A crypto wallet does not actually store your cryptocurrency. Your coins always live on the blockchain. What the wallet stores is your private key, a cryptographic string that proves ownership and authorises transactions. If someone else obtains your private key, they control your funds. If you lose it without a backup, your funds are gone permanently.
Types of crypto wallets
| Type | Examples | Security | Convenience |
|---|---|---|---|
| Hot wallet (software) | MetaMask, Trust Wallet | Moderate — connected to the internet | High — easy to use for trading |
| Cold wallet (hardware) | Ledger, Trezor | High — offline storage | Lower — extra steps to transact |
| Exchange wallet | WazirX, CoinDCX | Varies — custodial | Highest — built into the exchange |
| Paper wallet | Printed keys | High — fully offline | Impractical for regular use |
Hot wallets vs cold wallets
A hot wallet is connected to the internet, making it convenient for day-to-day transactions but vulnerable to hacking. A cold wallet keeps your keys entirely offline, on a hardware device that must be physically connected to sign a transaction. For large holdings, a cold wallet is the standard recommendation.
Custodial vs non-custodial
When you keep crypto on an Indian exchange, the exchange holds the private key on your behalf. This is a custodial wallet. It is convenient but means you are trusting the exchange's security. A non-custodial wallet, like MetaMask, gives you full control of your private key, and full responsibility for not losing it.
Seed phrase
When you create a non-custodial wallet, you receive a seed phrase, usually 12 or 24 words. This phrase can regenerate your private key. Write it down on paper, store it securely, and never share it digitally. If someone gets your seed phrase, they have your funds.
Crypto wallets and India
Indian exchanges provide built-in custodial wallets for trading. For DeFi or NFT interactions, Indian users commonly use MetaMask or Trust Wallet. The 1% TDS under Section 194S is deducted by the exchange when you transact through their custodial wallet.
Security best practices
- Use a hardware wallet for long-term holdings.
- Never share your private key or seed phrase with anyone.
- Enable two-factor authentication on exchange accounts.
- Be cautious of phishing sites that mimic popular wallet interfaces.
- Keep your wallet software updated to patch security vulnerabilities.