What is a crypto wallet?

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Takeaway
  • A crypto wallet gives you access to and security for all your crypto holdings.
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Main article image

What is a crypto wallet, exactly?

If you understand email, you already get the gist of crypto wallets. Just like you can send, receive, and manage messages in your email, a crypto wallet acts like the headquarters for your crypto investments.

You can open up your crypto wallet anytime—not only to view your assets, but also to send, receive, and manage your holdings. Through your wallet, you might send crypto to friends, family, or businesses who have a crypto wallet. You might also receive crypto from them.

Why do wallets matter?

In a word: access. When you receive crypto, typically, an entry is recorded stating that you now own a certain number of units of that particular coin. A wallet is what allows you to access and manage your crypto.

What does a wallet “look” like?

Wallets fall into two categories: custodial and non-custodial.

A custodial wallet is one where your private key (aka the code to your wallet) is maintained by someone else. That usually means you’re storing your crypto through an exchange or trading platform, like Robinhood. You can then access the coins in your wallet via another security method like a password, a PIN, or multi-factor authentication. (It might seem similar to logging onto an online bank account.) With a custodial wallet, there's less risk of losing your private key and there’s less of a need for you to maintain a backup. The other major benefit is this: if you ever lose or forget your password, you likely won’t lose your crypto.

A non-custodial wallet is one where you personally maintain the private key. This code is what allows you to unlock your wallet and you alone are responsible, whether you store it on a USB, directly on your computer, or written on a piece of paper. Now, if you’re thinking that your private key is pretty important, you’re right. If you lose or forget it, you likely won’t be able to access your funds ever again.

How do I get a wallet?

There are many types of crypto wallets but are a few of the most common.

  • A hosted wallet is one that you use through a trading platform or exchange, like Robinhood.
  • A hardware wallet is a physical device, like a flash drive, that contains your private key and you should store it somewhere safe. Hardware wallets can keep your private keys offline (i.e., they’re not connected to the internet). This helps limit the chances that someone might be able to steal them.
  • A software wallet is an application that stores your private key. It typically runs on your computer or mobile phone.

Managing wallet security risk

Depending on the type of wallet you choose to use, there are some risks you should keep in mind.

Here are a few tips on wallet security:

Custodial wallets

  • Keep your passwords safe.
  • Look into whether a password manager and multi-factor authentication (MFA) are available and right for you.
  • Protect your phone number from SIM-swapping scams.
  • If you think your password has been compromised, change it immediately and contact the platform you are using.

Non-custodial wallets

  • Keep your private key secret.
  • Look into whether a password manager and multi-factor authentication (MFA) are available and right for you.
  • Consider keeping a backup of your private key in a safe place.
  • If you think your wallet has been compromised, move your funds to a new wallet immediately.
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This information is educational, and is not an offer to sell or a solicitation of an offer to buy any security. This information is not a recommendation to buy, hold, or sell an investment or financial product, or take any action. This information is neither individualized nor a research report, and must not serve as the basis for any investment decision. All investments involve risk, including the possible loss of capital. Past performance does not guarantee future results or returns. Before making decisions with legal, tax, or accounting effects, you should consult appropriate professionals. Information is from sources deemed reliable on the date of publication, but Robinhood does not guarantee its accuracy.

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