Key takeaways
- Ethereum is a decentralized supercomputer distributed across thousands of devices around the world.
- To interact with Ethereum, you need a wallet to hold, send and receive cryptocurrency.
- There are multiple types of wallets you can use, broken up into software and hardware wallets.
- The best Ethereum wallet for you depends on your needs.
Ethereum is often described as the world’s decentralized supercomputer, a network powered by thousands of devices globally. These devices uphold the network and enable participants to trade Ether (ETH), interact with decentralized applications (DApps), and engage in governance, among other activities.
However, you can only interact with Ethereum by having an Ethereum wallet. This guide explains Ethereum wallets, their types and how to choose the right one for your needs.
What is an Ethereum wallet?
An Ethereum wallet is a tool for storing and managing Ether and Ethereum-based assets. It allows you to send and receive ETH and interact with DApps. Think of it as your gateway to Ethereum’s ecosystem.
Most Ethereum currencies abide by the ERC-20 token standard. A token standard is a set of rules built into a crypto network that dictate how you can interact with it.
For example, any ERC-20 token must be fungible, meaning each asset is interchangeable with other assets in its same standard (similar to how every $1 bill is the same). Ethereum wallets can be compatible with all Ethereum token standards and automatically organize currencies based on said standards.
Crypto wallets typically generate multiple accounts, each with unique public and private keys. These keys allow secure transactions while keeping your funds accessible only to you.
Just like there are various ways to store real-world cash, such as in a bank, a physical wallet or under a mattress, there are multiple types of Ethereum wallets, each with its own pros and cons.
Did you know? The first Ethereum wallets went live in July 2015 alongside the network itself. MyEtherWallet was one of the first wallet-generation clients, used for creating and managing Ethereum wallets.
Types of Ethereum wallets
There are two types of Ethereum wallet. The Ethereum wallet hardware vs. software comparison below will detail the strengths and weaknesses of both types.
Software wallets
Software wallets come in several formats: desktop, mobile and browser (or web). Due to their accessibility, they’re the most common type of wallet. Many software wallets are free to use and available on commonly used devices, such as phones or laptops.
Desktop wallets
- Desktop wallets are pieces of software you can download to your PC.
- They store information on the computer’s hard drive rather than a mobile device or web database.
- This local storage ensures desktop wallets are safer than web wallets, as the information isn’t always online.
- However, desktop wallets are susceptible to viruses, malware and other risks.
- Desktop wallets are less convenient than mobile wallets — a fair trade-off for increased security.
Mobile wallets
- Mobile wallets are no different than a typical banking app on your phone; only they’re crypto-focused.
- A mobile wallet is always accessible through a mobile device, enabling you to quickly react to market conditions.
- Since phones are (almost) always online, mobile wallets are always at risk of theft via malware.
- If you lose your phone or it’s stolen, you’ll lose access to your funds.
Browser wallets
- Browser wallets, also known as web wallets, are often browser extensions that enable Ethereum wallet integration with DApps.
- These wallets are easy to install and set up and can sync across browsers on multiple devices.
- Scam extensions created by bad actors can compromise security, so it’s crucial to verify the wallet’s authenticity before installation.
- The security of a browser wallet is only as strong as the browser it operates on, making the choice of browser an important consideration.
Did you know? MetaMask, one of the most widely used Ethereum wallets, launched in 2016 — one year after the Ethereum network’s launch. MetaMask is a browser-based wallet that you can use to interact with DApps.
Hardware wallets
Hardware wallets are physical wallets with buttons and other features that make it easy to manage digital assets. They often look no different than a USB stick.
Most hardware wallets are small devices with an even smaller screen that shows only a small amount of information at a time. This limited view is intentional — it prevents others from looking over your shoulder to see data like your private keys or the amount of crypto you own.
Hardware wallets usually have one or two small, hard-to-press buttons to prevent accidental actions when managing assets.
The strongest appeal of a hardware wallet lies in its robust security. Since these wallets are rarely connected to the internet, they are largely immune to online hacking attempts.
The only way to compromise a hardware wallet is through physical possession and bypassing its encryption — a challenging task. For added peace of mind, some users even choose to store their hardware wallets in secure locations, with the intention of retrieving them years later.
Paper wallets
Paper wallets are sheets of paper with a QR code that holds your wallet information. When you want to access your cryptocurrency, you scan the QR code with a wallet app and manage your info through it.
You can create a paper wallet through specific wallet software — usually software that already manages assets through a wallet. Once printed, you can choose to remove a copy of your information from the wallet software to keep it truly offline.
Similar to hardware wallets, paper wallets can be stored securely for years in hopes of future crypto price increases. To protect them from damage, they are often laminated. Paper wallets are regarded as one of the securest Ethereum storage options.
Custodial vs. non-custodial wallets
When managing private keys, you can either handle them yourself (non-custodial) or rely on a third party (custodial).
Custodial wallets are like banks holding your funds. While you’re promised access, the bank ultimately controls them and can freeze, lose or restrict your access.
Non-custodial wallets, on the other hand, give you full control, similar to keeping cash in a safe at home. Both options, in crypto and fiat, have their own advantages and drawbacks.
Non-custodial wallets
- You manage your own private keys, giving you full control.
- However, losing your keys means losing access to your funds permanently.
- There’s no central authority making decisions about your assets.
Custodial wallets
- A third party manages your private keys.
- You don’t have to hold anything, but in return, you’re giving up ultimate control of your funds.
- Most custodians store your information on centralized servers, which are vulnerable to attacks, putting your data at risk of being stolen.
How Ethereum wallets work
All Ethereum wallet types generate a public key and a private key.
Public key
A public key is a public wallet address that one can use to send and receive cryptocurrencies. Public keys are similar to a mailbox. Your mailbox address is publicly known, and you share it with people so they can send you mail. The same works in crypto with a public key.
Public keys are usually a 40-character hexadecimal (made up of numbers and letters) code. Similar to using an email, if even one digit is incorrect during a transaction, there’s a high chance it won’t go through, and you may lose your funds.
Private key
A private key is a 64-digit hexadecimal code that allows one to interact with and manage their cryptocurrency. It’s vital to keep this key private and out of the hands of anyone else, as those who gain access to it will gain access to a wallet’s funds. Private keys are similar to the key that opens your mailbox — providing exclusive access to what’s inside.
Most wallets can generate multiple accounts, each with its own public and private keys. Depending on the wallet, they can interact with DApps.
MetaMask, an Ethereum wallet, connects to DApps via a browser interface. Users typically visit a project’s website, where the wallet opens automatically, and authorize the connection.
On the contrary, hardware wallets often require connecting to DApps through their specific interfaces. However, they typically support only certain Ethereum wallet apps, which is important when choosing a wallet.
Ethereum wallets send and receive Ether via the sender’s or receiver’s public keys. To confirm transactions, a wallet will ask for a signature, displaying the recipient’s address and gas fee. Once confirmed, the wallet provides a block explorer link to track the transaction’s verification.
Setting up an Ethereum wallet
The Ethereum wallet setup process depends on your choice of wallet. For example, setting up a mobile wallet simply involves downloading the wallet app and following a step-by-step process. A hardware wallet follows a similar process, while paper wallets require a bit more work.
Either way, most wallets will provide a recovery phrase (or seed phrase) that can be used to recover assets through another wallet if the original is lost. A recovery phrase is a randomly generated set of words that, when arranged correctly, can restore a wallet’s assets if the private key is lost. This serves as an Ethereum wallet backup and may be the only way to recover lost funds.
One of the top Ethereum wallet security tips is to write that phrase on a sheet of paper and store it somewhere incredibly secure.
Security considerations
Another important thing to consider when choosing an Ethereum wallet is its security offerings.
For example, a paper Ethereum wallet brings offline security properties. This may be important depending on how accessible you want your funds to be. Otherwise, many Ethereum wallets utilize standard application security processes like two-factor authentication (2FA) and recovery seed phrases.
If you have a digital wallet, you should stay vigilant about app and security updates to ensure it is as secure as possible.
Did you know? Many Ethereum wallet security features, like two-factor authentication (2FA), weren’t standard at launch. These features were introduced after the Ethereum network experienced several attacks, including the infamous DAO Hack, which resulted in the theft of over $60 million in ETH.
Choosing the best Ethereum wallet: What to consider
When choosing the best Ethereum wallet, you should consider what you’re looking for in a crypto wallet.
Will you be day trading or need immediate access to your assets? A mobile wallet, like an exchange wallet, might be the ideal option.
If you’re looking to hold crypto but still want regular access, a desktop or hardware wallet could be more suitable.
It’s also crucial to ensure the wallet supports the cryptocurrencies you plan to use. For example, some hardware wallets, like Ledger, may have limited access to certain ERC-721 tokens.
Ethereum wallets serve as the only way to interact with the Ethereum network, acting as a bridge between users and the blockchain. Whether you’re transacting, day trading, staking tokens or participating in decentralized applications, an Ethereum wallet is essential.
Wallets come in various types, offering different levels of asset security and accessibility. Understanding the different wallet options and choosing the best one for your needs is key to managing your crypto safely and effectively.