What is Wallet?

A cryptocurrency wallet is a tool that holds the cryptographic keys that prove ownership of funds on a blockchain. Despite the name, a wallet does not actually “store” coins — the coins always live on the blockchain itself. The wallet stores the keys that let you move them.

A wallet can take several forms:

• Software wallet (also called a “hot wallet”): An app on your phone or computer. Examples include Trust Wallet, MetaMask, and the wallet built into the Coinbase app.
• Hardware wallet (also called a “cold wallet”): A dedicated physical device that keeps your keys offline. Examples include Ledger and Trezor.
• Web wallet: A wallet that runs in your browser, typically as a browser extension. MetaMask is the most popular example.
• Custodial wallet: A wallet where a third party (an exchange, a fintech) holds the keys on your behalf. The wallet you get when you sign up for Coinbase is custodial — Coinbase holds the keys.

Hot vs. cold storage

Hot wallets are connected to the internet, which makes them convenient for frequent payments but more exposed to attack. Cold wallets keep keys completely offline, making them the gold standard for long-term storage of significant balances.

For everyday spending, a hot wallet on your phone is usually the right choice. For savings, a hardware wallet is recommended. Many users keep a small “spending balance” in a hot wallet and the bulk of their holdings in cold storage.

How wallets connect to merchants

When you check out at a crypto-accepting merchant, the site generates a payment request (a wallet address and amount) and your wallet signs the transaction with your private key. The signed transaction is broadcast to the network, the network confirms it, and the merchant’s processor credits the merchant. The whole process usually takes a few seconds to a few minutes depending on the chain.