What is a crypto wallet?

What does a wallet actually hold?

Think of a post office box. Your wallet addressWallet addressA string of letters and numbers you give out to receive crypto, much like a bank account number. is like the box number. You can give it to anyone, and anyone can put something in the box. The private key is the key to the box, and only whoever holds it can take anything out.

Behind every wallet address is a key pair. The private key is your secret. A public keyPublic keyA key calculated from your private key that others use to verify your signatures, and that is safe to share. is calculated from it, and the wallet address from the public key. When you send crypto, the wallet signs the transaction with the private key. Anyone on the network can check the signature without ever seeing the key.

This means your crypto isn't "in" your phone. If your phone is lost or breaks, the crypto is still on the blockchain. You can get it back if you have your recovery phraseSeed phraseA list of 12 or 24 words that backs up every key in your wallet, so whoever has the words can restore the wallet and take the crypto., the 12 or 24 words your keys are derived from. With those words you can set the wallet up again on a new phone.

Hot and cold wallets

Wallets fall into two groups, depending on whether the keys are kept on a device connected to the internet.

• A hot walletHot walletA crypto wallet on an internet-connected device such as a phone or computer, convenient for everyday use but more exposed to attacks. keeps the keys on an internet-connected device, such as a phone app, a browser extension or a desktop program. It is convenient and quick to use. The downside is that malware, PhishingPhishingA scam where criminals pretend to be a trusted company or authority to get you to hand over passwords, card details or your seed phrase. and stolen devices are a bigger threat to it.
• A cold walletCold walletA way of storing the keys to your crypto completely offline, so hackers on the internet can't reach them. keeps the keys offline. Most often this means a dedicated device, a hardware wallet. A cold wallet is less convenient for everyday use but much harder for attackers to get into.

A hot wallet is like the wallet in your pocket, and a cold wallet is like a safe at home. Bitcoin.org advises keeping only a small amount on a phone or computer, like cash in your pocket, and storing the rest somewhere safer.

Software and hardware wallets

A software wallet is an app or program you install on your phone or computer. Most are free. The keys are encrypted on the device, so the wallet is only as secure as the device.

A hardware walletHardware walletA small device that keeps private keys offline and signs transactions inside the device, so the keys never reach your computer or phone. is a small device, often the size of a USB stick, whose only job is to store keys and sign transactions. The private key never leaves the device. You connect it to a phone or computer when you send, and you confirm the transaction on the device's own screen. That way, malware on your computer can't reach your keys.

A few tips for hardware wallets:

• Buy it new, directly from the manufacturer or an authorised reseller.
• Never use a device that comes with a recovery phrase already written down for you. The device should generate new words when you set it up.
• If the device is lost or breaks, you restore the wallet on a new device using your recovery phrase.

Custodial and self-custody wallets

The most important difference between wallets is who holds the keys.

• Custodial walletCustodial walletA crypto wallet where a company holds the private keys for you, so you don't have to look after keys or a seed phrase.. A company, such as a crypto exchange, holds the keys for you. You log in much like online banking, and if you forget your password the company can help you get back in. In return, you rely on the company's security and honesty.
• Your own wallet. With Self-custodySelf-custodyHolding the private keys to your crypto in your own wallet, so nobody else controls it but all the responsibility for the keys is yours., you hold the keys. Nobody else can freeze your crypto or stop a transaction. But if you lose your recovery phrase, nobody can help you either.

The saying "not your keys, not your coins"Not your keys, not your coinsA crypto saying meaning that if you don't hold the private keys to your crypto, you don't fully control it. sums this up. If you don't hold the keys, what you really have is a claim on the company, not the crypto itself.

When you buy crypto with Myntkaup, it is held in Myntkaup's custody. Myntkaup is licensed by the Central Bank of Iceland, and you can send every supported coin except USDC to your own wallet. The pros and cons of each approach are covered in Custodial or self-custody: who holds your crypto?

How to choose a wallet

Ask yourself a few questions:

• Which coins? Not every wallet supports every blockchain networkBlockchain networkThe blockchain a cryptocurrency or token is recorded and sent on, such as the Bitcoin network or the Ethereum network.. A Bitcoin-only wallet can't receive ether, for example.
• How much, and how often? For small amounts and frequent use, a phone app works well. For larger amounts held for the longer term, many people choose a hardware wallet.
• Can you trust it? Choose a well-known wallet that has been in use for a long time. Download it only from the maker's website or an official app store, because fake wallet apps exist.
• Do you get a recovery phrase? Most wallets follow the BIP39 standard. That means you can restore the wallet in a different wallet app if you ever need to.
• Is it easy to use? A wallet you understand is safer than a complicated one you make mistakes with.

First steps with a new wallet

1. Download the wallet app from the maker's website or an official app store, and create a new wallet.
2. Write the recovery phrase down on paper, in the right order. Never take a photo of it and don't store it in the cloud. Read how to store your recovery phrase.
3. Most wallets ask you to type the words back in, to make sure you wrote them down correctly.
4. Lock the wallet with a PIN or password, and install updates for your phone and wallet as soon as they arrive.
5. Receive a small amount first and try sending part of it on. That way you learn how the wallet works before more is at stake. See How to send crypto to another wallet.

Closing thoughts

A crypto wallet holds the keys, not the crypto. Whoever has the keys, or the recovery phrase, controls the crypto.

Choose a wallet that fits how you use crypto, start with a small amount, and keep your recovery phrase somewhere safe and offline. If you'd rather not carry that responsibility, a licensed custodian is also an option.