What Is a Crypto Wallet?
A cryptocurrency wallet is an application or device that allows you to manage your crypto assets. Crypto wallets are used to send, receive and store cryptocurrencies like Bitcoin and Ethereum. In the case of Ethereum and other smart contract enabled blockchains, crypto wallets are also used to interact with smart contracts, tokens and NFTs.
Contrary to traditional cash wallets, your crypto assets are not actually stored inside the wallet, but on the blockchain itself. A crypto wallet only stores the private keys (or Secret Recovery Phrase) that are used to sign transactions on the blockchain.
Types of Crypto Wallets
Cryptocurrency wallets come in many different forms. The most important distinction to make is between hot wallets and cold wallets, where hot wallets are connected to the internet, while cold wallets are not. Hot wallets are usually applications that run on your phone or computer, while cold wallets are usually physical devices, such as Ledger.
Hot wallets are more convenient to use, but less secure than cold wallets. Cold wallets are more secure, but less convenient to use. For this reason, it is recommended to use a combination of both hot and cold wallets, where hot wallets are used for day-to-day activity and storing small amounts of funds, while cold wallets are used for long-term storage and storing large amounts of funds.
A new trend in cryptocurrency wallets is accounts abstraction. With account abstraction, the wallet is not just controlled by a single private key, but by a smart contract. This smart contract can be used to implement advanced features such as social recovery, custom transaction flows, and paying for transaction fees in tokens other than Ether.
Standards for account abstraction are still in active development. Some proposals require changes to the Ethereum protocol, while certain types of smart contract wallets can already exist today. A popular smart contract wallet is Safe, a multi-signature wallet that allows you to manage your crypto assets with multiple owners.
Choosing The Right Wallet
As mentioned above, we recommend to use at least two different wallets, one hot wallet, and one cold wallet. For hot wallets you have the option to choose between a mobile wallet or a browser wallet. Popular browser wallets include MetaMask and Coinbase Wallet, while newer options such as the user-friendly Rabby are also available. Popular mobile wallets include Rainbow and MetaMask Mobile.
The most popular hardware wallet on the market is Ledger, while other options such as Trezor or Keystone are also available. Generally, you will need to use a software application to use your hardware wallet, such as Ledger Live. Most software wallets like MetaMask also have the option to securely connect your hardware wallet to the application, using the same familiar interface.