Table of Contents

What does a crypto wallet do ?

Just like a banking app allows us to spend/receive money in our bank, Crypto wallets allow us to send/receive crypto.

How does a crypto wallet work ?

They are called crypto wallets but unlike traditional wallets, they do not store crypto. A better way to understand crypto wallets is to think of them as keys that allow you to access your crypto.

Seed phrase

Wallet generates a new seed phrase randomly after a user installs a wallet.

Seed phrase looks like combination of 12 random english words.

These 12 english words represent a large number that is used to generate a whole bunch of private keys.

Private keys

A sender signs a transaction using private keys that he wants to transfer crypto to a receiver.

Sender also generates public key from private key and broadcasts it on the network.

Public keys

Nodes on the network use public key to verify that the signatures on the transaction are valid or not.


Public keys are also used to generate addresses for receiving crypto.

Crypto wallets

Crypto wallets keep record of all the public/private keys and addresses generated using the seed phrase for every cryptocurrency.

Types of crypto walltes

There are 2 main types of wallets depending on whether the private keys are stored on a device connected to the internet or not.

Wallets that are connected to the internet are called hot wallets and wallets that store private keys offline are called cold wallets.

Hot wallet

They are convenient to use for day-to-day transactions, however have a higher risk of funds being stolen by hackers.

They are subdivided as web wallets, desktop wallets and mobile wallets depending on the device they are being used.

Web wallets

These are installed as browser extensions and allow users to access Web 3 applications.

Desktop wallets

Users download and install wallets like regular software on their operating systems.

Mobile wallets

Users download and install these wallets as app on their mobile phones.

Cold wallet

Cold wallets are crypto wallets that are not connected to the internet. They are more secure than hot wallets, however not suitable for day-to-day crypto transactions.

Hardware wallet

Hardware wallets are physical devices that store user’s seed phrase and private keys offline. Users only have to connect their hardware wallet to the internet when they want to sign a transaction.

These wallets can generate seed phrase and private keys offline that can be used to receive crypto without ever connecting them to the internet.

Paper wallet

Paper wallet is a piece of paper on which private key and address are printed.

Which crypto wallet is best for me ?

The wallet you choose depends on how often you transact vs how much security you want.

Personally, I use a web wallet to access web 3 apps and a hardware wallet for crypto that I plan to hold for the long term.