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April 22nd 2021

Cryptoassets: an introduction to wallets

A cryptoasset wallet is a user interface where the private key is stored.

There are two types of wallet: a cold wallet and a hot wallet (sometimes called a "software wallet").

A cold wallet is a wallet that is not accessible over the internet; examples include:

  • hardware wallets - private key details are stored offline on a piece of hardware such as a usb stick; and
  • paper wallets - information about the public and private keys is held on paper; this means that the information is always held offline and its location is known only by the holder.

A hot (or software) wallet is a wallet that is accessible on the internet. It can be further divided into online and client-side wallets:

  • online wallets may be offered by cryptoasset exchanges as part of their services; they can be held on a server in a specific geographical location, on the cloud or the storage may be contracted out to a wallet provider. the platform holds and controls the public and private keys;
  • client-side wallets are also known as desktop wallets; they are managed locally on a user's computer or mobile device.

Some token owners memorise their keys and don't use a wallet; some people may store only their private key, as the public key can be reproduced from the private key.

Anything that can store data can be used as a wallet, it is basically the container for the keys; the loss of a wallet does not affect the existence of the keys.

Do you have some cryptocurrency gains you need to report to HMRC? Contact us today for assistance.

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