What a wallet actually is
A crypto wallet is not a purse that holds your coins. Your crypto is recorded on the blockchain. The wallet keeps the private keys that let you spend it. Makers such as Blockstream put it exactly like that: the bitcoin is stored on the blockchain, and only whoever holds the keys can spend it.
That leads to the most important distinction:
- On an exchange: the exchange holds the keys for you. That is convenient, and in the EU this custody is regulated under MiCA. But you trust the exchange.
- In your own wallet: you hold the keys yourself. Nobody can freeze your account, but nobody can help you either if you lose the keys.
Makers of wallets where only you hold the keys are outside MiCA, as recital 83 of the regulation states explicitly. So there is no such thing as a “licensed wallet”, which makes open information about technology and incidents all the more important.
Hot wallet: the wallet as an app
A hot wallet is an app on your phone, your computer or in your browser. Well-known examples are MetaMask, Trust Wallet, Exodus or, for Bitcoin only, BlueWallet and Electrum.
Pros: free, quick to set up, handy for frequent payments and crypto apps.
Con: the keys sit on a device that is constantly online. Malware, fake apps and phishing sites are the biggest dangers. An example from December 2025: attackers published a tampered version of the Trust Wallet browser extension. It sent users’ private keys to the attackers; reported losses were around USD 7 million. Trust Wallet announced it would reimburse those affected.
Cold wallet: the key on a separate device
A cold wallet, usually a hardware wallet, is a small device that keeps the keys away from the internet. When you want to send something, the app on your phone or computer prepares the payment and you confirm it on the device itself. Even if your computer is infected, the key does not leave the device.
What to look at when comparing:
- Secure chip: many devices have a certified chip meant to protect the key even if the device is stolen, for example to the EAL6+ standard at Ledger and Trezor.
- Open code: with Trezor, BitBox or Blockstream Jade the code is open and anyone can check it. Ledger says its code is about 95 % open.
- Ease of use: a larger screen or touchscreen helps you read addresses and amounts correctly before confirming.
- Price: at well-known makers, list prices start at around USD 55 to 60, for example Tangem (2 cards) or the Trezor Safe 3. Models with a touchscreen often cost USD 130 to 400.
The recovery phrase is what matters most
When you set it up, almost every wallet shows you 12 or 24 words, the seed phrase or recovery phrase. With these words you can restore the wallet on any compatible device, even if your hardware wallet breaks or gets lost.
It also means: whoever knows the words has your money. So:
- Write the words on paper or a metal plate, never in a cloud, a photo or a notes app.
- Never give them to anyone, including a supposed support agent. BitBox says on its own website that it will never ask for your recovery words.
- Buy hardware wallets only directly from the maker or an official reseller, and never second-hand.
Some devices take a different route: the BitBox02 backs up to a microSD card by default, and Tangem uses two or three cards that back each other up. A seed phrase is optional there.
What to use when
A simple rule of thumb, not investment advice:
| Situation | Makes sense |
|---|---|
| Small amounts, frequent use | App wallet (hot) or a licensed exchange |
| Larger amounts, holding long term | Hardware wallet (cold) |
| Both | Hardware wallet for most of it, app wallet as a “purse” |
Also consider the cost of moving: withdrawing from the exchange to your wallet costs a fee, at Bitvavo for example 0.000017 BTC per Bitcoin withdrawal. Whether your exchange allows withdrawals to your own wallet at all is shown in each provider’s spec sheet.
FAQ
What is the difference between a hot and a cold wallet?
With a hot wallet the private keys sit in an app on a device with an internet connection. With a cold wallet they sit on a separate device that is not permanently online, and you confirm payments directly on it.
Do I need a hardware wallet?
Not necessarily. For small amounts an app wallet or an account with a licensed exchange is often enough. The larger the amount and the longer you hold, the more a hardware wallet makes sense. It is a one-off cost, from around USD 55 to 60 at well-known makers.
What happens if my hardware wallet breaks?
With your recovery phrase (seed phrase) you can restore the wallet on a new device. Your crypto does not sit on the device but on the blockchain; the device only holds the keys.
Are wallets regulated under MiCA?
Not if you hold the keys yourself. Under MiCA, makers of hardware and software wallets where only you hold the keys are outside the regulation. Custody by exchanges, on the other hand, is regulated.
Sources
- Regulation (EU) 2023/1114 on markets in crypto-assets (MiCA), recital 83
- Jade: Bitcoin hardware wallet
- Compare Trezor hardware wallets (models, prices, secure element)
- Pricing (Tangem Wallet)
- Hardware wallets comparison
- Addressing the July 2020 e-commerce and marketing data breach
- Trezor security update: stay vigilant against potential phishing attack
- Trust Wallet confirms extension hack led to $7 million crypto theft
- BitBox02 hardware wallet (note on the recovery words)
- Fees (Bitcoin withdrawal)