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Crypto wallets are the gateway to creating a solid footprint in Web3 & the crypto investing world. But here’s the catch: just like one shoe size does not fit all, the crypto wallet that is right for you depends on what you want to do with your cryptocurrency and the type of safety net you want to have.
When choosing a crypto wallet, it is vital that you think about why you are using crypto to begin with. That is because various wallets are made for various use cases. So, it’s wise to stick with an option that is congruent with the way you’ll be interacting with various cryptocurrency networks.
Here are a few questions you should have the ask yourself when picking your first wallet:
Note that security should be your top priority before you set up a crypto wallet as this software (or hardware) will be in control of your private keys.
These are the passwords to your cryptocurrency funds, which allows those funds to be sent to other users. Thus, control over the private keys means control over the money.
Once you follow these five steps, you’ll be well set in using the cryptocurrency in a safe & secure manner.
These are the most popular and easy-to-set-up wallets. Once you buy crypto using an app, it is automatically held in a hosted wallet. It is called ‘hosted’ because a third party keeps your cryptocurrency for you, just like a bank keeps your cash in a savings account.
With a hosted wallet, you don’t have to worry about “losing your keys” or “losing your USB wallet”. In this case, even if you forget your password, you won’t lose your digital currency. However, you can’t access everything cryptocurrency has to offer when you use a hosted wallet. This might change as hosted wallets start supporting more features.
How to set up a hosted wallet?
It is a physical device – about the size of a thumb drive – that stores the private keys to your cryptocurrency offline.
If complexity (setting them up takes time) and comparatively high costs (over $100) seem like barriers for you to set up a crypto wallet, then you should reconsider using a hardware wallet.
But it has a huge benefit too — it’s the most secure of all wallet options. So, using hardware wallets keeps your cryptocurrency secure even if your computer is hacked.
The extra security is possible because your private keys are held in an offline device that isn’t your laptop, mobile phone, or other computer. As such, hardware wallets are less prone to malware attacks from hackers.
How to set up a hardware wallet?
A mobile wallet is much easier to set up. The first step is to choose a mobile cryptocurrency wallet from your device’s associated app store. Two examples are Edge and BRD.
The thing about most mobile wallets is that you can instantly accept cryptocurrency payments. But ensure that during the setup process, you keep a backup of your private keys on physical paper.
Such a backup generally comes in the form of a 12 to 24 letter passphrase, also called your recovery phrase. Though not all crypto wallets require this step, it’s a best practice to follow. Otherwise, if you lose your phone or your mobile device simply stops working properly, you may permanently lose access to your funds.
Remember, in the cryptocurrency industry, no third party can come to your rescue once you’ve lost your password.
As compared to mobile wallets, desktop wallets typically include a more extensive portfolio. Using these, you can track graphs and charts to know the value of your assets in various ways.
Some examples of desktop wallets are the Jaxx Liberty Wallet, Exodus Wallet, and Atomic Wallet.
You can also set up a crypto wallet on your desktop. Setting up a desktop wallet is similar to setting up a mobile wallet. All you have to do is select your cryptocurrency wallet software. Then, you only need to run the software to begin the setup process.
Just as in the mobile wallet setup process, desktop wallet software could ask you to create a backup of the passphrase associated with your private keys.
How to set up a desktop wallet?
Once you install the Desktop Wallet, ensure that you set up an identity & an initial account.
Custodial wallets differ from non-custodial wallets in that they hold your private keys for you. So basically, a third-party holds your cryptocurrency for you. It is crucial that you choose trustworthy, regulated providers like Coinbase.
Further, use two-factor authentication whenever it is offered. Almost every custodial wallet offers two-factor authentication. The Electrum wallet even offers this feature in a quasi-decentralized way.
How to set up a self-custody wallet?
Now that we’re talking about how to set up a crypto wallet, let’s put an end to the long-heated debate once and for all: Which one should you choose? Hot wallets? Cold wallets?
Here, we break it down for you. If you buy a certain amount of crypto and you want to store it yourself, you basically have to choose between holding your cryptocurrency in a “cold” wallet, a “hot” wallet, or using a combination of the two.
A hot wallet is connected to the internet and so is vulnerable to online attacks. As a result, your funds may get stolen. But the upside is that it’s faster and so, makes it easier to spend or trade crypto. A cold wallet is the complete opposite – typically not connected to the internet, is more secure but less convenient to use.
Source: CoinTracker
The Solution: Strike a Balance
When using either type of crypto wallet, there are generally a lot of trade-offs. If you want to avoid that, use a combination of cold and hot wallets.
By doing so, you strike a balance between the accessibility of a hot wallet and the security and peace of mind associated with a cold wallet.
What will happen is that you’ll end up with many versions of each: a mobile hot wallet, an exchange account hot wallet, & a hardware cold wallet.
Every crypto wallet can be used for a specific purpose. This will create a balance between ease of use & security when trading and using cryptocurrency.
Another trend is using a second phone that functions only as a mobile crypto cold wallet. When using a mobile device as a cold wallet, you only turn it on when you want to make a transaction.
The secondary phone acting as a cold wallet is then connected to your primary phone via WiFi or bluetooth and the funds are transferred to your hot wallet for the transaction.
Once the transaction is over, the bluetooth or WiFi connectivity is turned off and the secondary phone is powered down.
Yes, the safest option in terms of cryptocurrency wallets is a hardware wallet. But this does not mean that a hardware wallet is the perfect choice for everyone using cryptocurrency.
Consider the value of your cryptocurrency holdings to gauge the level of security needed. For instance, it doesn’t make much sense to purchase a $100 hardware wallet to protect $50 worth of cryptocurrency.
That said, you can take certain steps to improve the security of your cryptocurrency holdings without splurging on a Ledger or Trezor.
Take Note
So, now that you have set up a crypto wallet, you also need to keep these things in mind:
FAQs
A crypto wallet will cost you around $200. Note that if you are using a wallet as part of an exchange, you’ll need to pay either a flat fee or a percentage of the total transaction value.
Though it seems easy to implement, the process generally requires patience. It is best to take the guidance of expert service providers before you deep dive into it.
Cryptocurrency in a digital wallet works in a similar way as fiat money in a physical wallet. Its value changes with the change in the market price. So, when the market value is high, that of crypto is high, and vice versa.
Have any queries regarding how to set up a crypto wallet? We’re here to resolve them all!
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