One of the very first and most important prerequisites everyone comes across when getting started with crypto is setting up their personal cryptocurrency wallet.

Considering that each crypto wallet comes with important pros and cons, the task of choosing a wallet shouldn't be rushed. Yet, the amount of available wallets on the market is large and may be overwhelming at first glance.

We have summarized everything you need to know about crypto wallets on this page to help you choose and use a wallet wisely.

In essence, a wallet for cryptocurrencies is a tool for storing, sending, and receiving cryptocurrencies, similar to a traditional wallet for cash money.

A crypto wallet automatically interacts with the highly complex tech of cryptocurrencies while offering you a beginner-friendly interface that makes using crypto as easy as online banking.

This makes crypto wallet the go-to tool for everyone — from beginners to experts — to use cryptocurrencies and blockchain technology in a safe and reliable manner.

There are three major types of wallets for cryptocurrencies, each coming with a unique set of benefits and drawbacks.

	Custodian Wallets	Software Wallets	Hardware Wallets
Free to get	Yes	Yes	No
Easy Usage	Yes	Yes	Yes
Access to Private Key	No	Mostly	Yes
Sending and Receiving	Mostly	Yes	Yes
Selling and Buying	Yes	Rarely	Rarely
Customer Support	Yes	No	No
Secure	From Your Mistakes	From Exchange Hacks	Yes
Example	eToro	Exodus	Nano S Plus

The most straightforward to use crypto wallets are the custodian wallets offered by the same trading platforms that you can buy and sell cryptocurrencies on.

To use such an automatically managed wallet, you simply need to register on any available crypto trading provider.

While using the custodian wallets of exchanges and brokers requires no complicated setup process from your side and leaves barely any room for mistakes, it's important to understand that in that case, the platform has full control over your cryptocurrencies.

Ultimately, cryptocurrencies were invented to give financial sovereignty to the individual, and leaving your crypto assets on third-party platforms accomplishes quite the opposite of that.

Yet, because transferring crypto assets from custodian platforms to your own wallet involves a fee, it's a valid approach to leave small amounts of crypto on exchanges, while transferring the rest to a dedicated software- or hardware wallet for self custody.

For starters, the vast majority of users will have to make use of custodial wallets to get their hands on some cryptocurrencies. The best crypto custodial wallets that we have personally tested are those of eToro, Bitpanda, and Bitvavo.

• We believe the custodial crypto wallet of eToro is best for most beginners as it has the least barriers to entry, with many deposit methods, such as PayPal, relatively low fees, and 75+ supported cryptocurrencies. As of now, the custodial crypto wallet of eToro is limited to trading, storing and sending cryptocurrencies to external wallets and does not support receiving crypto from external wallets. Also, withdrawing crypto from eToro's wallet to your personal wallet comes with rather high fees.

• The custodial wallet of Bitpanda comes with similar beginner friendliness as eToro and in addition to trading, storing, and sending also supports receiving of 200+ crypto assets. Yet, Bitpanda lacks some deposit methods, such as PayPal, which may not make the custodial wallet suitable for everyone.

• The most cost-efficient custodian wallets are from Bitvavo with 175 coins and Kraken with 210 supported cryptocurrencies. Both these providers allow for receiving, storing, and sending crypto for very low fees, which makes them great custodian wallets for advanced users.

Software wallets are the most commonly used crypto wallets, as they can be used free of charge and at the same time allow you to gain full ownership and control over your crypto assets.

As the name software wallet suggests, this type of crypto wallet is a computer program, browser extension, or mobile app that can be installed directly on your device, giving you full control over your cryptocurrencies.

While software wallets are by far not perfect, they seem to provide the perfect sweet spot of self-custody, security, and cost.

While software wallets are free of charge and allow you to be your own custodian, they involve a higher risk of crypto hacks. This is because, unlike hardware wallets, software wallets store all keys required to access your crypto assets directly on your device.

Even with password encryption, you should always keep a high level of caution and only use devices that you consider to be free of any viruses when using software wallets.

A major issue with popular software wallets that support many different cryptocurrencies, like Exodus, Trust Wallet, and BitPay, is that they are closed-source, meaning no one really knows what they're doing under the hood.

This has led to critical incidents, like one of the major cryptocurrency wallets Atomic being hacked due to software errors that could have been noticed earlier if the wallet was open-source.

That's why we highly recommend choosing long-tested crypto wallets with an open-source, dedicated to specific cryptocurrencies, like Wasabi or Electrum for Bitcoin, or AirGap for Ethereum. These types of crypto wallets are limited to single cryptocurrencies and share their source code publicly for anyone to verify, which makes them more trustworthy in most cases.

Still, for cryptocurrency investors who want to dabble in all sorts of blockchains, using a multi-coin wallet is still the most convenient and perhaps the only realistic option.

As mentioned previously, software wallets come with security concerns as they store the access keys to your crypto on your device, which is prone to malware and hacks.

To reduce the risk of cryptocurrency theft, the crypto industry has come up with so-called hardware wallets. These dedicated hardware devices store the access keys of your crypto assets on a separate, secure device that does not directly share them with any connected device.

Note that hardware wallets are not a replacement for simple software wallet applications, but rather just an add-on that allows those software wallets to securely store your access keys.

In fact, using a hardware wallet is just as easy as using a software wallet, with the only addition of having to plug in a small USB device while using your wallet app.

Still, because the prices for these crypto wallets often range to $100, we generally only recommend hardware wallets to those who own significantly valuable crypto assets worth the extra security.

Technically speaking, every single cryptocurrency wallet creates and manages a unique pair of private- and public keys for you. The combination of these cryptographic keys allow you to send and receive crypto assets.

In practice, all you need to do to receive cryptocurrencies via a crypto wallet is

1. Navigate to receive or deposit

2. Copy your receiving address

3. Share it with others, who will use it as the destination address of their crypto transaction

From a technical point of view, your crypto wallet utilizes your uniquely generated public key to generate one or many unique receiving addresses that you can publicly share with anyone.

When others send crypto to you, their wallet internally encrypts a portion of their assets with the receiving addresses you have shared with them. Those cryptocurrencies will only be decryptable using your private key.

The Asymmetric cryptography of blockchains ensures that you will be the owner of all crypto assets sent to any of your receiving addresses, as they are cryptographically tied to your private key that only you have access to.

For UTxO-based blockchains, like Bitcoin, Litecoin, and Cardano, crypto wallets often generate a new receiving address every single time you receive crypto in order to enhance your privacy. Unlike often misunderstood, you can continue to receive crypto assets using "old" receiving addresses, as they are forever cryptographically bound to your wallet's private key.

Similarly, sending cryptocurrency assets in your wallet simply requires you to

1. Navigate to send

2. Enter a recipient address

3. Confirm your transaction

When you send someone cryptocurrencies like Bitcoin, your wallet uses digital signatures to "decrypt" a portion of your cryptos using your private key, and "encrypt" them with the recipient's receiving address. As a result, these cryptocurrencies can only be decrypted using the recipient's private key — meaning you essentially sent crypto from your wallet, to the wallet of your recipient.

Note that the mentioned digital signatures are the only thing that proves to the public crypto network that you are the true owner of your crypto assets, which in return allows you to "decrypt" and transfer them. Since anyone who has access to your private key can forge digital signatures on your behalf, it is highly important to keep your private key safe, for example, by using a hardware wallet.

Fortunately, cryptocurrency wallets hide all these complex cryptographic processes from users, which makes sending and receiving crypto assets via a wallet of your choice beginner-friendly.

It is important to know that some wallets offered by crypto trading platforms do not support unrestricted receiving and sending of cryptocurrencies, as third-party platforms control and often restrict their usage. Crypto wallets offered by exchanges and brokers are therefore often referred to as custodial wallets due to their guardian and restrictive nature.

On the other hand, hardware and software wallets for cryptocurrencies are called non-custodial wallets. These wallets manage your public and private keys internally on your computer or on a separate device, giving you full control over your crypto assets.

Therefore, the latter wallets, i.e. "real" hardware or software wallets, are a must for every active crypto user, in addition to a custodial wallet with a trading provider.

Unlike online banking, there is no such thing as reverting a transaction or recovering your funds by consulting customer support when using crypto wallets. Instead, cryptocurrency wallets give users full custody and responsibility for their assets.

Namely, after you download a crypto wallet application of your choice, you will be presented with a unique mnemonic phrase consisting of 12 or 24 words that represent your private key and allow you — or an intruder — to access your crypto asset from any device.

A rule of thumb is the more crypto assets you own, the more effort you should put into securely backing up your cryptocurrency wallet. Beginners who buy crypto for a few dollars obviously shouldn't take security precautions that cost more than their crypto assets, like buying a hardware wallet or engraving.

Anyone feeling unwell about the self-responsibility of backing up a crypto wallet may consider using custodial wallets that often offer internal hack insurances for anyone storing crypto assets on their platforms. Note that this option comes with risks of the custodial platforms going bankrupt, causing you to most likely lose your assets.

Summing up, crypto wallets provide essential features for sending and receiving cryptocurrencies, that make them an essential tool for every single cryptocurrency user.