There’s no better way to protect your crypto investments than with the right wallet.
That’s because a crypto wallet amounts to “the keys to the kingdom,” says Brent Campbell, founder and managing director of Fort Lauderdale, Florida-based digital-asset investment firm NXS Crypto Fund. “I tell clients that a wallet is the first step for anyone who wants to participate in the blockchain ecosystem — its purpose is to save, store, and receive [crypto] coins anywhere in the world, without a bank.”
Table of Contents
- 1 The 6 Best Crypto Wallets
- 2 Coinbase Wallet — Best Crypto Wallet for Beginners
- 3 Best Crypto Wallets: Compared
- 4 Do You Need a Crypto Wallet to Own Cryptocurrency?
- 5 Custodial Wallets vs. Noncustodial Wallets
- 6 Cold Wallets vs. Hot Wallets
- 7 How to Choose a Crypto Wallet
- 8 How to Protect Your Crypto Wallet
The 6 Best Crypto Wallets
Not all crypto investors technically need their own wallet, since most mainstream exchanges allow you to store your crypto within your account, much like how a 401(k) or IRA lives within a Fidelity or Vanguard account. But unlike the traditional stock market, there aren’t robust federally mandated protections in place for crypto investors. So as the value of your crypto becomes more significant, you could benefit from the added security that comes with your own wallet.
Depending on your investment strategy, you might consider a hot or a cold wallet, or a wallet offered by your go-to exchange. We asked four crypto experts what long-term investors should know. Based on our own research and input from the experts, here are six of the best crypto wallets long-term investors should consider.
Coinbase Wallet — Best Crypto Wallet for Beginners
Best Crypto Wallets: Compared
Do You Need a Crypto Wallet to Own Cryptocurrency?
You don’t need a crypto wallet to own cryptocurrency, especially if you don’t have too much and are new to exchanges and the world of crypto. But if your holdings are piling up and you’d like more security and more control, this could be a good time to find the right wallet. Especially if you’re secure in your understanding of things like private and public digital keys, and other aspects of crypto security.
“The wallet is like a gateway into the crypto world,” says Bec Jones, CEO and co-founder of blockchain-app developer Clutch Wallet. “It’s the first product you download, and it’s the first thing you need.”
A digital wallet is similar to a physical wallet in some ways, says Jones, but while your physical wallet may contain cash, credit cards, and even photos of your loved ones, a digital wallet may hold the online equivalents — cryptocurrencies, NFTs, and more.
Of course, digital wallets are not made of leather, but rather, strings of code — they are software or an application (sometimes physical hardware, too) that are installed on your computer or smartphone. Different crypto wallets have different features, but most have basic functionalities, Jones says, like swap and send options, and the ability to make purchases within the wallet. Many allow users to connect debit and credit cards, too.
But digital wallets, like physical ones, come in a range of types. One of the most important distinguishing features concerns custody.
Custodial Wallets vs. Noncustodial Wallets
The basic difference between custodial and noncustodial wallets is that a custodial wallet’s private key is held by a custodian, or a third-party. For example, if you get your wallet through a crypto exchange, it’s likely a custodial wallet, and the exchange likely holds the keys.
A noncustodial wallet is privately held by its owner, so you hold the private key and are fully responsible for control of your assets. Using a noncustodial wallet would be like depositing cash in a vault at your home, rather than at a bank. The issue, however, is that you could lock yourself out of that vault with little hope of retrieving your assets, because no third party can help you.
The learning curve for new crypto investors is steep, and the stakes are high. For example, you may potentially risk your investments if you don’t know how to protect your sensitive information, says crypto expert Wendy O.
So if you’re a new crypto investor, Wendy O recommends a custodial wallet from an exchange.
Cold Wallets vs. Hot Wallets
Another critical thing you should know is the difference between cold wallets versus hot wallets.
The primary difference is that hot wallets are connected to the internet, or store assets in the cloud (i.e., “hot”), whereas cold wallets are not, and are often encased in a piece of physical hardware, like a thumb drive. Therefore, a cold wallet is impervious to hacking attempts and provides an almost insurmountable layer of security to its contents, barring the hardware being stolen.
“A cold storage solution is the safest place to hold your funds,” says Charlie Brooks, CPO and co-founder of Crypto Asset Recovery, and Chris’ son.
On the other hand, a cold wallet introduces the risk that you might lose the physical device and all the cryptocurrency it holds. So there is a trade-off for that extra security, which is also why some investors keep their cold wallets locked up in safe deposit boxes or even a safe in the home.
How to Choose a Crypto Wallet
When you’re ready to choose, you’ll want to know whether a crypto wallet is custodial or noncustodial, whether it’s hot or cold, and what coins or tokens it can hold, too.
You’ll also want to keep the price in mind. You can purchase some cryptocurrency wallets outright for a one-time fee, while others charge fees for moving assets in or out.
You could start winnowing down your choices by considering whether wallets have been on the market for a while, says Campbell. “Look at how long each wallet has been around. Are they battle-tested?” he says. And check if a wallet supports the types of crypto you want to purchase. “Not every wallet has the capacity to buy every token,” he says.
Generally, you’ll want to consider these factors to narrow down your selection, taking into account your security preferences and trading/investing activity:
- Custodial vs. noncustodial (self-custody)
- Storage type: Hot vs. cold
- Number of supported coins and tokens
- Purchase cost or fees
How to Protect Your Crypto Wallet
No matter which wallet you choose, be sure to keep security top of mind. You’ll need to safely store your seed phrase, which is a series of words generated by your wallet that allows you to access your crypto. It’s basically a password the wallet makes for you. So you want to physically write it down and store it in a safe or vault, as opposed to jotting it on a piece of scrap paper next to your computer, where it can be lost or discarded, potentially locking you out of your wallet forever.
“It’s more likely that you’ll throw it away if it’s on a Post-It note,” says Charlie Brooks.
Campbell says that he has his seed phrase in a vault, and written down in two other separate locations. He recommends crypto investors do the same. “If you lose it, it’s gone,” Campbell says.
After all, your seed phrase is the key to your wallet. “Your wallet is your identity point,” says Jones. “It’s going to be a fundamental, daily-use product for people interacting on the web.”
So once you’ve chosen your wallet, make sure your seed phrase is protected and easily accessible to only you. “Keeping track of your seed phrase is much more important than choosing the right wallet,” says Chris Brooks.
Read more: Best wallets crypto – Krypto-NFTs