What Is Crypto Wallet?
Also known as: Wallet, Cryptocurrency Wallet, Digital Wallet
In short
A crypto wallet is software or hardware that stores the private keys giving access to cryptocurrencies and signs transactions; coins do not sit in the wallet but on the blockchain, and the wallet holds the authority to use them.
Wallets are classified in several ways. Mobile, desktop or browser extension wallets connected to the internet are called hot wallets, while hardware and paper wallets that keep keys offline are called cold wallets. They are also distinguished by who holds the keys: in custodial wallets, a third party such as an exchange holds the keys, while in non-custodial wallets, the user holds them.
Most non-custodial wallets generate a 12- or 24-word recovery phrase (seed phrase) during setup. This phrase is a backup of all the keys in the wallet; even if the device is lost, the wallet can be restored on another device with this phrase. Newer approaches such as account abstraction offer features such as social recovery and spending limits through smart contract wallets.
A user who loses their recovery phrase may permanently lose access to their assets; someone who gets hold of the phrase can transfer the funds instantly. Fake wallet apps, phishing sites and malware are among the main threats. For this reason, never entering the recovery phrase on any website and not storing it in digital form are counted among the basic security rules.
Last updated: · This content is for information purposes only and is not investment advice.