Do you wish to buy and hold cryptocurrencies and tokens? If yes, then the first step of that requires you to setup a wallet. It can provide a secure and a hassle-free place for you to keep your cryptocurrencies securely.
Types of wallets that exist today
You can find many different types of crypto wallets today, most commonly two main categories: hot wallets and cold wallets. Let’s focus on the differences that exist in between hot wallets and cold wallets first, and which you should go for.
1) Hot wallets
Hot wallets are wallets that are connected to the internet. These wallets offer a relatively lower level of security. That’s because you don’t have complete control over the wallet. They can be subjected to hacker attacks and fraudsters. They are, however, hot wallets are extremely user-friendly.
2) Cold wallets
Cold wallets are wallets designed for cold storage. In other words, you can use a cold wallet to store cryptocurrencies offline. You will only be connecting the cold wallet to the internet to access their basic functionality. If you have a large amount of crypto, you may think about storing it inside a cold wallet. They offer a high level of security, but with limited flexibility.
Types of hot wallets
All software wallets you can find out there belong to the category of hot wallets. Here are the most prominent types of hot wallets you can find out there.
1) Desktop wallets
You will need to download an application to access a desktop wallet. The application is responsible for generating a data file, which will hold the keys of all users. Users should create a password to access keys. The desktop wallets provide benefit of ownership to the keys, and you will be able to overcome the risks associated with malware infections or physical damages.
2) Web wallets
Web wallets are another type of hot wallet. You will be able to access these wallets through your web browser. There is no need to download any software to access a web wallet as in most cases you will be able to access a web wallet in the form of a browser extension. MetaMask is a perfect example of a web wallet.
3) Mobile wallets
Mobile wallets are quite similar to desktop wallets, but they come to you in the form of mobile applications. You will be able to receive better flexibility with cryptocurrency management using the web wallet. However, there are some security risks associated with the web wallet, as it’s connected to the internet via your devices and your devices are vulnerable to attacks.
Types of cold wallets
Next, let’s take a look at the different types of cold wallets you can find. There are two main types of cold wallets as hardware wallets and paper wallets.
1) Hardware wallets
Hardware wallets are linked with the basics of cold wallet design principles. They offer a different level of security as they don’t expose private keys to the internet. Instead, they will store private keys within the physical device.
You can easily use the hardware wallets on a device and access them by connecting the device to your computer. You can do it via the USB drive of your computer. Even if you connect the computer connected to hardware wallet to the internet, you can make sure that the private key would not leave the device.
2) Paper wallets
Paper wallets are nothing but paper. In here, a piece of paper would contain all data that is needed for accessing cryptocurrency. Hence, you can expect to receive additional security for your cryptocurrency wallet. However, paper wallets are not so popular because the risk of losing your assets is so high.
On the other hand, there are limitations in sending partial funds as you use a paper wallet. Even the transactions you do with paper wallets can be time-consuming.
When you want to setup a wallet, there are multiple approaches to follow. That’s because you can find numerous types of wallets out there. In this article I am dividing them into three main categories:
- Hosted wallets
- Non-custodial/self-custody wallets
- Hardware wallets
It is important for you to understand the differences between these different types of digital wallets and go for the best one out of them. Once you’ve decided which one to go with, you can use your digital wallet to hold cryptocurrencies without having to worry about anything.
How to setup a wallet on a hosted platform
Hosted wallets are the most popular option available to setup a wallet as it’s very easy to setup this kind.
The main reason why these wallets are referred to as hosted wallets is because you will be hosting your crypto in a third-party hosted platform. The third party would be responsible for holding all your crypto. This is quite similar to asking your bank to hold money in your savings account or checking account.
There are situations where people lose access to their USB wallets. On the other hand, you can also see situations where people lose keys to their wallets. But when you have a hosted wallet to store crypto, you don’t have to worry too much about such problems.
There are some benefits that you can experience by going for a hosted wallet as well. For example, you will never lose access to crypto, even if you lose your password. Here are the steps to follow when you wish to create a hosted wallet.
1. Pick a platform
The very first thing you should do is to select a platform. Coinbase and Binance are some of the options we recommend. I advise you to pay special attention to compliance standards, user-friendliness, and security at the time of selecting a platform.
2. Create an account
Now you can enter personal details and add a password to create the account. You may also add 2-factor authentication, which adds an extra layer of security to your digital wallet.
After hosting your digital wallet, you may transfer or buy crypto with the help of your credit card or bank account.
How to setup a self-custody/non-custodial digital wallet
When you look for ways on how to setup a wallet, the second option you will most likely come across would be setting up a self-custody digital wallet. MetaMask and Coinbase Wallet are perfect examples for self-custody wallets. This kind of a wallet can offer you the chance to have complete control over your cryptocurrencies. That’s because you will not be relying upon a third party.
It is true that a self-custody wallet will provide you the required software needed to store crypto in a secure way. However, you have the complete responsibility of safeguarding and remembering the password.
In case you forget the password, you will lose access to all your crypto. This password is usually called as seed phrase or private key. Once it is lost, you will not have any other method to gain access to your crypto assets.
Apart from having complete control over your digital currencies, you will be able to proceed engaging with different advanced crypto activities with this kind of a wallet. For example, it provides you the opportunity to go ahead with borrowing, lending, staking, and farming. Here are the steps to create your self-custody digital wallet.
1. Download an appropriate wallet app
You should initially download an appropriate wallet app. Some of the most popular choices available for you to consider include MetaMask and Coinbase.
2. Create an account
After downloading the wallet app, you can create an account. The best thing about creating an account is that you will not be asked to enter your personal information.
3. Write down your private key
Next, you will be provided with a private key. This is a 12-word phrase, which is made out of some random letters. It is important to write down the private key in a secure location. If you lose it, you will not be able to access your crypto.
4. Start using the wallet
Now you are ready to start using the wallet. It will be possible for you to transfer cryptos to the self-custody wallet and store. However, it will not be possible for you to buy crypto to the wallet using your credit card or bank transfer. You can follow our guide on how to add tokens to your MetaMask Wallet for further guidance.
How to setup a hardware digital wallet
The last option available for you to setup a wallet would be to get a hardware wallet. A hardware wallet is pretty much similar to a USB flash drive. Such a wallet can store private keys with related to crypto you own, but in an offline medium.
However, hardware wallets are not so popular among people out there because they are quite complex. Even the cost associated with hardware wallets is pretty high. Following are steps on how to setup a digital wallet on hardware.
1. Buy appropriate hardware
To setup a hardware wallet, you should buy hardware. Trezor and Ledger are two of the most popular brands that offer hardware to the market.
2. Install appropriate software
After you buy hardware, you will need to install appropriate software. Software usually comes to you from the same company that offers hardware. You can also get step-by-step instructions on how to install software on the hardware wallet.
3. Transfer your crypto
Once you setup software in the hardware wallet, you are good to go ahead and start using it. It would not be possible for you to buy crypto with your credit card or from bank transfer. Therefore, you will need to transfer currencies in order to start using the hardware wallet.
Now you know how to setup a digital wallet in three different ways, moreover you also know the difference between hot and cold wallets. Pick the best method out of these based on your preferences and start storing your crypto.
Hopefully this was useful for you. 😎