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Crypto wallet
Quick definition
Copy link to sectionA crypto wallet is a program or software where cryptocurrencies are stored, like a bank account.
Key details
Copy link to section- Crypto wallets are like a bank account where you can manage, send, and spend your cryptocurrencies
- Each crypto wallet is secured with a unique blockchain address and a private key that’s known only to you
- There are lots of different type of crypto wallets, ranging from online options to physical devices
What is a crypto wallet?
Copy link to sectionA crypto wallet is an application that stores your cryptocurrency. The wallet allows you to send and receive crypto while also providing you ownership of your crypto balance. Although they function similar to a banking app, wallets are not only online; there are options such as hardware and paper wallets that store your crypto offline.
How do crypto wallets work?
Copy link to sectionBitcoin wallets are made up of two ‘keys’: one public, and one private. These keys work like bank account details, as they store all relevant information necessary for carrying out transactions. The public key works like an account number: it is the address for people to send bitcoin to a wallet and is usually referred to as the wallet address. Just as the name suggests, it’s made available publicly, meaning that it can be viewed by anyone.
The private key, on the other hand, works like a PIN number: it is used when you want to send bitcoins to someone else. And unlike the public key, this one is confidential and known only to the wallet’s owner.
Usually, you will not have to use the private key yourself, or even have to know it. Mobile and web wallets store the private key in an encrypted form on your behalf, and you use your wallet through a personal password. However, some options such as paper wallets and desktop wallet allow or require you to keep both private and public keys yourself.
How does a wallet keep crypto secure?
Copy link to sectionSimply put, wallets give you a unique address that proves ownership of your coins. If someone sends crypto to your address, the blockchain displays publicly that you own those coins. In order to move the crypto , you will need a private key, which is impossible to guess, unlike a regular password.
This makes transactions between wallets incredibly secure. On top of this, different wallets will have different security features to help protect your private key and keep your coins safe.
Are payments between wallets anonymous?
Copy link to sectionYes, they are., at least in theory. You see, when a transfer is made to your wallet, what shows on the blockchain is the two wallet addresses (public keys), and they are not attached to the identity of the person who owns either wallet. This makes it difficult (though not impossible) to trace the addresses back to a specific identity.
What kinds of crypto wallet are there?
Copy link to sectionThere are various types of bitcoin wallets, and each one of them offers different features. These are:
- Online wallet. This is a web-based wallet that allows you to access your crypto through a web browser, often through a browser extension. Usually, it is hosted by a provider that’s responsible for managing the security of your private key. MetaMask is the most common online wallet.
- Mobile wallet. This is basically a crypto wallet stored on your mobile phone and accessed through an application. It is easy to access and can scan QR codes while you are on the go. Some examples of mobile wallets include BRD, Edge (formerly Airbitz), and Abra.
- Desktop wallet. This is a wallet you download and use on your computer. The private key is stored on your computer’s hard drive, meaning that you have complete control and responsibility of its security. If the file storing your private key were to become corrupted or deleted without any backup, you could lose access to your wallet and to your funds. Examples of desktop wallets include Electrum, Exodus, and Jaxx.
- Hardware wallet. This is a specialized electronic device that’s designed to specifically hold crypto. These are the safest form of wallet as they store your coins and private key offline. Some of the most popular manufacturers of hardware wallets include Ledger, Trezor, and KeepKey.
- Paper wallet. This is simply a piece of paper on which both the public and private keys of bitcoin addresses are printed. Since it’s not connected to a network, the crypto tokens are completely secure, making it ideal for long-term storage. You can create a paper wallet with services such as BitcoinPaperWallet and WalletGenerator.
Do I need a wallet in order to use Bitcoin?
Copy link to sectionYou don’t have to have one, as many crypto exchanges allow you to store Bitcoin (and other cryptocurrencies) in your exchange account. However, a personal wallet is a much more secure way to store your crypto. We’ve seen with the collapse of exchanges like FTX that trusting third parties with your money can be a dangerous game.