Distinction from digital wallets
Not every digital wallet is automatically an online wallet for cryptocurrencies. Well-known services like Google Wallet or Apple Pay are used for managing fiat money and belong to the traditional financial system. Fiat money is government-issued currency such as the euro or US dollar. Its value is based on trust in governments and central banks – not on intrinsic value.
Online wallets, by contrast, were developed specifically for cryptocurrencies like Bitcoin or Ethereum. They enable sending, receiving and managing digital assets via the blockchain – independently of traditional bank accounts.
What types of online wallets are there?
Online wallets come in various forms, differing by access type, platform and security model. While some wallets run directly in the browser, others exist as mobile apps or integrated wallets from crypto exchanges.
Note: Online wallets are considered hot wallets, as they are constantly connected to the internet. They provide quick access to cryptocurrencies but are more vulnerable to cyberattacks than cold wallets, such as hardware wallets (e.g. Ledger, Trezor), which store private keys offline.
Web wallets – browser-based online wallets
Web wallets work directly in the browser without requiring software installation. Their constant internet connection offers convenience, but also demands caution when handling login credentials.
Most web wallets are non-custodial. This gives you full control, but also means you must securely store your seed phrase. Some web wallets offered by crypto exchanges or platforms are custodial instead.
Mobile wallets – wallet apps on the go
Mobile wallets are software applications like apps for smartphones or tablets that allow user-friendly management of cryptocurrencies. They often offer additional features like QR code scanning for quick transactions, integration with DeFi applications, staking options and direct access to blockchain networks to securely manage coins and tokens.
Most mobile wallets are non-custodial wallets, so you retain full ownership rights over your private keys. However, there are also custodial versions, mainly from crypto exchanges or financial service providers, where the provider controls the keys.
Integrated wallets from crypto exchanges
Many crypto exchanges offer their own integrated online wallets, directly linked to the trading platform, allowing easy management of coins and tokens. These wallets are almost always custodial.
The custodial option is especially convenient for active trading, as no external transfers are needed. However, this also means you're dependent on the exchange's security measures and your cryptocurrencies could theoretically be frozen or restricted.
Best online wallet for beginners
Bitpanda offers an integrated wallet linked directly to its trading platform, making it easier to manage cryptocurrencies like Bitcoin and Ethereum. This wallet functions as a custodial wallet, with Bitpanda managing your private keys. This provides the benefit that you don’t have to secure the keys yourself, while still maintaining access to your digital assets at all times. Bitpanda places great emphasis on security and uses advanced technologies to protect your cryptocurrencies.
Advantages and disadvantages of online wallets
Whether an online wallet is the best option for managing and sending cryptocurrency depends on various factors. Here are the main advantages and disadvantages to consider.
Advantages of online wallets
Easy to use: Online wallets offer quick setup and operation, which can make them ideal for beginners, as no special hardware or technical knowledge is required.
Instant access to cryptocurrencies: since internet wallets are accessible from any internet-enabled device, they are especially suitable for active trading or quick blockchain transactions.
Integration with crypto exchanges and DeFi: many custodial online wallets are directly linked to trading platforms, while non-custodial wallets can be used with DeFi applications, NFT marketplaces and dApps.
Synchronisation across multiple devices: online wallets can be used on smartphones, tablets or computers, making them particularly convenient for active traders or users with several devices who want flexible access to their coins and tokens.
No physical loss possible: unlike hardware wallets like Ledger, which can be lost or damaged, internet wallets remain available as long as login credentials are stored securely.
Disadvantages of online wallets
Higher security risk due to internet connection: since internet wallets are always online, they are more vulnerable to phishing, hacking or malware attacks, putting digital assets at risk.
Dependence on third parties (for custodial wallets): custodial wallets require trust in a provider or exchange, as access to assets could be limited or blocked due to platform outages or regulations.
Loss of access if not backed up (for non-custodial wallets): non-custodial wallets require secure storage of the seed phrase, as a lost phrase can't be recovered.
Private keys can be compromised: web wallets often store keys in the browser, making them more vulnerable than other solutions, which is why additional security measures like two-factor authentication are important.
Conclusion: Is an online wallet my best option for storing my cryptocurrencies?
Whether an online wallet is the best choice for storing your cryptocurrencies depends on how you intend to use your digital assets. If you trade regularly, want to carry out fast transactions or interact with DeFi applications and NFT marketplaces, an online wallet offers the advantage of simple and flexible access. It's instantly available, requires no additional hardware and can be conveniently used across different devices.
For long-term storage of large amounts of Bitcoin, Ethereum or other cryptocurrencies, however, an online wallet may pose certain security risks. As it is constantly connected to the internet, it is more vulnerable to cyberattacks, phishing and platform outages. If you're looking for maximum security, you might consider also using a hardware wallet, as it stores private keys offline and is better protected against external threats.
The right wallet choice depends on your individual requirements for security, flexibility and frequency of use.
Frequently asked questions about online wallets
Before deciding on an online wallet, you may have a few open questions – for example about costs, suitability for beginners or security aspects. Here you'll find answers to the most common questions, so you can choose the right wallet solution for you.
What does an online wallet cost?
Most online wallets are free to use. Wallet providers generally don't charge a fee for creating or managing the wallet. However, network fees apply when carrying out transactions, as each transfer is processed on the blockchain. These fees depend on the specific cryptocurrency.
Custodial online wallets provided by crypto exchanges may charge additional fees, such as for withdrawals or using certain features. Some non-custodial wallets offer optional paid features, like enhanced security functions or cloud backups.
Is an online wallet suitable for beginners?
Yes, an online wallet can be a good choice for beginners, as it's easy to set up and intuitive to use. Custodial wallets from crypto exchanges are particularly suitable for beginners, as they require no technical effort and no private key management.
With non-custodial wallets, users must securely store their seed phrase, as losing it means the wallet can't be recovered. However, those willing to engage with basic security practices can still use a non-custodial wallet as a beginner.
Are online wallets secure?
Online wallets are considered less secure than offline solutions due to their constant internet connection. Web wallets, in particular, which store private keys in the browser, are more vulnerable to security breaches.
The security of a custodial wallet depends on the provider. Reputable crypto exchanges use encryption, multi-factor authentication and offline storage of some assets. However, there's always a risk the provider could be hacked or restrict wallet access.With non-custodial wallets, security is your own responsibility. Those who create secure backups and use proven security measures like two-factor authentication can significantly reduce the risk.
More topics related to cryptocurrency
Want to deepen your understanding of cryptocurrencies? Then check out our detailed articles in the Bitpanda Academy to gain deeper insight into the world of digital currencies.
