What Is a Crypto Wallet? How It Works

What is a crypto wallet?

You may have heard of these terms: hot wallet, cold wallet, crypto wallet. These words originate from a market called cryptocurrency, which is the most basic thing for anyone who invests in this coin to understand. to be able to make a transaction.

What is a crypto wallet?
What is a crypto wallet?

Like regular wallets, they are used to store and pay money. But the biggest difference here is that it doesn’t help keep your identity or essential information secure.

Cryptocurrency wallets are used to store digital assets and manage security issues such as storing secret keys and verifying identities. That is generated through complex techniques in the form of a string of characters known as the private key for the address of the cryptocurrency.

Wallets can be used to store multiple coins or tokens at once, but most wallets will only support certain cryptocurrencies, and it proves to the blockchain that this is your cryptocurrency.

Crypto wallets are not only a place to store but also keep track of encoding keys and transaction histories; they also store addresses on the blockchain network where a specific asset is located. If you lose this address, you will lose all the assets you keep in your wallet.

But especially, it is not subject to inflation. In contrast to cash, if you have money that you do not use, its value increases due to part of its nature, which cannot be held.

Cryptocurrency wallets are divided into 2 types: hot wallets and cold wallets.

How the crypto wallet works

Not only you, but a lot of people misunderstand how it works. It is only on the history recorded by the blockchain, not on any other location or medium.

To be able to use those coins and unlock them, the private key stored in your wallet must match the public address of the assigned coin. If the public and private keys match, the balance in your wallet increases and the sender decreases accordingly. There is no actual exchange of real physical money. Transactions are represented only by a transaction record on the blockchain and a change in the balance in your wallet.

Hot wallet

It is called a “hot wallet” because it is used by many users and is always connected to the internet. Here, users can easily log into assets, which allows them to make cryptocurrency transactions quickly.

Because it is convenient for such investors and also free, it will also be vulnerable to hackers.

-Types of hot wallets

+ Electronic wallet

hosted on exchanges (Poloniex, Cex, etc.) or web hosting services (Blockchain.info, etc.). They are most commonly used today.

Software wallet

Installed on your phone or computer, the application does not store the user’s private key information, so you will be the one to directly manage your assets.


+ Simple, convenient, and quick transaction.

+Store any cryptocurrency you want.

+Free, easy to use


It is completely online, so it is easy to be attacked by hackers.

+ Any computer problem can affect your property, causing you to lose it all.

Cold wallet

It is a specialized device used to protect your property, shaped like a USB or a piece of paper. Only the device can be used. It’s secure and encrypted for every currency it supports.

With a cold wallet, most of the time it will be offline, only online when making transactions. Your assets will be guaranteed to be as safe as possible even if they are attacked by hackers or viruses because they are secured by the chip. Element of SafetyHowever, the amount to own is not small. It is 2-3 million VND per piece.

-Types of cold wallets

Software Wallet: Hybrid wallet, 3G/4G should be turned off and only accessed when the internet is trading. It’s the same as a cold wallet.

Hardware wallets: USB Type To store cryptocurrencies in your hardware wallet, you send money from a hot wallet to the public address of your hardware wallet. Conversely, if you want to send crypto from your hardware wallet to a friend or an exchange, you connect your hardware wallet to the Internet through the wallet’s dedicated software and then sign the transaction with your private key.

Paper wallets: made of paper,To send money from a paper wallet, the wallet must be entered into a hot wallet by scanning the private key to be able to use the funds in that wallet.

Compare hot wallets and cold wallets.

The ability to support coins: coins supported by cold wallets can not be equal to hot wallets. Because hot wallets are developed to stimulate users to use exchanges on the exchange.

Security: This is the biggest difference between cold wallets and hot wallets. Because cold wallets are simply stored on hardware separate from the internet.

Transaction speed: cold wallets need many tasks to make transactions, while hot wallets are much simpler.

About the price: While the hot wallet is completely free, to own a cold wallet, you need to buy up to 3 million per unit.

Account Verification: With the cold wallet, you just buy and use. When transacting in hot wallets, you must verify your account identity with your ID card or passport.

Some safety measures when using crypto wallets

Depending on each person, the need to use different types of wallets

Improve internet security by avoiding public WiFi networks.

You use a VPN for added security. Because that helps to change your IP address and current location, so your browsing activities are always safe and private from malicious actors.

Using multiple wallets at the same time is considered a way to divide assets to minimize loss if risks occur.

Always keep your personal devices (laptops, PCs, smartphones, USBs, etc.) free of viruses by using the latest updates.

It is prudent to check that you are logging into the correct address of an exchange or online wallet website rather than a fake Web site.

Some malicious programs will change the address of the exchange wallet you just copied, which will cause you to send money to the wrong address.

Readmore: Cryptocurrencies – effective source of profit for traders


The information in the article has partly helped you understand what a hot wallet is as well as suggesting whether to use a hot wallet or a cold wallet to store cryptocurrencies. Hope you can choose a wallet that suits your needs and purposes.

Readmore: How to create an NFT: A beginner’s guide

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