A wallet does not store your coins, because they always remain on the blockchain. It stores your private key, which you use to approve transactions. Anyone who knows the private key or the seed phrase derived from it (12 or 24 words) has full access to all funds.
Hot wallet
A hot wallet is connected to the internet, usually as a phone app or a browser extension.
- Examples: MetaMask, Trust Wallet
- Advantages: free, quick to set up, convenient for daily use and for smart contracts
- Disadvantages: vulnerable to malware, phishing sites or fake apps
Cold wallet
A cold wallet stores the private key offline, usually on a dedicated device (hardware wallet). The device is only connected for a transaction, and approval is given by pressing a button directly on the device.
- Examples: Ledger, Trezor
- Advantages: The key never leaves the device. Even an infected computer cannot read it.
- Disadvantages: costs money, somewhat less convenient to use
Recommendation
Larger amounts that you hold for a longer time belong in a cold wallet. For smaller amounts in daily use, a hot wallet is sufficient.
Applies to both
- Write the seed phrase down on paper and keep it safe. No photo, no cloud, no email.
- No one legitimate will ever ask for your seed phrase, not even support or an exchange.
- Never copy recipient addresses from your transaction history. Scammers send tiny amounts from addresses that look confusingly similar to your real address (address poisoning).
Note on exchanges
If your coins are on an exchange such as Binance or Bitpanda, the exchange holds the keys for you. You then have to trust the exchange. In the crypto world, people say: “Not your keys, not your coins.”