Crypto 101: Where to Keep My Crypto? – Exchange vs Hot Wallet vs Cold Wallet
If you're new to crypto or setting up your first wallet, it's completely normal to feel unsure about where to store your assets.
“Should I keep my crypto on an exchange?”
“Should I move it to a wallet under my control?”
“What's the difference between hot wallets and cold wallets?”
We’ll explain how they work, what to watch out for, and in what situations each type of wallet is most suitable.
1. Exchange
When you keep your crypto on an exchange, the balance you see is just a number assigned to your account.
You can think of it like this: “You have this much with us.”
If you're an active trader who needs fast execution and frequent trades, keeping a portion of your funds on an exchange might be convenient.
Just keep in mind that exchanges are not designed for long-term storage. Unless you withdraw your funds to a wallet you control, you don’t truly own the assets. And if the exchange shuts down or experiences issues, your assets could be at risk.
Well-known exchanges include Binance and Coinbase.
Best suited for:
- You trade frequently and want fast execution on buy and sell orders
2. Hot Wallets
Hot wallets are connected to the internet and commonly used for day-to-day crypto activity.
They’re ideal for interacting with Web3 apps, making fast payments, or sending crypto to friends. Since they’re always online, it’s important to stay cautious about device security and online scams.
There are two main types: hosted (custodial) and unhosted (non-custodial).
A hosted wallet means your private key is managed by a third-party platform. The benefit is convenience — you don’t need to manage your key manually, and the setup is typically more user-friendly for beginners. The tradeoff is that if the platform gets hacked or restricts access, your funds could be at risk.
An unhosted wallet gives you full control of your crypto because you hold the private key — a unique code that proves ownership of your funds. Most unhosted wallets also provide a mnemonic phrase (also called a recovery phrase) — usually 12 or 24 random words that allow you to restore your wallet if your device is lost.
Common examples of unhosted wallets include MetaMask and Trust Wallet.
Best suited for:
- You use crypto daily to send funds or connect with Web3 apps
3. Cold Wallets
A cold wallet generates and stores private keys completely offline.
In theory, only you can access it.
This type of wallet is typically a hardware device or an offline storage method that never connects to the internet, making it highly resistant to unauthorized access. If you're holding a large amount of crypto and don’t plan to move it often, a cold wallet is considered one of the most secure options.
Be sure to backup your mnemonic phrase in a secure, private location — such as a written copy stored offline.
Cold wallets include hardware devices like Ledger and Trezor.
Best suited for:
• You store crypto long term
• You prioritize maximum security
So which one should you choose
There’s no perfect option. In fact, many people use a combination of all three:
• Exchange for short-term trades
• Hot wallet for daily Web3 activity
• Cold wallet for secure, long-term storage
What matters is that you understand the differences, weigh the tradeoffs, and consider how much control you're ready to take on.