You’ve read about crypto; you’ve talked to friends; you’ve done some reading, and maybe even dabbled a little bit. But now? You’ve chosen your tokens, you’ve read our blog on crypto wallets, and you’ve started investing. One of the most exciting elements of the evolution of cryptocurrencies is that widespread adoption means you can start leveraging digital currencies in the real world. You’re ready to dive in and start exploring all the ways you or your business can start spending and receiving cryptocurrencies. To do so, you’ll need to set up your crypto wallet.
What is a Cryptocurrency Wallet?
Crypto wallets are responsible for storing keys to your cryptocurrencies. The wallet keeps those passwords safe and available, so when it’s time to use your crypto, it’s ready and available. Crypto wallets do not actually carry or hold cryptocurrencies, just the keys which enable your access to them.
Crypto wallets come in both hardware and software forms. Apps, which work on mobile devices, keep your crypto easily accessible, so with a quick QR code scan, you can use your digital money online and at brick-and-mortar stores.
One important thing to understand about crypto wallets is that you have options. Depending on how you purchase your crypto and how you intend to use it. Each of these types of wallets has benefits and drawbacks.
Web-based crypto wallets are hosted by exchanges so the security keys for your crypto are managed, secured, and stored by the exchange itself. The advantage here is that access to your cryptocurrencies is only limited by access to the internet. For individuals looking for the easiest way to buy, sell, or use cryptocurrencies, this is a great choice. However, security may be a concern here as your crypto security is in the hands of the exchange.
Mobile wallets are apps on tablets or phones that allow users to access their cryptocurrencies through these devices. Some of these applications are hosted, much like web-based wallets, while others are not and put the custodianship of the passwords and security keys in the hands of the user. Further, some mobile wallets offer both hot storage (your information stays connected to the internet ensuring fast and easy access) and cold storage (offline storage which can offer an added layer of protection.
These days, desktops may seem a bit analog and dated, but desktop wallets function much like mobile wallets and are software-based. One of the benefits, as with mobile wallets, is the opportunity for cold storage and added security.
As mentioned briefly above, hardware wallets are like USB drives that you can connect through a port to a computer granting access to your cryptocurrency keys and, therefore, your digital money. The benefit to a hardware wallet is that it grants the highest level of security (cold storage other than during use or transmission), but it also means you are the only custodian of your keys and so, should you lose the hardware or ledger, you lose all access to your cryptocurrency.
The first thing to know and understand about the setup is that in some cases there is no setup! This is true when you purchase cryptocurrencies through an exchange. Typically, the exchange will create a wallet for you, storing the currency you purchase through them in said wallet. In short, the key piece to understanding how you set up crypto wallets is understanding that even the types of wallets noted above, fall into two categories: hosted wallets and self-custody wallets.
The concept is just how it sounds. These wallets are hosted by third parties, often exchanges that set up the wallet for you the minute you purchase crypto on their exchange. Hosted wallets include web, mobile, and desktop software, applications, and web-based applications. Through a hosted crypto wallet, you have some added measure of security in that you cannot experience lost passwords that can wipe out your digital fortune simply because you cannot access it.
To set up a hosted wallet:
- Choose the crypto platform you want to use. Remember you’ll want to consider quite a few things about the platform including its security, transaction fees, rewards, reputation, and more.
- Create your account on the platform. You’ll be asked to enter your personal information to establish the account including creating a password. Remember, while this is hosted, and there is some measure of security on the part of the platform, choose a secure password and opt-in for two-factor authentication to further help protect your account.`
If you’ve got crypto elsewhere, or intend to possibly buy on other platforms, you want to make sure you’re choosing a platform that will allow you to transfer other cryptocurrencies.
Self-custody crypto wallets function a bit differently. Whereas a hosted wallet keeps your password or private key safe, self-custody wallets require you to retain that yourself. So those cases of “lost” wallets and fortunes become a possibility. While the software and application are still provided for you, you are solely responsible for the security and safekeeping of your password or security keys.
Self-custody crypto wallets aren’t for everyone those new to cryptocurrency may want to start with a hosted wallet. However, if you’re looking to do more with crypto once you’ve gotten your feet wet, self-custody wallets do allow you to engage in activities designed for more advanced investors.
To set up a self-custody wallet:
- Download a wallet app that offers self custody such as the ones found on the list of non-custodial crypto wallets.
- Create your account. As you are not using host services, you won’t need to share any personal information.
- Write down or store your private key somewhere safe! Your private key will be a random 12-word phrase and so may be difficult to commit to memory. Further, you want to make sure you keep it somewhere where it won’t be easily found by others or lost by you. If you lose this private key, you will be unable to access your cryptocurrencies.
- Transfer your crypto to your wallet. Non-custodial wallets don’t always allow purchases of crypto using standard currency (dollars, euros, and more), so you’ll need to transfer any crypto you hope to store and use via this wallet. This is one of the many reasons that transferring becomes vital for all crypto wallets and services.
Once you’ve set up your cryptocurrency wallet, you’re ready to get started in the crypto economy! Not only can crypto be used to purchase via online shops and marketplaces, but crypto can even be used to purchase a house. It’s an exciting time to get started in crypto or to start learning how you can leverage your various digital currencies to make real-world purchases and sales.
If you’re a retailer, looking for ways to accept crypto from your customers, or a customer looking for a solid crypto wallet to help you get in the game, learn more from the PayBolt team today.