The origins of blockchain technology and crypto are steeped in the debate over who controls our money. It started with the question: “Can we hold and manage our own finances without intermediaries?”
Crypto wallets put that debate into practice by offering a spectrum of privacy and control options for managing funds. At one end are wallets that let you alone hold and manage your assets, with full responsibility for security and privacy. At the other end are custodial wallets, which entrust your assets to a third-party service (such as exchanges or banks), handling backups, recovery, and support. This spectrum lets each user balance independence against convenience based on their needs.
So what is a crypto wallet, and how does it hold digital assets? Crypto doesn’t sit “inside” a wallet. It lives on the blockchain. A crypto wallet holds the keys that prove you own it. Your private key is the sole proof that you own and can move your crypto. If you lose it, there’s no way to recover your funds. It is important that you choose a type of crypto storage that suits you best.
Wallets are categorized along two dimensions (how they connect to the network and who holds the private keys):
Control of keys:
Custodial (a third party holds the keys)
Non‑custodial (you hold the keys)
Connection:
Hot (online)
Cold (offline)
Everything fits somewhere on that grid. Let’s break it down with upsides, trade-offs, examples, and who each option suits.
Custodial Wallets
Custodial wallets allow you to access funds with an email and password while the service provider manages your private keys, and thus your assets. This setup simplifies onboarding, offers account‑recovery options, and integrates fiat on‑ramps and trading in one place. The trade‑off is trusting financial institutions: outages, hacks, or compliance actions can restrict or freeze your access.
Non‑Custodial Wallets
In a non‑custodial wallet, you generate and securely store your own seed phrase, granting you complete control and responsibility. Your funds cannot be frozen or seized, and you gain direct access to decentralized applications. However, if you lose your seed phrase, there is no help desk to recover it, so rigorous security practices are essential. Non‑custodial wallets suit users who prioritize sovereignty, privacy, and hands‑on engagement with Web3.
Hot Wallets (Online)
Software wallets connected to the internet via browser extensions, desktop apps, or mobile apps are considered hot wallets.
Hot wallets offer fast access to Web3 apps, token swaps, NFTs, and on-chain activity, and most can be set up in just a few minutes. Because they remain connected to the internet, however, they carry a higher risk of phishing, malware, and spoofed sites. These wallets are ideal for active users, like DeFi traders, NFT collectors, or anyone testing new protocols who needs quick, convenient access to their funds.
Non‑custodial hot examples:
MetaMask (browser wallet, EVM chains)
Trust Wallet (supports Ethereum, BSC, Solana, Polygon, and more)
Coinbase Wallet (standalone app, separate from the exchange; multi‑chain support)
Exodus (desktop and mobile, with built‑in exchange; multichain)
Custodial hot examples:
Coinbase Wallet inside the exchange app (keys with Coinbase)
Binance or Kraken “funding wallet” (access through the platform, keys with them)
Cold Wallets (Offline)
Cold wallets keep your private keys offline on a hardware device, and require you to sign transactions off‑line before broadcasting them from a connected computer. Because the keys never touch the internet, remote hacks become far less likely, making this approach well suited for long‑term storage. The trade‑off is convenience: each transaction takes extra steps, and if you lose the device or seed phrase without a backup, your funds become permanently inaccessible. Cold wallets are therefore best for long‑term holders, treasury funds, or anyone holding significant value.
Common cold‑wallet options include:
Ledger
A popular hardware device that stores keys in a secure element and connects via USB or Bluetooth.Trezor
One of the first hardware wallets, offering an open‑source firmware and a touchscreen on some models.Keystone
An air‑gapped, QR‑based signer that never touches a networked device, minimizing attack surface.Paper wallets
A printed or handwritten record of your private key or seed phrase. They carry no electronic footprint but are vulnerable to loss, damage, or user error when generating and handling the printout.
Cold wallets are always non‑custodial - you hold the keys.
Other Types of Wallets
Beyond the basic categories, you might also encounter specialized wallet designs:
Multi‑Signature Wallets
Multisig wallets require multiple approvals before a transaction can be executed. They spread authority across several key holders, ideal for team treasuries, DAOs, or any shared fund management. If one key is compromised or lost, the assets remain safe. Some common exemples are:
Smart Contract Wallets
These wallets use on‑chain code to automate key management and streamline the user experience. Features like daily spending limits, social recovery with trusted contacts, and fee abstraction reduce technical hurdles. Chain abstraction lets users interact with multiple networks through one interface, hiding blockchain complexity. Transactions feel more like a traditional app.
Each of these options adds layers of security, flexibility, or recovery features beyond single‑key wallets, letting individuals and teams tailor custody to their specific needs.