How to Store Crypto: What a Crypto Wallet Is and Which Type Suits You

A crypto wallet is an app or a device that stores the private keys to your cryptocurrencies. The coins themselves never sit in the wallet; they stay on the blockchain, and whoever holds the key can move them. There are four types: hardware wallets, software wallets, exchange wallets and paper wallets. They differ mainly in who holds the key and whether it ever touches the internet. For most investors the best way to store crypto is a combination: small amounts in an app or on a regulated exchange, everything you plan to hold for longer on a hardware wallet.

This guide is up to date as of 25 October 2026. It compares the four wallet types, puts the wallet incidents of October into context and shows which wallet suits which kind of investor. Specific models with prices are listed in our hardware wallet comparison and our software wallet comparison.

Crypto wallets: the key facts

• 4 types: hardware, software, exchange and paper wallets. The difference is who holds the private key.
• 12 or 24 words: The recovery phrase defined by the BIP39 standard is drawn from a list of 2,048 words and restores any wallet on a new device.
• From around €60: That is what entry-level models with a screen cost in our hardware wallet comparison; software wallets are free.
• Above €1,000: In the EU, an exchange has had to check since 30 December 2024 whether the address of a larger withdrawal to a self-hosted wallet belongs to you.
• Article 75 MiCA: Licensed providers in the EU must keep client crypto assets separate from their own, including in an insolvency.
• 7 out of 10: That many providers available in Germany allowed withdrawals to your own wallet when we checked on 16 September 2026.

What is a crypto wallet?

A crypto wallet is a key ring, not a purse. The wallet itself holds no coins; they remain recorded on the blockchain. What the wallet actually stores is a key pair and the means to rebuild it.

• The private key signs every transfer. Anyone who knows it can move the funds, with no bank, no password reset and no way to reverse a payment.
• The public key is converted into your receiving address. It can be shared, much like a bank account number.
• The recovery phrase, also called a seed phrase, is a list of 12 or 24 words from which the wallet recalculates all keys. The open BIP39 standard defines a list of 2,048 words for it; 12 words stand for 128 bits of randomness, 24 words for 256 bits.

This leads to the most important sentence in this guide: whoever knows your recovery phrase owns your coins. A broken device can be replaced; a phrase in someone else's hands cannot be taken back. How to keep it safe is covered in our guide to storing your seed phrase safely, and whether it can be restored on another manufacturer's device is explained in restoring a seed across brands.

What types of crypto wallets are there?

The four types differ on two questions. Do you hold the private key yourself (non-custodial) or does a provider hold it for you (custodial)? And is the key connected to the internet (hot wallet) or not (cold wallet)? Our article on hot wallets and cold wallets explains the second question in detail.

Hardware wallet: the key stays in the device

A hardware wallet is a small device with its own chip, usually with a screen. It creates the private key offline, signs transfers inside the device and never releases the key; your computer or phone only sees the finished signature. Well-known makers include Ledger, Trezor, BitBox and Tangem. For amounts you plan to hold for longer, this is the safest widely used way to store crypto. How the device works inside is explained in What is a hardware wallet?.

Software wallet: app, browser or desktop

A software wallet is an app on your phone, a browser extension or a program on your computer. Well-known examples are MetaMask for Ethereum and compatible networks, Phantom for Solana and Trust Wallet for many networks at once. It is free, set up in minutes and the direct gateway to DeFi, NFTs and decentralised exchanges. Because the key sits on a device that is online, it shares every risk of that device: malware, fake extensions, phishing. If you connect the app to a hardware wallet, the device does the signing and the app only serves as the interface.

Exchange wallet: the provider holds it for you

When you buy on an exchange or through a broker, your balance is initially held by that provider. The provider holds the key, and you log in with a password and a second factor. That is convenient and reasonable for small amounts when you are starting out, provided the provider is properly licensed. In the EU, Article 75(7) of MiCA requires licensed providers to keep client crypto assets legally separate from their own estate, so that their creditors cannot reach them in an insolvency. Which providers hold a licence is shown in our comparison of regulated exchanges.

Paper wallet: a key on paper

A paper wallet is a printed private key together with its address. It was common between 2011 and 2016 and is now considered outdated, because printers, change addresses and reading errors lead to losses. If you still own such a sheet, the best move is to transfer the funds to a modern wallet; our article on paper wallet risks shows how. A recovery phrase written on paper is not a paper wallet, by the way, but the recommended backup for every modern wallet.

Crypto wallet comparison: the four types in one table

The table shows how the wallet types differ in daily use. Costs refer to the wallet itself; network fees for transfers apply to every type.

Custodial or non-custodial: whoever holds the key has the coins

The saying “not your keys, not your coins” sums it up: if the provider holds the key, you have a claim against the provider, not coins. With FTX in November 2022, that meant customers could no longer withdraw their balances from one day to the next. Since MiCA, the situation in the EU is different, because licensed providers must keep client assets separate. Some risks still sit with the provider: withdrawal freezes, blocked accounts, wind-downs with deadlines.

That is why it pays to check before you buy whether a provider lets you send your coins to a wallet of your own. We checked ten providers available in Germany on 16 September 2026: seven allow withdrawals to a self-custody address. The results per provider are in our self-custody withdrawal check.

If you live in the EU and withdraw more than €1,000 to your own wallet, the exchange asks for proof that the address belongs to you, for example a small test transfer or a signed message. The legal basis is Article 14(5) of the EU Transfer of Funds Regulation 2023/1113, which has applied since 30 December 2024. The step is part of the anti-money-laundering rules and usually takes only a few minutes.

Anyone who holds keys on behalf of others needs a licence, incidentally. How to recognise a wallet app that operates without one is covered in our article on when wallet apps need authorisation.

Which crypto wallet suits you?

There is no single best crypto wallet for everyone, only the best one for a purpose. Our view: what matters is your amount and what you want to do with the coins. A rule of thumb: anything you will not move in the coming weeks and would hate to lose belongs on a hardware wallet.

• You are just starting or buy monthly: A regulated exchange is enough at first. As your holdings grow, move them to your own wallet at longer intervals, because every withdrawal costs a network fee.
• You hold for the long term, such as Bitcoin over years: A hardware wallet. For Bitcoin-only holders there are devices with Bitcoin-only firmware, such as the BitBox02 Bitcoin and the Trezor Safe 5 Bitcoin, which keep the attack surface small. The best Bitcoin wallets as an app are listed in our software wallet comparison.
• You use DeFi, NFTs or airdrops: A software wallet such as MetaMask or Phantom, ideally connected to a hardware wallet so that you confirm every approval on the device. For experiments, set up a second wallet with a small balance.
• You want to start without cables: Card models such as Tangem work with your phone via NFC, and the backup runs across several cards. We worked out costs and security model in Tangem Wallet: cost and security.
• You hold larger sums or plan for heirs: A multisig wallet requires several keys for a transfer, for example two out of three, and makes a single stolen key worthless. When it is worth it is explained in setting up a multisig wallet.

We compare specific models by price, screen, Bluetooth and supported coins on an ongoing basis: 14 devices in the hardware wallet comparison and the most popular apps in the software wallet comparison. Detailed reviews are available for Ledger Flex, Trezor Model T, Tangem, MetaMask and Trust Wallet, among others.

How safe is a crypto wallet? What the October 2026 incidents show

A crypto wallet is as safe as the way its key is created and kept. In none of the big cases this autumn was the encryption broken. Five times in October 2026 the issue was the same: the key or phrase left its protected place, or the device came from an unsafe source.

This leads to seven rules that apply to every wallet type:

1. Write the recovery phrase on paper or metal, never in a photo, a cloud service or a notes app.
2. Never enter the phrase on a website or in an app. Reputable makers never ask for it, not even for a supposed security update.
3. Buy hardware wallets directly from the maker and check on first start that the device creates a new phrase itself.
4. Open wallet software via a bookmark or an address you type yourself. In October, a phishing campaign imitated an official Ledger update and asked for the 24 words at the end.
5. Check the receiving address and amount on the device's screen, not just on your computer screen.
6. Send a small test amount first and practise a restore once before larger sums follow.
7. Separate everyday money from savings: a hot wallet for small amounts, a cold wallet for the rest.

How to create a crypto wallet

Setting up your own wallet takes around twenty minutes. The steps are the same for almost every wallet:

1. Choose the type: by amount and use, as described above.
2. Create the wallet: app from the official store or device from the maker's shop, then let it create a new wallet.
3. Back up the phrase: write down the 12 or 24 words in the right order offline and keep them in a safe place.
4. Send a test amount: receive a small sum and send it back.
5. Test the restore: restore the wallet from the phrase as a test and compare the balance.

The detailed walkthrough with every term explained is in How to set up a crypto wallet.

What does a crypto wallet cost, and what about tax?

Hardware wallets cost a one-off amount of between around €60 for entry-level devices with a screen and around €400 for models with a large touchscreen; current prices are listed in our hardware wallet comparison. Software wallets are free. Many apps earn money from their built-in swap feature: at Exodus, 71.5 percent of revenue in the second quarter of 2026 came from this business, as our analysis of the Exodus spread shows. If you swap often, compare the markup in the app with the fee on an exchange.

Moving coins to your own wallet is not a sale. In many tax systems, including those of Germany, the UK and the US, a transfer between two wallets you own is neither a disposal nor a new acquisition, so no tax is due on the transfer itself. Keep a record of every move anyway, so that you can prove the purchase date and cost later. What applies when you sell is explained in our guides to crypto tax in the UK and crypto tax in the US. For your individual situation, a tax adviser can help.