There are three main ways to hold crypto. Each has a different mix of control, risk and convenience. This comparison is part of our guide to hardware wallets explained.
- A company holds your keys
- Password login and support
- You depend on the company
- You hold the keys
- Keys live on your phone or computer
- Exposed to malware
- You hold the keys
- Keys stay on a separate device
- Costs money and takes care
Side by side
| Question | Exchange | Software wallet | Hardware wallet |
|---|---|---|---|
| Who holds the keys | The company | You | You |
| Keys exposed to the internet | Company servers | Yes | No |
| Password reset | Yes | No | No |
| Your backup duty | None | Recovery phrase | Recovery phrase |
| If the company fails | Funds at risk | Unaffected | Unaffected |
| Best for | Buying and trading | Small daily amounts | Savings |
| Cost | Trading fees | Free | Device price |
Exchanges
An exchange works like a bank account in that you log in with a password and can get help. But the crypto is held in the company's name, and if it fails, you may lose it. Protect your login with strong exchange security.
Software wallets
A software wallet is an app on your phone or computer. You hold the keys, and it is free and convenient. But those keys sit on a device that is open to malware. Be careful about what you connect it to, too.
Hardware wallets
A hardware wallet keeps keys on a separate device. Even on an infected computer, it signs transactions without exposing them, as long as you check its screen. See do I need a hardware wallet?.
How people combine them
| Purpose | Where it lives |
|---|---|
| Buying and selling | Exchange |
| Spending and apps | Software wallet, with a small balance |
| Long-term savings | Hardware wallet |
Key differences in practice
- Custody. "Not your keys, not your coins" is a popular saying. It means that holding your own keys removes company risk, but it adds responsibility.
- Recovery. Only exchanges can reset your access. With the other two, your recovery phrase is everything.
- Inheritance. Exchanges have estate processes. With self-custody, you need your own plan.
What should you do?
Start with where you are. If you have a meaningful amount on an exchange, read how to set up a hardware wallet safely. If you are new, secure your exchange account first.