How To Set Up a Crypto Wallet
Cryptocurrencies have become a hard-to-ignore asset for investors. Many early adopters have seen a fast return on their investment or portfolios skyrocketing. If cryptocurrencies continue on their path toward widespread use and regulation, there’s still the potential to make millionaires out of new investors.
While such predictions for the industry sound great, they won’t help you if you don’t know how to store your digital currency safely. That’s why we’ll show you how to set up a crypto wallet and help you choose the right type.
What Is a Crypto Wallet?
Cryptocurrencies are sent and received through applications called crypto wallets. These pieces of software interact with blockchains supporting cryptocurrencies and broadcast transactions to be processed by the network.
All types of cryptocurrency wallets consist of a public key (which is also your wallet address) and a private key, which lets you access and control assets held in the wallet.
The public or wallet address is similar to your bank account number. Anyone who wants to send you funds needs to use it as the recipient’s destination.
Since these private keys are long random sequences of characters, they are hard to memorize, and most wallets have them securely stored within the isolated part of the application or on a silicon chip if the wallet is a piece of hardware.
Types of Crypto Wallets
First, before learning how to get a cryptocurrency wallet, you should know what types of them you can find. The main differences are in the setup process, which varies depending on the developer, manufacturer, and how it’s moderated.
A wallet can be a software application or a piece of hardware. Depending on how it’s managed, it can be a part of a custodial service, or you can be responsible for the digital currency it holds.
Software wallets are either desktop, mobile, or web applications. They are the easiest to access since all you need is a smartphone or a laptop to use them, and almost all such wallet applications are free.
Setting up a cryptocurrency wallet on your phone is straightforward. You’ll find plenty of applications on both Google Play and the App Store. Pay attention to user reviews and the number of downloads the application has. After the short installation process, you’ll start the application for the first time and set it up.
Most applications won’t allow you to use them until you make a written record of the wallet seed key. The seed key, also called a mnemonic phrase, is a random sequence of words, and most of them consist of either 12, 18, or 24 terms of similar length.
The seed key serves as a backup you can use to restore the wallet if you lose your smart device. That’s why it’s essential to store this string of words somewhere safe and private since anyone can gain access to your funds if you are not careful.
As the last step in setting up a crypto wallet, most apps will prompt you to type in a few words from the seed key to check if you correctly backed it up. These applications have additional levels of security, such as biometrics, PINs, or passwords.
These are a must since anyone that steals your phone could, in theory, open the wallet app and just send your Ether, Bitcoin, or other currencies to other wallets.
Now you have an installed app, and the next step is adding funds to the address. The best course of action is to sign up on some of the most reliable crypto exchanges and use available payment methods to purchase Bitcoin, Ether, or any other currency your software wallet supports.
Similar to mobile applications, most desktop wallets operate on the same principle. The seed key is generated by the application, and you need to store it securely. Keep in mind that it isn’t the best solution to have it just as a text file on the same computer. A power outage could damage your computer and the drive you are storing your seed phrase and wallet on. Make a written copy as well, or store it on a USB drive.
Another popular method to create a crypto wallet or access your mobile or desktop app is through a web application. Some of these applications use browser extensions for improved security and user experience.
The creation process is the same as for mobile applications, but depending on the wallet, they allow integration with hardware wallets or direct access through a keystore file, private key, or seed phrase. Some of the most popular multi-platform wallets are the likes of MyEtherWallet and MetaMask.
An old concept among crypto investors was to create a completely offline wallet by having information, such as the wallet address, private key, and the seed phrase on a piece of paper. For convenience, this often involved printing QR codes as well.
Creating such a wallet was once considered the best way to securely store large amounts of cryptocurrencies. But today, it’s an obsolete method, as most safety-conscious investors rely on hardware solutions.
If you are curious to get such a crypto wallet yourself, there are ways to do it securely:
- Find a website that generates wallets and save the page as a web archive.
- While offline, open the saved web archive and generate the key.
- Use a printer that’s not connected to a local or public network and print the information.
- Congratulations, you’ve made an offline paper wallet.
Setting up a hardware wallet is the recommended method of long-term crypto storage. These devices, unlike software wallets, are always offline.
The private key is stored in a wallet section where malicious parties can’t access it. These kinds of wallets are also referred to as “cold storage,” and the best cryptocurrency exchanges use them to store their crypto reserves.
You’ll have to be careful when trying to set up the crypto wallet from Ledger or Trezor. Manufacturers tend to have detailed instructions for each model and an easy-to-follow setup process, but it’s more complicated than installing an app and writing down a string of words.
In general, these are the steps you need to pay attention to when setting up a hardware wallet:
- Check if the packaging in which the wallet came was tampered with.
- Most wallets have a cable to connect to a computer or smartphone, and you’ll have to connect the device to set up a PIN and password and write down a 24-word seed phrase.
- Hardware wallets have some sort of interface on the device itself, whether a rudimentary touchscreen or a display with buttons on the side. These are used along with the accompanying software to set up the wallet.
- Keep in mind that you can set up a hardware wallet to be used as a new device with newly generated private and public keys, or you can use an existing seed phrase to create a copy of another wallet.
- These devices can be used to create a Bitcoin wallet and serve as central storage for multiple cryptocurrencies. For example, Ledger supports more than 100 different cryptos and more than 1,000 tokens.
- After finishing the setup and backing up the necessary information, you can now use the hardware wallet in tandem with applications that support it, which includes manufacturers’ and third-party software solutions.
For exact instructions, make sure to follow each step recommended by the manufacturer - we’ve provided you only with a general guideline. Hardware crypto wallets we recommend are some of the widely used and proven solutions in the industry, and the majority of long-term investors use them for safe storage.
Custodial vs. Non-Custodial Wallets
Before you create a crypto wallet for yourself, you should consider if the app is designed as a custodial or non-custodial service. How these applications differ is not so hard to grasp.
Custodial wallets require you to register an account with a username and password. These credentials are then used to verify your identity and access funds on the app instead.
You don’t get full control of the funds since you are not provided with a seed phrase on activation of the wallet, and you don’t have control over the private key. The crypto community has a saying, “Not your keys, not your crypto” - a warning you can potentially lose it all because of this lack of control.
Some of the main benefits of wallets with custodial services are:
- Quick access to the cryptocurrency market
- Access to customer support
- A low-entry barrier for newcomers
- Access to DeFi
If you create a cryptocurrency wallet on a custodial application, there are some downsides:
- The service can prevent you from drawing funds.
- If you break terms of service, you can get banned and your assets seized.
- Such platforms have been hacked before.
While reasons to skip custodial wallets sound horrifying, the cryptocurrency industry is changing with increased regulatory presence and projects that are more scrutinized and insured by large firms.
What To Consider When Choosing a Wallet?
Hardware wallets are, as a rule, recommended for saving crypto. However, there is a safety factor to consider.
Being designed for convenience and even for making day-to-day payments, hardware wallets are small and easy to lose. Since it is your only access point to your crypto portfolio, carrying it around isn’t advisable.
If you are wondering how to get a Bitcoin wallet to access alternative payment methods, then mobile software solutions are your best bet. Bitcoin is great for micropayments if used with Lightning Network.
Wallets can even hold digital assets such as NFTs. As the market for digital art becomes more popular for investors, it’s worth considering if you can securely hold different asset types in a single wallet.
Which crypto wallet is the best for beginners?
The Coinbase wallet is highly recommended for beginners and has the additional benefit of being a non-custodial application. The cryptocurrency exchange has a separate app if you want to trade digital currencies.
Which cryptocurrency wallet is the best?
It will depend on your use of such a wallet. If you want to store crypto long-term, invest in hardware wallets from Ledger or Trezor. If you are looking for an app for day-to-day payments, download an app for your smartphone and hold just a portion of your crypto.
Do you need a bank account for a crypto wallet?
No, you don’t. You can just download an application or open an account on a custodial wallet service.
Is it worth getting a crypto wallet?
Yes, it is, and that’s why we insist everyone investing in digital currencies should investigate how to set up a crypto wallet in the first place.
Albert Einstein is said to have identified compound interest as mankind’s greatest invention. That story’s probably apocryphal, but it conveys a deep truth about the power of fiscal policy to change the world along with our daily lives. Civilization became possible only when Sumerians of the Bronze Age invented money. Today, economic issues influence every aspect of daily life. My job at Fortunly is an opportunity to analyze government policies and banking practices, sharing the results of my research in articles that can help you make better, smarter decisions for yourself and your family.
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