Articles Crypto

Keeping your Digital Currency safe using Crypto Wallets

In this article we examine the various types of crypto wallets available for holding cryptocurrencies such as Bitcoin and Altcoins.

Cryptocurrencies are becoming more popular for investment purposes and for performing a growing variety of online transactions. This makes the holders of Bitcoin, and a plethora of AltCoins, targets for hackers and scammers. The reason for this is that the perpetrators of these crimes stand a good chance of not being identified or tracked down due to crypto having a high degree of anonymity.

What is a Crypto Wallet?

We are familiar with using a physical wallet to store and carry around everyday currencies such as dollars, euros, pounds and yen. Whether these are in note form or coinage a wallet provides a convenient and familiar mechanism to keep our physical currency together and available for use e.g. to buy a newspaper, pay for groceries, rent a cab.

With cryptocurrencies we need to store digital assets securely whilst retaining easy access to them in a similar manner to traditional currencies. Whilst there are numerous physical currencies in the world, we seldom need more than one of them on-hand unless traveling abroad e.g. someone from the UK vacationing in Spain would likely have Pounds Sterling and Euros in their wallet. With cryptocurrencies it is highly likely that an individual would need to store numerous types e.g. Bitcoin, Ethereum, Litecoin, Dogecoin etc.

There is a huge range of cryptocurrencies … 5000+ and counting!

A cryptocurrency wallet is a device, physical medium, program or a service which stores the public and/or private keys for cryptocurrency transactions. In addition to this basic function of storing the keys, a cryptocurrency wallet more often also offers the functionality of encrypting and/or signing information. Signing can for example result in executing a smart contract, a cryptocurrency transaction, identification or legally signing a ‘document’.

A crypto wallet does not actually contain the cryptocurrency itself, rather it contains the keys that track the ownership and receiving/spending of cryptocurrencies. The cryptocurrency is actually held publicly on a distributed ledger called the ‘blockchain’.

Types of Crypto Wallet

Crypto Wallets can be categorized in a variety of ways, but essentially they are either software-only, hardware-only, or a combination of software and hardware. Below are the three main types:

  1. Hot Wallet
  2. Cold Wallet
  3. Hardware Wallet

1) Hot Wallet

Hot Wallets are software-based and connected to the Internet. This makes them the least secure of the three types and most vulnerable to being hacked resulting in cryptocurrency being stolen. A Hot Wallet can take the form of one or more of the following:

  • Web-based e.g. a Centralized Exchange (CEX) website such as Binance.
  • Smartphone app e.g. Coinbase Wallet – runs on Android & iOS.
  • Computer app* e.g. Electrum – runs on Windows, Mac, Linux & Android.

* Some Hot Wallets running on computers also have the option of being connected to Hardware Wallets.

Hot Wallets tend to be used to store low balances of cryptocurrencies and are mainly used for day-to-day trading.

An example of a Hot Wallet that is both Computer and Smartphone based is MetaMask. This has an app that can be installed on a smartphone but also web browser extensions for a computer.

2) Cold Wallet

A Cold Wallet, or Cold Storage, is stored offline and does not require an internet connection. Sometimes a Cold Wallet and Hardware Wallet are terms that are used interchangeably. For the purposes of this article we are referring to Cold Wallets as offline computer or storage devices (e.g. removable drives) that are used to backup Hot Wallets by the likes of CEX services e.g. Binance, Coinbase.

…Coinbase maintains 98% or more of customer digital currency in cold storage, with the remainder in secure hot servers as necessary to serve the liquidity needs of our customers. All digital currency that Coinbase holds in its online hot storage is insured. If Coinbase were to suffer a breach of its online hot storage, the insurance policy would pay out to cover any customer funds lost as a result.

Cold Wallets are the second most secure/vulnerable of the three wallet types. Whilst Cold Wallets are offline they are indirectly connected to the Hot Wallets of users and the CEX website opening a theoretical risk. These risk are from viruses, physical break-ins at the hosting center, or corrupt employees. Ultimately you as the owner of the cryptocurrencies are not in full control of your digital assets.

3) Hardware Wallet

Hardware Wallets are handheld devices that have a small screen, sometimes buttons, and are usually not much bigger than a USB thumb drive. They communicate with a computer and/or smartphone via a USB cable or wireless using Bluetooth.

Hardware Wallets that support Bluetooth usually contain a battery making them portable and are charged using a USB cable. Examples of such devices include Ledger Nano X, Trezor Model T.

Trezor Model T and Ledger Nano X hardware wallets.

In order to communicate with the Hardware Wallet there is usually an associated app on the owner’s computer and/or smartphone. This resembles the functionality of a Hot Wallet but with some differences:

  • To confirm transactions to Send/Receive cryptocurrency there must be a manual confirmation on the Hardware Wallet. This is usually by logging into the device with a PIN, navigating menus, then pressing buttons or touchscreen to Approve the transaction.
  • Hardware Wallets often come preloaded to support common cryptocurrencies such as Bitcoin and Ethereum. To support additional Altcoins the appropriate app must be installed on the device from the associated computer or smartphone app.

Hardware Wallets are the most secure of the three wallet types. This is due to them being fully under your control and requiring hardware intervention to carry out a transaction. However there are still areas of potential threats which will be covered in the next section.

Securing your Crypto Wallet

Whichever one, or combination, of the above Crypto Wallets you use, there are a number of suggested practices to be considered in order to keep your cryptocurrencies safe and secure:

Separate email

Use a different email address for crypto-related activities. This should be different to the personal one that you use on a day-to-day basis. The reason for this separation is to avoid identity theft. In the event that your personal email or computer gets compromised then it is more difficult for your crypto-related activities to be impacted.

Suggested tips:

  • Choose a secure provider that ideally supports encrypted emails e.g. ProtonMail.
  • Use an email address that does not identify you
    e.g. rather than

Different passwords

Do not reuse the same password for each website or crypto app. Instead use a different one for each site/app. This means that if one site or app is compromised then that password cannot be used to access one of your other crypto sites/apps.

Use complex & different passwords for website logins.

Make sure the password is complex e.g. uses a combination of upper and lowercase letter, digits and special characters. A password generator can be used e.g. Secure Password Generator, iCloud Keychain (for iOS devices), a reputable Password Manager such as 1Password or LastPass.

Complex passwords help prevent brute force attacks by hackers running a list of common passwords to try guess the login.

Two-factor Authentication

In addition to a password an additional level of security can be added. This is know as Two-factor Authentication or 2FA for short. When a website or app is accessed then one of the following is used to further verify access in addition to the username/password:

  • SMS Text with a code (often 6-digit).
  • Facial recognition or Fingerprint verification.
  • Authenticator app such as Google Authenticator or Microsoft Authenticator.
  • Email with a link that needs clicking.
  • PIN code that needs entering.
Facial Recognition is a form of Two-Factor Authentication.

Direct website access

When accessing a crypto-related website type in the address or URL of the site rather than clicking on a search link. This is due to the existence of fake sites and mistyping a site name during a search may give the wrong results.

These crypto websites might be a CEX or Decentralized Exchange (DEX) used for depositing funds or buying/selling cryptocurrency. Once you have accessed the legitimate web site, bookmark the address for future access.

Crypto Wallet Seeds

During the setting up of Hardware or Hot Wallets a 12 to 24 word ‘seed’ or recovery phrase is usually required. These should be written down with a copy kept at home away from any Hardware Wallet and another kept elsewhere such as a security deposit box in a bank.

This seed or recovery phrase can be used on any Crypto Wallet to restore your keys that can then be used to gain access to your cryptocurrency. This is both a form of security and backup.

SSL & VPN Access

When accessing crypto websites always ensure that they are protected by SSL (Secure Sockets Layer). This means having the padlock against the web address which should start with ‘https’.

VPN Access can secure your internet connection.

As an additional level of security a VPN (Virtual Private Network) can be used to secure your internet connection. This is especially important if you are using public WiFi.


The consensus of opinion amongst those who have used and traded for a number of years in the crypto arena is that the majority of your cryptocurrency should be stored in a Hardware Wallet. For some Altcoins this is not possible due to how new they are so until your Hardware Wallet supports them then these can be stored in a Hot Wallet – ideally an app on your phone as this provides portability.

Depending on your region or country your Hardware and/or Hot Wallet may not be connected to a CEX that supports your native currency or method for depositing funds. If this is the case then you may need to deposit funds on a different CEX to then buy the likes of Bitcoin or Ethereum. These cryptocurrencies can then be transfered to your wallet to then purchase Altcoins from a DEX.

In addition to which wallet(s) to use, practicing sensible security is also very important.

Do you have a preference for using a certain type or combination of wallets? Are there any specific sites, apps, or devices that you have had good or bad experiences with? If so please share your comments below.

Leave a Reply