What a wallet is
What a wallet actually does
Three things, and none of them involve storing money.
It keeps the private key
This is the entire security question. Whoever holds the key controls the balance, and no other credential substitutes for it.
It derives addresses
From one key the wallet generates the wallet addresses you give people so they can send you funds.
It signs transactions
When you send cryptocurrency, the wallet produces a signature proving the instruction came from the key holder, and broadcasts it to the network.
What that phrasing explains
The phrase people repeat about this is worth internalising: a wallet holds keys, not coins. It explains why a wallet can be restored on a different device from twelve words, and why losing the device does not lose the funds while losing the seed phrase does.
The types that exist
The types, and what separates them
Four distinctions cover almost everything on the market, and they overlap rather than stack.
Custodial or self-custody
A custodial wallet has a company holding the keys on your behalf, which buys recovery and support at the cost of counterparty risk. Self-custody gives control and full responsibility.
Hot or cold
A hot wallet is connected to the internet and convenient; a cold one is not and is safer for anything held long term.
Software or hardware
Software wallets run as an app, a browser extension or a desktop program. A hardware wallet is a dedicated device that signs internally and never exposes the key.
Single-chain or multi-chain
Some wallets handle one network, most handle many. A multi-chain wallet showing several assets still keeps them on their own networks, which is why sending USDT requires choosing which one.
Choosing and using one
Do you need one
For holding or spending crypto personally, yes, in one of the forms above.
For accepting payments as a business, the answer changes shape. Incoming funds have to arrive somewhere, and a payment gateway provides that: a fresh address for each order, automatic confirmation, and settlement to the business. What sits behind it is a merchant wallet, which differs from a personal one in access control, reconciliation and record-keeping rather than in cryptography.
A business that converts on receipt and settles out barely holds crypto at all, and the storage question mostly disappears with it.
Choosing one
Two questions do most of the work.
What is it for?
Daily spending points to a hot software wallet with small balances. Long-term holding points to hardware. Business receipts point to a gateway.
Which networks do you need?
Support varies, and a wallet that does not handle the chain your funds are on is no use however good it is otherwise. Check before transferring, not after.