Here's the thing most people get wrong about crypto wallets: your coins aren't in your wallet.
They live on the blockchain. A wallet holds the private keys that prove you're allowed to move them. Lose the keys and you lose the coins. Give someone else the keys and they control the coins (Investor.gov).
So the real question isn't "which wallet?" It's "who do I trust with the keys: a company, or me?"
The short version
- On an exchange, the company holds your keys. Easy, but if it's hacked or goes bust, you can lose access.
- In a hot wallet (an app on your phone or browser), you hold the keys on an internet-connected device. Convenient, more exposed to hacks.
- In a cold wallet (a hardware device), you hold the keys offline. Safest from hackers, but lose it and your backup, and it's gone.
- FTX is the warning: its founder was sentenced to 25 years for stealing more than $8 billion of customers' money.
- The setup most people should use: a small amount on an exchange for trading, the long-term stash in a cold wallet.
Option 1: Leave it on an exchange
How it works: the exchange holds the private keys. You log in with a password.
Good: dead simple, easy to trade, and you can often recover access if you forget your password.
Bad: you're trusting the company completely. The SEC warns that if a custodian is hacked, shuts down or goes bankrupt, you may lose access to your assets. Some platforms may also lend out customer deposits or mix customer funds with their own (Investor.gov).
That's not theoretical. In March 2024, FTX founder Sam Bankman-Fried was sentenced to 25 years in prison. Prosecutors said he stole more than $8 billion of FTX customers' money (US Department of Justice).
Option 2: A hot wallet
How it works: a wallet app on your phone, computer or browser. You hold the keys, protected by a seed phrase you write down.
Good: you're in control, it's free, and it's handy for using crypto apps.
Bad: it's connected to the internet, which exposes it to hacks, malware and phishing (Investor.gov). And if you lose the seed phrase, nobody can help you.
Option 3: A cold wallet
How it works: a small hardware device that keeps your keys offline and signs transactions without exposing them.
Good: generally the most secure option against online attacks.
Bad: the device can be lost, damaged or stolen. Without your written backup, that can mean losing access permanently.
The setup we'd use
- Exchange: only what you're actively trading. Treat it like a wallet in your pocket, not a vault.
- Cold wallet: everything you plan to hold for months or years.
- Seed phrase: written on paper, stored somewhere safe and private, never typed into anything online. Read the safety rules.
- Test before you trust: send a small amount first, every time you use a new address.
Questions people ask
Is it safe to keep crypto on an exchange?
It is convenient but it means trusting the exchange with your private keys. If an exchange is hacked, shuts down or goes bankrupt, you may lose access, as FTX customers found in 2022.
What is the difference between a hot wallet and a cold wallet?
A hot wallet keeps your private keys on an internet-connected device such as a phone app, which is convenient but more exposed to hacks. A cold wallet keeps them offline on a hardware device, which is generally more secure.
What happens if I lose my crypto wallet?
If you hold your own keys and lose both the device and your seed phrase backup, you permanently lose access to your crypto. With the seed phrase, you can restore the wallet on a new device.
Where should I store crypto long term?
Many people keep long-term holdings in a hardware cold wallet with the seed phrase written down and stored securely offline, and keep only what they actively trade on an exchange.