledger device’s secure screen shows.
To take this security a notch further, Ledger’s latest line of secure touchscreen devices make it so that you sign transactions directly on your device and move away from relying on a third-party (mobile or laptop) screen to verify details.
Designed by Tony Fadell, the Godfather of the iPod, Ledger’s premium hardware wallet, Ledger Stax is a style statement giving you uncompromising security with an unmatched level of immersive personalization—allowing you to display images or NFTs on its 3.7” 16 grayscale curved E Ink® touchscreen. It combines this experience with connectivity across Bluetooth and NFC and adds a premium battery life of several weeks. To add to this, the Ledger Stax also comes with wireless Qi charging, further extending the functionality life of your crypto activities in the real world.
Ledger Flex is the entry point into Ledger’s next-generation secure touchscreen hardware wallets, offering secure self-custody with an improved user experience at an attractive price point. Its 2.8”, customizable E Ink touchscreen benefits from the secure touchscreen technology introduced with Ledger Stax, allowing you to read transaction details clearly.
| Pros | Cons |
| Highest level of securityGenerates and stores private keys offline | Costs money |
Why Are Crypto Wallets Important?
Crypto wallets offer a way to manage and control your digital assets directly, without relying on third parties. Good wallets strike a balance between ease of use, self-custody, and security.
Ease of use is essential because crypto can be complex. You want a wallet that makes it simple to send, receive, and manage your assets. Self-custody is the core principle of “not your keys, not your coins“. It means you have full control over your funds, not trusting them to exchanges or other services. Most importantly, security is priority one in crypto, which means protecting your investments from hackers, online threats, and theft.
Ledger devices excel in all these areas by combining cutting-edge hardware security features with user-friendly software interfaces. Their Secure Element chip, custom operating system, and secure screen work together to provide unparalleled protection for your private keys, while the Ledger Live app offers an intuitive platform for managing your assets and interacting with various blockchain services.
How To Use A Crypto Wallet?
Crypto wallets are the gateway to all kinds of web3 experiences like buying and trading crypto, surfing metaverses, joining DAOs, staking & DeFi, buying NFTs & memecoins, and much more.
Choosing a crypto wallet depends on your particular needs. A good balance between ease of use, security, and support for multiple currencies are huge factors as to why someone would consider using particular crypto wallets. Of course, hardware wallets offer the best security through specialized systems and designs.
Ledger devices offer all of these and more, paired with the Ledger Live app that allows you to manage your crypto assets securely and conveniently. The app provides a user-friendly interface for buying, selling, swapping, and staking various cryptocurrencies directly from your hardware wallet.
Starting out using your wallet, you may first want to dive into your wallet’s basic functions: sending, receiving, and swapping transactions. If you’re new to crypto, it’s always a good thing to master key crypto terminology like public and private keys, seed phrases, and transaction fees.
Finally, build confidence through small practice transactions. This hands-on approach will quickly transform you from a novice to a savvy crypto navigator, ready to explore the vast digital asset landscape being wary of online threats.
So why settle for anything less? Join over 7 million people who trust in unmatched, premium digital security. Grab a Ledger device today and start your web3 journey with peace of mind and confidence!
Frequently Asked Questions about Crypto Wallets
Do I Need a Crypto Wallet?
If you’re holding crypto or planning to engage with web3, you most certainly need a wallet. Even if you’re just starting out, having a wallet gives you direct access to the blockchain and protects your assets. Think of it as your personal bank in the digital world.
What Are The Types Of Crypto Wallets?
Crypto wallets come in 2 main types: Custodial, and Non-custodial. Custodial wallets typically refer to exchange wallets. For example, the wallets that you manage by creating an account on crypto exchanges such as Binance, Coinbase, Kraken, and so on.
Non-custodial wallets include a range of types: Software wallets (hot wallets) such as wallets integrated into apps or extensions that run on desktops, and mobile phones. Hardware wallets (cold wallets) are devices such as those offered by Ledger and offer the highest level of security to manage your crypto assets.
What Is the Safest Type of Crypto Wallet?
Hardware wallets are the safest type of crypto wallet. These physical devices store your private keys offline, significantly reducing the risk of hacking or unauthorized access. While no method is 100% foolproof, hardware wallets provide a strong balance of security and usability, making them ideal for storing large amounts of crypto or long-term holdings.
Which Type of Crypto Wallet Is Best for Me?
The best type of crypto wallet is the one that is most convenient and secure. Whichever wallet you choose, it’s important to protect your keys offline. So if you have to use a software wallet, you’ll want to use it in tandem with a hardware wallet to keep your private keys safe from online threats.