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A crypto wallet is essential if you decide to invest in cryptocurrencies. It's where you keep your crypto assets and where all your digital transactions come together. Without a wallet, your crypto assets are hardly useful, as they will be lost on the blockchain with no way to access them.
So how do you create and set up a wallet that will be useful for your crypto needs? This article will address that topic. Our discussion will cover the different types of crypto wallets and how to set them up. Also, we will explain what a cryptocurrency wallet consists of and how to choose a reliable one.
What Is a Crypto Wallet, Exactly?
A crypto wallet is the equivalent of a bank account for your digital assets. It's a safe place to store your crypto wealth and helps you send, receive, spend, and use your crypto in different ways. Your wallet doesn't technically store your crypto assets (they live on the blockchain), but it acts as a key that grants you access to your digital holdings.
The first cryptocurrency wallet was the Bitcoin Client software wallet. It was created by Satoshi Nakamoto and used to send 10 bitcoins as a test to another Bitcoin client wallet owned by Hal Finney. Today, there are millions of crypto wallets, and they vary in form, shape, and function.
Components Of A Crypto Wallet
Even though there are various types of digital wallets, they are primarily composed of two types of keys:
Private Keys
A private key is the most important and sensitive part of a wallet. It is a digital code that proves who owns crypto assets stored on the blockchain. It is so crucial that if hackers gain access to your private keys, there is hardly anything you can do to stop them from eloping with your funds.
The private key is stored within your crypto wallet and comes in different forms. It could be a 256-bit long alphanumeric code, a 64-digit hexadecimal code, or a QR code. Whatever form it takes, it is typically guarded with a variety of mechanisms. Most wallets use 6- to 24-character "seed phrases" to make sure you are who you say you are before giving you access to your private keys. Others rely on biometric verification.
Public Keys
Also known as a wallet address, a public key is the shorter form of your private key, which you can use to receive cryptocurrencies into your wallet. It is the part of your wallet you can share with anyone because it doesn't grant access to your crypto assets. It is only capable of receiving digital assets, not sending them.
Types Of Crypto Wallets
Cryptocurrency wallets can be classified into three distinct groups:
- Hardware and software wallets
- Mobile, web, and desktop wallets
- Custodial and non-custodial wallets
Hardware Wallets
A hardware crypto wallet stores its private keys on offline, physical devices. Because they don't connect to the Internet, these wallets are thought to be the safest in the crypto sphere. Even though they are very secure, there is usually a price attached, unlike software wallets, which typically come for free.
The most popular examples of hardware wallets are the Ledger Nano wallets and the Trezor models. Other examples include the KeepKey, ELLIPAL Titan, and SafePal wallets, among others.
What are they useful for?
Hardware wallets (also known as "cold wallets") are best for long-term crypto asset storage. Crypto institutions also use them for the secure storage of users' funds.
How To Set Up A Hardware Wallet
You will most likely need to connect your hardware wallet to a computer or Bluetooth device. After that, the following steps generally apply:
- Select an option to set up the wallet as a new device.
- The wallet will ask you to create a PIN code or password. Do that.
- You will be given a recovery seed phrase (a 6-24 word long phrase that you can use to recover your wallet in case of theft or loss).
- Write down your recovery phrase somewhere safe.
- Your hardware wallet is ready for use.
Software Wallets
These types of wallets store their private keys on online devices. They are generally more flexible and accessible than hardware wallets, and they usually come for free. However, they are not as secure as cold wallets.
Common examples of software wallets are the Coinbase wallet and the Trust Wallet. MetaMask, Guarda Wallet, Phantom wallet, Argent Wallet, etc. are also well-known.
If you're deciding between Trust Wallet and MetaMask, we've done a comparison of them.
What are they useful for?
Software wallets are the most versatile wallets in the crypto world. They are used for day trading purposes and other DeFi functions like lending, yield farming, liquidity pools, etc.
How To Set Up A Software Wallet
- Download the wallet app or extension.
- Select the option that indicates that you want to set up a new device.
- Write down the seed phrase you will be given. You may need to confirm it.
- Some software wallets, like ZenGo, may give you a recovery file instead of a seed phrase.
- You will get a wallet address once you are through with the recovery process.
- You can now use your software wallet to send and receive coins freely.
Mobile Wallets
A mobile wallet is a software wallet that operates on mobile devices. It is usually available as a wallet app in the Android and iOS stores. Many of these wallets also include biometric authentication as an additional layer of security.
The major advantage of these types of wallets is their portability. Typical examples are Trust Wallet, Rainbow wallet, Mycelium wallet, etc.
What are they useful for?
They are useful for making crypto transactions on the go. They are also most suitable for commercial crypto payments and Bitcoin ATM transactions.
How To Set Up A Mobile Wallet
- Download the wallet app from Google Play or Apple Store
- Most wallets require you to create a recovery phrase or file and keep it secure.
- You will get a wallet address. In some cases, like with the Argent wallet, you may get a human-readable format.
- Your mobile wallet is ready for use.
Desktop Wallets
Desktop wallet software stores its private keys on computers. Most of the time, they run on Windows, Mac, or Linux, and they usually have more advanced features than their mobile counterparts. Most of them allow you to run a full blockchain node, thanks to their higher processing powers.
Most desktop wallets also have a mobile counterpart. The Guarda wallet, for example, is a mobile wallet that you can also use on a desktop. The same goes for Exodus, Electrum, and Atomic Wallet, among others.
What are they useful for?
Desktop wallets are the best way to do more advanced things with cryptocurrency, like mining and verifying transactions. They also connect more easily to an offline wallet for more security.
How To Set Up A Desktop Wallet
- Download the wallet software from the wallet's website. The files are usually available in .exe or similar formats. In some cases, you may be able to download the desktop app directly from the store of your operating system.
- Run the file on your laptop or desktop and follow the installation guidelines.
- Store the recovery phrase given to you in a secure location.
- If your wallet asks you to create a PIN code or password, make sure it's secure and one you can easily remember.
- You'll get a wallet address which you can immediately put to use.
Web Wallets
These crypto wallets exist purely as browser extensions. They are always online and do not require downloading. Even though they are the most easily accessible wallet options, they are also very insecure. Therefore, you should only use them if there is no other option. Furthermore, you should not use them to store assets for an extended period.
The MetaMask wallet is an example of a web wallet that doubles as a mobile wallet. Other examples include the Guarda and Exodus wallets.
What are they useful for?
Web wallets are mainly useful for accessing Web 3.0 functions. This may include online tipping and seamless integration with NFT and Metaverse protocols. However, most of these can also be done with a desktop wallet.
How To Set Up A Web Wallet
- To use a web wallet, you need a browser compatible with Web 3.0. Google Chrome, Brave, Edge, and Firefox websites are good examples.
- Open your Web3-compatible website.
- Install the wallet as a browser extension.
- Write down your seed phrase.
- The website will then provide a wallet address for you.
- Your web wallet is created and ready for use.
Non-Custodial Wallets
Non-custodial wallets are crypto wallets solely under the user's control. Even though not all crypto wallets are non-custodial, they make up the largest percentage of crypto wallets today.
The user is given a way to access the private keys that only he or she can use. This is one of the most important things about this type of wallet. The most common system is the seed-phrase system. Other systems include a recovery file, biometric authentication, and a guardian system.
What are they useful for?
These wallets are useful for all types of personal crypto functions. Because of their completely decentralized operations, many in the crypto world believe that your coins are not truly yours until you house them in a non-custodial wallet.
How To Set Up A Non-custodial Wallet
Your non-custodial wallet could be either hardware or software. It could also be a web-based, desktop-based, or online wallet. In the previous paragraphs, we have outlined the steps to set up each of these wallets.
Custodial Wallets
These are wallets that the wallet issuer controls. These issuers are usually crypto exchanges that offer trading and other services to their users. If you store your assets in a custodial wallet, you do not control their safety. Many believe this is a digression from the decentralization functions that cryptocurrencies are supposed to have.
Perhaps the most common example of a custodial wallet is the Binance exchange wallet. The Coinbase exchange also has a custodial wallet (which is different from the non-custodial Coinbase wallet). Other examples are Nexo, YouHodler, and Crypto.com wallets, among others.
What are they useful for?
Custodial wallets are best suited for trading purposes. Even though many non-custodial wallets now have swap functions, most require connecting to a third party before buying, selling, and swapping digital assets. With a custodial wallet, it's easy to switch between trading and storing your cryptocurrency, as well as using other features of the exchange or platform.
How To Set Up A Custodial Wallet
- Create an account with the crypto exchange or platform you wish to use.
- KYC verification may be required before your account is fully accessible.
- Once done, you can freely deposit and withdraw any of the cryptocurrencies supported on the platform.
How To Choose A Good Cryptocurrency Wallet
Because your crypto wallet is so important, you should take your time when choosing one. You should keep the following tips in mind:
Know why you need a wallet.
It will help you decide what kind of wallet you need. For example, if you are a hodler (someone who buys and stores crypto assets for a long time), you will do better with a hardware wallet. A custodial wallet might be a better option if you are a frequent trader.
How much do you have?
This is important too. After all, why get a hardware wallet worth about 200 dollars when your entire portfolio is hardly up to $500?
How secure is it?
Even though non-custodial wallets leave security in the hands of the users, research how secure the company behind the wallet is and if they have ever been hacked. Remember that, sometimes, your crypto assets are not the only things thieves target; they may also be after your personal data, which may be stored with the wallet's company.
If you want optimum security, you should go for hardware wallets. If you must use software wallets, lean toward those you can integrate with offline wallets.
Which coins it supports?
Each crypto wallet supports different coins such as BNB, Ethereum, Bitcoin, and even Bitcoin Lightning. It's important to check which currencies are supported as you may purchase a wallet and later find out that the currencies you hold aren't supported.
Other Things
Is it user-friendly? Does it support the currency you want to store? Is it available in your region? What fees does it charge? Using these questions, you can determine which wallet is best for you.
Conclusion
This article has shown you how to set up a crypto wallet. We have also considered the various types of crypto wallets and how to choose the right one for you. As a parting thought, remember that whoever has access to your private keys also has access to your coins. So, do not disclose them to anyone. And if you use a custodial wallet, make sure the platform behind the wallet is as secure as it can be.
