Cryptocurrency Wallet 101: Types, Features, and Security Measures Explained

1 month ago By Blockchain Mata

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Unlike traditional bank accounts where the bank is responsible for safeguarding your funds, with cryptocurrencies, you are responsible for the safekeeping of your own assets. This article will review Chapter 4 of 'How to Bitcoin' as we discuss the different types of cryptocurrency wallets and the measures you can take to secure your cryptocurrencies.

What is a cryptocurrency wallet?

A cryptocurrency wallet is a software that allows you to store, send, and receive cryptocurrencies. It manages your private and public keys, which are used to sign transactions and generate cryptocurrency addresses, respectively. 

To simplify, your private key is like a password for your email account and your cryptocurrency address is like an email address where others can send cryptocurrencies to you. The underlying mathematics of keys and addresses is complex but not necessary to understand for basic usage of a cryptocurrency wallet.

With the private key, one can easily generate a public key. Using the public key, one can then generate a bitcoin address where bitcoins can be sent to. However, doing the reverse is nearly impossible mathematically.

Private key 

A private key is a secret code that is used to access and manage cryptocurrency transactions on a blockchain network. It is used to prove ownership of a public key, which is used to receive transactions. 

The private key must be kept secure and should never be shared with anyone, as it grants full access to any funds associated with the corresponding public key.

Public key 

A public key is a cryptographic key that is used to encrypt data that can only be decrypted using a corresponding private key. Public keys are used in public key cryptography (also known as asymmetric cryptography) to encrypt messages and verify digital signatures. Public key encryption is used in many secure communication protocols, such as SSL/TLS, which is used to secure communication on the internet.

Public keys and private keys are both used in the generation of cryptocurrency addresses, but they are not the same thing. Although public keys are typically shared with others, while private keys are kept secret, It is generally advisable to keep your public keys private and not share them unless it is absolutely necessary. Most users will not need to interact with public keys directly, as the technical details are handled by the wallet software.

Public keys can be used to create multiple addresses using a standard called BIP32 HD wallets.

Cryptocurrency Address 

A cryptocurrency address is a string of characters that represents the destination for a digital currency payment. It typically consists of a unique combination of letters and numbers and is used to identify the specific wallet or account to which the funds should be sent. 

Each cryptocurrency has its own unique address format, such as a Bitcoin address starting with the number 1 or 3, and an Ethereum address starting with the letters "0x".

Cryptocurrency Wallet 

A cryptocurrency wallet is a digital wallet that stores your digital currency such as Bitcoin, Ethereum, and others. It allows you to send, receive, and manage your digital assets. There are two broad categories of wallets (hot wallet and cold wallet) and different types of wallets, including hardware wallets, software wallets, and paper wallets, each with their own set of features and security measures. Some wallets are designed for a specific cryptocurrency, while others are multi-currency wallets that support multiple digital assets. It is important to choose a wallet that provides the necessary security and convenience for your specific needs.

Cryptocurrency wallets, despite the name, function similarly to personal bank accounts for digital currencies like Bitcoin, allowing users to transfer and receive the currency. Wallets are either Custodial or Non-custodial. 

A custodial wallet is a type of cryptocurrency wallet where the private keys are managed and stored by a third party, such as an exchange or other financial institution. 

These types of wallets are considered less secure than non-custodial wallets, where the user holds and controls their own private keys. However, custodial wallets may offer additional features and convenience, such as the ability to easily trade or exchange cryptocurrencies.

A non-custodial wallet is a type of cryptocurrency wallet where the user holds and controls their own private keys. This means that the user is solely responsible for the security of their funds and has full control over their transactions. 

Non-custodial wallets can take many forms, such as software wallets that are downloaded to a user's computer or mobile device, hardware wallets that are physical devices used to store private keys offline, and paper wallets that are printouts of a user's private and public keys. 

These types of wallets are generally considered more secure than custodial wallets, as the user is not reliant on a third party to manage and protect their private keys.

Choosing a wallet to store your funds is a personal decision and there is no one correct choice. It is important to choose a wallet that you feel comfortable with and to take necessary safety precautions. It is recommended to spread your funds across multiple wallets for added security. 

By the end of this section, you will have a better understanding of the different types of wallets available and can make an informed decision.

Hot Wallets 

A hot wallet is a type of cryptocurrency wallet that is connected to the internet. This allows for easy and convenient access to one's coins, but also makes the wallet more vulnerable to hacking and other forms of cyber attack. Hot wallets are typically used for the storage of small amounts of cryptocurrency, or for facilitating frequent trades.

Hot wallets come in two main varieties: desktop and mobile. Desktop wallets can be used on computers and laptops, while mobile wallets are apps that can be downloaded to smartphones.

Examples of popular hot wallets include Exodus Wallet (desktop) and Coinbase Wallet (mobile).

Coinbase Wallet is a mobile cryptocurrency wallet that allows users to store, manage, and securely access their cryptocurrencies, including Bitcoin, Ethereum, and Litecoin, from their mobile device. 

The wallet is available for both iOS and Android and is designed to be easy to use and secure, with features like biometric login and device-level security. 

The wallet also allows users to view their transaction history, send and receive cryptocurrencies, and interact with decentralized applications (dApps) on the Ethereum blockchain.

Additionally, Coinbase Wallet is a non-custodial wallet, which means that users have full control over their own private keys, giving them complete control over their funds.

Exodus Wallet is a software wallet for storing and managing digital assets such as cryptocurrencies. It is available for download on Windows, Mac, and Linux operating systems, and also has a mobile version for iOS and Android. 

Exodus supports a wide range of digital assets, including Bitcoin, Ethereum, Litecoin, and many others. It features a user-friendly interface, and also allows users to exchange one digital asset for another within the wallet using built-in integration with various exchange platforms. Additionally, Exodus has a built-in portfolio tracker that allows users to view their assets in real-time and track their performance.

Cold Wallets 

A cold wallet, also known as a cold storage wallet, is a type of cryptocurrency wallet that is not connected to the internet. Because these wallets are offline, they are considered to be more secure than hot wallets, which are connected to the internet and are therefore more vulnerable to hacking and theft. 

Cold wallets can take the form of a hardware device, such as a USB drive or a specialized hardware wallet, or they can be a piece of paper with a private key written on it. 

The main benefit of using a cold wallet is the added security it provides, as it makes it much more difficult for hackers to access your cryptocurrency.

There are two main types of cold wallets available: hardware and paper 


Hardware Wallets 

A hardware wallet is a type of cold wallet that is used to store cryptocurrencies offline. It is a physical device, typically the size of a USB drive, that is designed to securely store the private keys needed to access your cryptocurrency. These keys are stored on the device and are not accessible through the internet, making them less vulnerable to hacking and theft.

Hardware wallets also often include additional security features, such as a pin code or a recovery seed, to further protect your cryptocurrencies. Hardware wallets are considered to be one of the most secure ways to store cryptocurrencies, and are often recommended for users who hold large amounts of digital assets.

Some popular examples of hardware wallets include Trezor, Ledger, and KeepKey.

Paper Wallets 

A paper wallet is a type of cold storage method for storing cryptocurrencies offline. It involves printing the private and public keys of a cryptocurrency address onto a piece of paper, which can then be stored in a safe location. 

The private key is used to access and spend the funds stored on the associated public address, so it is important to keep the paper wallet secure and protected from damage or loss. 

This method is considered to be one of the most secure ways to store cryptocurrency as it eliminates the risk of hacking and other online threats.

Common Cryptocurrency Storage Risks

When you deposit money in a bank, it is typically insured by the bank and sometimes by government-backed deposit insurance schemes. However, when it comes to storing cryptocurrency, the responsibility of keeping it safe falls entirely on the individual. While it is possible to store bitcoins in an exchange or custodial wallet, there is no guarantee of safety and many hacks have occurred in the past. 

It is important to be aware of some common storage risks in the cryptocurrency ecosystem:

1. Hackers and cyberattacks 

Cryptocurrency exchanges and wallets are vulnerable to hacking attempts, which can lead to the loss of funds.

2. Human error

Users may accidentally lose access to their funds by losing their private key or seed phrase, or by sending funds to the wrong address.

3. Wallet vulnerabilities

Some wallets may have vulnerabilities that can be exploited by hackers.

4. Phishing

Phishing is one of the most common type of cyber attack that uses social engineering techniques to trick individuals into providing sensitive information, such as login credentials or financial information. This is typically done through email, text message, or social media message that appears to be from a legitimate source, but is actually from a malicious actor. 

The goal of phishing is to gain access to sensitive information or to install malware on a victim's device, so it is important to be cautious when providing personal information online and to be aware of the signs of a phishing attack.

Basics of Cryptocurrency Security

To protect your cryptocurrencies, implement some good security measures such as:

  • Password Manager 

Using a password manager is a good security practice for safeguarding your cryptocurrency. A password manager can help you generate and store strong, unique passwords for your various online accounts, including your cryptocurrency wallets. This can help protect against hacking attempts and other forms of unauthorized access to your funds.

To reduce your risk of being hacked, it is best to use different passwords for each online account. This way, if one of your accounts is compromised, your other accounts will still be secure. 

Password managers like 1Password or LastPass can assist in managing the many passwords you use by generating strong, unique passwords, storing them, and encrypting the login information. You only need to remember one strong master password to access your password vault.

Additionally, you can enable two-factor authentication on your cryptocurrency wallets to add an extra layer of security.

  • Two-Factor Authentication (2FA)

Two-Factor Authentication (2FA) is a method of confirming a user's claimed identity by utilizing a combination of two different mechanisms. 

These mechanisms can include something the user knows (such as a password), something the user has (such as a security token), or something the user has (such as a fingerprint). 

By requiring two methods of identification, 2FA makes it more difficult for unauthorized users to gain access to a system or account.

  • Remove Unused Browser Extensions

Removing unused browser extensions can help improve the security of your cryptocurrency storage by reducing the potential attack surface for malicious actors. Unused extensions may contain vulnerabilities that can be exploited, and they can also be used to track your browsing activity or steal personal information. 

Also, some extensions may have been compromised or replaced with malicious versions, so it is important to keep them updated and remove any that you don't trust.

  • Do Not Click on Ads

It is generally not recommended to click on ads, especially when it comes to cryptocurrency storage security. Ads can be used to spread malware or phishing scams, which can compromise your computer or steal your personal information, including your cryptocurrency wallet information. 

It is best to only access your cryptocurrency wallets and exchanges through official, reputable sources, and to always use a strong and unique password and two-factor authentication to protect your account.

It is also recommended to store your cryptocurrency in a hardware wallet, which provides an added layer of security by keeping your private keys offline.

  • Metal Storage Backup Tools

Metal storage backups are physical devices used to store the private keys associated with a cryptocurrency wallet. These keys are used to access and manage the funds in the wallet, so it is important to keep them secure.

Storing your seed phrase on a metal device such as a stainless steel tool can provide added security and protection against natural elements. These metal devices are designed to be durable and resistant to fire, water, insects, acid, and other potential hazards, ensuring the longevity of your seed phrase. 

Cryptosteel, Cryptotag Zeus, and Cobo Tablet are some popular companies that produce these types of metal storage devices. They are often fashioned in the shape of capsules or cassettes, allowing you to lock your seed phrase securely inside. It is also worth noting that these metal storage devices are not connected to the internet and thus less likely to be hacked or targeted by cybercriminals.


It is important to keep your cryptocurrency wallets safe and secure to protect your funds from hackers. Hardware wallets such as Trezor or Ledger are recommended for long-term storage as they store your funds offline. It is also recommended to backup the seed phrase used to generate the hardware wallet using a metal storage backup tool like Cryptosteel. 

Using a few different wallets for different purposes, like storing a bulk of your funds in a cold wallet and funds for active use in a hot wallet, is also a good practice. 

Ultimately, the choice of which cryptocurrency wallet to use depends on your own comfort level and preference. Evaluate your use case and consider the pros and cons of each type of wallet to make the best decision.


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