What is a Crypto Wallet (Cryptocurrency Wallet)?

A crypto wallet (cryptocurrency wallet) is software or hardware that enables users to store and use cryptocurrency.

With cryptocurrency, there's no tangible currency, no paper money to place within a physical wallet or purse. Cryptocurrency exists on the blockchain, and there's no physical manifestation that a user touches. But there's still a need for individuals and organizations to understand ownership of cryptocurrency assets and to be able to know how much is held, much like a bank account provides a bank balance.

A crypto wallet provides a way for users to validate an account balance to provide visibility into how much cryptocurrency the user owns. A crypto wallet enables users to send and receive cryptocurrency transactions -- an approach that's similar in concept to how a traditional bank account enables users to conduct transactions. For many users, a crypto wallet is a primary mechanism for managing cryptocurrency balances.

As with any type of currency, cryptocurrency can be accumulated and used for any number of different purposes and transactions. Crypto wallets serve a foundational role in enabling crypto assets and cryptocurrency to be functionally useful for individuals and organizations, much like a bank account is foundational for fiat currency.

Crypto wallets are needed for several critical things that help to enable the practical utility of cryptocurrency, including the following:

With a physical wallet, individuals can hold fiat currency or bank and credit cards, which enable access to funds. A crypto wallet doesn't hold cryptocurrency, but rather holds the privileged credentials needed in the form of private keys to access the blockchain for a given cryptocurrency.

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With a traditional bank, users receive bank accounts with account numbers. With a cryptocurrency blockchain, the public key serves the same basic concept as the bank account number. Simply having a bank account number or a public key isn't enough to conduct a full set of transactions with an account.

Blockchain works with a public key infrastructure model for cryptography. A public key and private key are only supposed to be known by users that hold a given asset or cryptocurrency. Both keys are needed to access and transfer cryptocurrency. Just as a private personal identification number is used to access a bank account with a bank card, a private key is needed to access the asset on a blockchain.

Crypto wallets hold the user's private key and information, while public keys are located on the blockchain. With the combination of public and private keys, a crypto wallet can enable a secured operation to validate a balance and send or receive cryptocurrency transactions.

Crypto wallet users get to choose not just the service or vendor that supplies a crypto wallet, but the deployment approach as well.

There are functionally two core types of crypto wallets: hot wallets and cold wallets. Hot wallets are generally always on and connected to the internet, while cold wallets, sometimes also referred to as cold storage, are typically disconnected and only connect online as needed.

Within the category of cold wallets are two primary types:

Within the hot wallet category are three types:

Crypto wallet types are either custodial or noncustodial. The fundamental difference between custodial and noncustodial wallets is control:

There are numerous benefits to a crypto wallet and potential disadvantages, depending on the type of wallet being used.

The primary benefit for all types of crypto wallets is that they enable individuals and institutions to hold crypto assets and participate in the Web 3.0 economy. Simply put, without crypto wallets, it's hard to directly own and control crypto assets.

While crypto wallets are essential and critically important for Web 3.0 and cryptocurrency, there is some risk to custodial and noncustodial types of wallets. The greatest risk for all types of wallet is the potential for theft, fraud or cyber attack.

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There's no shortage of crypto wallets for users across every type of approach. For paper wallet users, the options include any type of paper, notebook, whiteboard or surface on which the user can write a series of numbers.

Examples of hardware wallets include the following:

Examples of hot wallets include the following:

The first choice of cryptocurrency wallet for new users is often an online wallet with the crypto exchange to buy and sell cryptocurrency. While that choice might be the easiest, it's not necessarily the best choice for all users. Consider the following when choosing the best crypto wallet:

When a person dies, any cryptocurrency they owned is treated as an asset. Cryptocurrency goes through probate like other assets before going to beneficiaries. The cryptocurrency needs to be listed in the estate plan and can be passed on to named beneficiaries when the owner dies.

But someone needs the crypto wallet's private key to open it and gain access. If the deceased doesn't leave the details of their private key, the cryptocurrency will be nearly impossible to access. If crypto wallets are not listed in a will or trust, they may never be found. There are a few options to ensure cryptocurrency is inherited, including the following:

When going through a divorce process, parties should list cryptocurrency as assets and not income on financial disclosures. The value of cryptocurrency varies based on current exchange rates and can fluctuate significantly, which should be considered when determining the value. Dividing property during divorce varies by state, and typically, dividing cryptocurrency is similar to dividing any other assets among parties.