By 🔐 How to Safely Store Your Cryptocurrency: Wallet Types Explained (Beginner’s Guide)
You bought your first crypto — great! Now protect it. This guide explains hot vs. cold wallets, custodial vs. non-custodial, how seed phrases work, and the best practices that keep your coins safe.
New here? Start by Buying Your First Crypto (Beginner’s Guide), then come back to secure it.
1) Crypto Wallet Basics
A crypto wallet stores your private keys — the secret that proves you own coins on a blockchain. Whoever controls the keys controls the coins.
- Custodial: A third party (e.g., an exchange) holds your keys for you.
- Non-custodial: You hold the keys (via seed phrase/private key).
Golden rule: “Not your keys, not your coins.”
2) Wallet Types (Pros & Cons)
Hot Wallets (Connected to the Internet)
| Type | Examples | Best For | Pros | Cons |
|---|---|---|---|---|
| Exchange Wallet (Custodial) | Coinbase, Kraken, Binance | Beginners, small amounts, frequent trading | Easy to start; password reset & support | You don’t control keys; exchange risk |
| Mobile/Web (Non-custodial) | Trust Wallet, MetaMask, Phantom | Daily use, DeFi, NFTs | You hold keys; quick transactions | Online attack surface; device theft risk |
Cold Wallets (Offline)
| Type | Examples | Best For | Pros | Cons |
|---|---|---|---|---|
| Hardware Wallet | Ledger, Trezor | Long-term storage; larger balances | Keys offline; transaction signing isolated | Costs money; setup learning curve |
| Paper/Steel Backup | Seed phrase written/engraved | Disaster-resistant backups | No electronics; durable (steel) | Physical loss/theft risk; no UI |
3) Set Up a Wallet (Step-by-Step)
Option A: Keep Small Funds on an Exchange (Simplest)
- Enable 2-factor authentication (2FA) (authenticator app, not SMS if possible).
- Use a unique, strong password and store it in a password manager.
- Turn on withdrawal whitelists and device approvals if available.
- Regularly review login history and trusted devices.
New to exchanges? See our beginner guide: How to Open a Coinbase Account.
Option B: Set Up a Mobile Non-Custodial Wallet
- Download from the official app store only (avoid fake apps).
- Create a new wallet → Write down the seed phrase offline; never screenshot.
- Set a strong passcode/biometrics. Disable cloud backups unless encrypted.
- Test with a small deposit first. Learn to receive and send.
Popular pick: Trust Wallet (iOS/Android). Non-custodial and beginner-friendly.
Option C: Set Up a Hardware Wallet (Best for Long-Term)
- Buy direct from manufacturer (avoid third-party resellers).
- Initialize device offline → Write seed phrase clearly; verify each word.
- Set a strong PIN and (optionally) a passphrase (adds a hidden wallet).
- Install official desktop/mobile app; update firmware only from official sources.
- Send a small test transaction; verify addresses on the device screen before confirming.
4) Security Best Practices
- Seed phrase hygiene: Never type it on a computer or upload to cloud. Store at least two backups in separate safe places.
- Phishing defense: Bookmark official sites; double-check URLs; never sign unknown transactions.
- Device security: Keep OS updated; use a reputable password manager; lock screens immediately.
- Transaction checks: For hardware wallets, verify the amount and address on the device screen.
- Diversify storage: Keep spending funds in a hot wallet; store savings in cold storage.
- Emergency plan: Tell a trusted person how to access funds if something happens (without exposing secrets today).
5) FAQs
Is a hardware wallet necessary?
Not required, but recommended for larger amounts or long-term holding. It keeps your private keys offline.
Can I store multiple coins in one wallet?
Many wallets support multiple networks, but always check compatibility before sending funds.
What is a passphrase?
An optional 25th word that creates a new wallet derived from your seed phrase. Don’t forget it — there’s no reset.
6) Next Steps
- Decide your split: spending vs. savings.
- Set up one hot wallet (mobile) and one cold wallet (hardware) for long-term funds.
- Run a test transaction and document your backup process.
Disclaimer: This article is educational and not financial advice. Crypto involves risk. Do your own research.