As noted above, there are two broad categories of crypto wallets: hot wallets that are connected to the internet and cold wallets that are not. Let’s take a look at these in more depth.

Paper Wallets

A paper wallet is the simplest cold wallet to understand and operate. It is what it sounds like: A piece of paper with your keys written on it.

“As this is just a piece of paper, it’s a cold wallet and thus safe from hackers, but paper can be lost, stolen, torn or made illegible by getting wet,” Edelman says. Given this, “as cold wallets go, paper is not ideal.”

Hardware Wallets

A more secure type of cold wallet is a hardware wallet. Like a USB drive, hardware wallets help keep your private keys safe from hackers who would need to steal the physical wallet to gain access, Leinweber says.

Hardware wallets also have an additional layer of security over paper wallets by requiring users to enter a PIN to access the device’s content. While these PINs provide an extra layer of protection, if you forget your PIN, you lose access to your coins. “So you need to be tech-savvy to use such a wallet,” Leinweber says.

“The idea behind hardware wallets is to isolate the private keys from online storage like on a computer or smartphone, which are more vulnerable to hacking,” Leinweber says. “Storing the private keys offline prevents this, as hackers would have to physically steal the cryptocurrency hardware wallet to gain access to a user’s private keys.”

You can typically get a hardware wallet for between $75 and $200 and the most popular models among Australians are Ledger and Trezor.

For more information, read our guide to hardware wallets.

Online Wallets

Online wallets, also called software wallets, are your hot wallets. Desktop, mobile or web-based applications, these wallets require an internet connection and are both more accessible but also more prone to hacking than cold wallets.

“Your password is stored on servers online and thus represents a potentially increased risk,” Leinweber says.

If you only trust your infrastructure, he says it makes sense to have desktop wallets like Electrum and Wasabi Wallet created. This avoids involving a third party and lets you be solely responsible for your wallet’s security.

Leinweber says that mobile wallets are often favored by people who use cryptocurrency daily. These wallets are “positioned as an app on your smartphone, similar to Apple Wallet, and simply enables transactions with the help of QR codes.”

Meanwhile, web-based wallets are mostly accessible through browsers and let you transact anywhere you have an internet connection, he says.