A cryptocurrency wallet is an account that you can use to hold one, or sometimes many, cryptocurrencies. There are a variety of cryptocurrency wallets out there, so it can be confusing when finding the right one. It’s important to understand the basics of a cryptocurrency wallet to protect yourself from making a costly mistake! There are lots of stories of people sending thousands of dollars in cryptocurrencies to the wrong wallet and losing everything. I break wallets down into 3 categories, which are exchange wallets, personal wallets, and multi-asset wallets.
Before breaking those down though, it is important to understand that there is no one-size-fits-all cryptocurrency wallet. Think of it like an iOS or Android phone. Each phone has an app store with thousands of apps. However, you cannot download an iOS app onto an Android phone, and vice versa. In this case, the underlying technology is a blockchain. Ethereum and Bitcoin are separate blockchains, which is why you cannot send ETH to a Bitcoin wallet, or BTC to an Ethereum wallet.
Be sure to check out the wallets tutorial page for setting up and interacting with various wallets!
Exchange Cryptocurrency Wallets
Cryptocurrency exchanges will typically have a separate wallet for each cryptocurrency they offer. The important thing with an exchange cryptocurrency wallet is to only send the exact token to the address they give you. Even if they give you an ETH wallet address, do not send anything except for ETH! Yes, it is an Ethereum wallet and can technically hold other Ethereum based tokens, but the exchanges do not support this type of function. You will typically see a warning like in the below screenshot about only sending the specific cryptocurrency to the wallet you are wanting to deposit to.
Personal Cryptocurrency Wallets
I consider a personal cryptocurrency wallet to be one that you are in full control of. This means that you are in full control of the private key. This is like keeping cash in your wallet instead of a bank account. When you have cash in your wallet, you are fully responsible for it and have complete control over it. When you leave cash in a bank account, they are technically in control of it and you must interact with them to get, or use, your cash.
The other difference is that the same address can be used for each cryptocurrency, assuming they are on the same blockchain. As an example, let’s say you have ETH, ZRX, SNGLS, and NEO. You would need 2 wallets, 1 for ETH/ZRX/SNGLS and 1 for NEO. This is because ETH/ZRX/SNGLS are all on the Ethereum blockchain and NEO is on the NEO blockchain. You are also not at the mercy of waiting for an exchange to implement a new cryptocurrency when using a personal cryptocurrency wallet. If you just bought a new Ethereum cryptocurrency from an ICO, it can be stored immediately in your Ethereum wallet.
Multi-Asset Cryptocurrency Wallets
I like to think of these as a hybrid of exchange and personal wallets. Some you will have access to your private keys, and you generally need to wait for them to add support for different cryptocurrencies. It’s also important to understand that it’s really a program that contains multiple wallets, similar to an exchange. It is not actually 1 cryptocurrency wallet. As an example, the Exodus wallet is 1 application that supports multiple cryptocurrencies. However, if you want to deposit BTC and ETH, you will need to use 2 different wallet addresses. This is basically the same as how it works on exchanges. The benefit here is having 1 program to open and work with vs having multiple wallet applications. Exodus even has built-in functionality to perform exchanges between cryptocurrencies from within the application, which is a nice feature.
The screenshot below shows the Exodus wallet interface. As you can see, there are multiple cryptocurrencies listed.
Cryptocurrency wallets can be confusing if you end up with multiple, so always verify compatibility before sending cryptocurrency to a wallet. Whenever using an Exchange or Multi-Asset cryptocurrency wallet, always follow the instructions and only send the exact cryptocurrency they specify! For tracking your holdings, check out the review of CoinTracking!