In This Article
The way people imagine money has morphed a number of times throughout societal evolution. What used to exist only in the form of bartering, then metal coins, then gold-backed paper, has now morphed into digital blockchain. With the benefits of instantaneous transactions at little to no cost, it’s obvious why people are interested in getting started in this realm. In order to get started though, you’re going to have to create a crypto wallet, and that’s precisely what we’ll be guiding you through today.
What are cryptowallets?
Cryptocurrency wallets are the essential vessels through which users are able to hold, exchange, and obtain digital currencies such as Bitcoin, Ethereum, and thousands of others. In principle, they’re a digital version of the same old-fashioned wallets we keep in our back pockets. A crypto wallet, however, doesn’t just store coins but also private keys that give users access to their cryptocurrencies on the blockchain.
Each cryptocurrency wallet has a unique public address, functioning like an account number, along with a private key, a secure password that grants access to the funds the wallet holds. Safeguarding this private key away from anyone else’s eyes is critical. Cryptowallets enable peer-to-peer transactions on the blockchain.
Types of crypto wallets
For priority purposes, it’s worth being aware of two different types that exist.
Hot wallets: these are connected to the Internet and provide instant crypto exchange, as they offer quicker access to a trader’s funds. That said, in being connected to the web, they are also subjected to greater vulnerability to hacking and cyber-attacks.
Cold wallets: by contrast, they put security first by remaining offline and storing private keys in a secure environment. These could be hardware media, paper, or even metal plates. Naturally, they do not operate as rapidly as their hot counterparts do.
Let’s dive into some more specific detail on how both of these work.
Hot Wallets
These break down into different types of software wallets which different people opt for over the others based on their own personal preferences.
Desktop wallets: these are installed on a desktop or a laptop and offer more security than mobile wallets, despite still being vulnerable to malware.
Mobile wallets: taking the form of smartphone apps that allow instant access to one’s crypto coins as well as enabling on-the-go transactions.
Web wallets: hosted by third parties, these are able to be accessed via a browser, regardless of the device used. Despite their convenience, they still store keys online. Some may prefer such “custodial” wallets as it puts the responsibility on the third party’s shoulders to keep the keys safe but the user will have to trust the platform with their funds. Otherwise, the storage of keys is in what’s called a non-custodial format.
Exchange wallets are provided by cryptocurrency exchanges where users store their assets. For obvious reasons, these platforms are frequently targeted by cybercriminals. However, Forbes recently detailed how security in hot wallets is being ramped up.
Cold wallets
These are not readily available via the Internet. They come in the following types:
Hardware wallets: When needed to complete a transaction, they are hooked up to a computer or mobile device and subsequently disconnected.
Paper wallets: these contain your public and private keys, usually in the form of QR codes. They can be created offline and must be kept in a safe place to keep the material protected and safe from theft.
Metal wallets: like paper wallets, in this case, the keys are etched or engraved into metal plates. These are more durable and less damage-prone.
If users prefer, they have the option to use multisignature wallets, which require more than one private key to authorize a transaction. This adds an extra layer of security, and thus they’re preferred by organizations as well as extra-cautious individuals.
More considerations in choosing a wallet
Beyond the factors already mentioned above, before you get started, you should also take other factors into account that may be important to you. Do you already know what types of cryptocurrency you plan to acquire? Not all digital assets are supported by all types of wallets. If you plan to purchase a wide variety of altcoins, you’ll need a wallet that can support that. Some wallets are designed specifically for certain coins and tokens. Also, as the Economist noted, there are some countries like the United States whose citizens cannot sign up on certain platforms.
Other factors beyond that include:
Ease of use: beginners will opt for a simple interface while advanced users prefer to have additional features and more control.
Fees: some wallets are free to use (barring small translation fees) while others require an upfront cost for the device.
Compatibility: make sure that the device you plan to use is compatible with your wallet as well as decentralized applications (DApps) if you plan to use them.
Setting up your first cryptocurrency wallet
Setting up your first wallet may seem like a daunting task, but the process is fairly straightforward and takes nothing more than just a few steps. Here are instructions to get started.
Choose the wallet type you prefer: if you’re new to cryptocurrency and need to be able to access it easily, you might be best off opting for a mobile or desktop wallet. If however, you’re planning to invest in crypto and not touch it for a long period of time, you might instead go for a more secure cold wallet.
If opting for a web wallet: visit the official website of the service provider, press the indicated button to download the software onto your device, and follow the installation prompts.
If you prefer a mobile app: go to the Google Play Store or the App Store, search for a wallet app, and install it. Make sure you download the official app from the correct developer.
Once the wallet is installed, you’ll need to create a new wallet. The setup process typically involves setting a strong password as well as a backup phrase. This restoration phrase usually consists of a dozen or two words. You’ll want to write that down. Store it in a secure, non-digital location.
Enable two-factor authentication: this will require additional SMS or authenticator app verification. It’s a wise move seeing as it will give you an added layer of protection.
Fund your wallet: by buying cryptocurrency from an exchange. If you’re using a hot wallet, you can buy directly from exchanges like Coinbase, Binance, or Kraken to your personal wallet. You’ll have to provide your public address to do so. Alternatively, you can have someone else transfer money to your wallet.
Make your first transaction and send crypto to someone else. Here’s how you do it:
open your wallet
click the send button
enter the recipient’s wallet address
specify the amount you want to send
press “confirm”
Regular updates
Always keep your wallet software and any associated apps up to date. This is because wallet developers frequently release updates to fix bugs and patch security vulnerabilities. By keeping your software updated, you reduce the risk of being exposed to known threats. If you use a hardware wallet, regularly check for firmware updates.
