Setting up a cryptocurrency wallet can take anywhere from a few minutes to a few hours depending on the wallet type. Hardware wallets and exchange-hosted wallets will take some extra time, thanks to the additional steps involved for each.
The type of crypto wallet a user might choose will depend on what they want to do with their crypto and what level of security they’re looking for.
Understanding Crypto Wallets
A crypto wallet is used to send, store, and receive cryptocurrency. Some wallets have additional functionality, including the ability to:
• Buy and spend crypto
• Swap between different tokens
• Stake tokens for a fixed return
• Interact with different decentralized applications (dApps)
A wallet has two important parts: a private key and a public key. The private key is used to sign transactions, proving their authenticity. Anyone with the private key to a wallet can take control of the funds held there.
A public key is derived from the private key. One wallet can be used to create many public keys, so users can receive crypto to the same wallet from different addresses. Public keys are also referred to as wallet addresses.
Setting Up Different Crypto Wallets
The process for setting up a cryptocurrency wallet differs depending on the type of wallet.
Crypto wallets fall into one of two broad categories: hot wallets and cold wallets. Hot wallets are those that are connected to the internet, making them less secure. Cold wallets can hold private keys offline in cold storage, making them more secure.
Hardware wallets are small devices that are separate from a user’s computer. This allows for the “signing” of transactions to happen on the wallet device, so a user’s private key is never exposed in the same way as it is when using a software wallet. For this reason, hardware wallets are considered a form of cold storage.
Hardware wallets are generally recommended for long-term storage of large amounts of crypto due to the added security. These wallets can also be used to send and receive transactions, but the additional investment and responsibility involved might not be worth it for those only holding a small amount of crypto.
Steps to Setting Up a Hardware Wallet
The process of setting up a hardware wallet differs somewhat depending on the exact wallet someone chooses. For many popular hardware wallets, users must do the following before their wallet will be ready to send and receive transactions:
1. Order the physical device. The average hardware wallet costs around 100 USD. Users should do their own research before deciding which manufacturer is right for them.
2. Install the appropriate software that will provide an interface to the wallet. Ledger wallets, for example, require the Ledger Live app. In some cases, this won’t be necessary — some wallets use a web-based interface, meaning users simply have to visit a website to access their wallet’s dashboard. KeepKey wallets, for example, utilize the ShapeShift web platform.
3. Plug the wallet into your computer and follow the instructions provided. This usually begins with showing the user their backup seed phrase.
4. Write down your backup seed phrase on paper. This phrase represents the wallet’s private key. Storing it in any online location can be dangerous, as it could be accessible to hackers. Anyone with this phrase can access all of the funds held in the wallet.
5. Set up a PIN. This will be used to access the wallet.
6. Buy or deposit crypto. At this point, it’s possible to put crypto into the new wallet. Some wallet platforms even have built-in exchanges where users can buy and trade crypto.
Paper wallets are also a form of cold storage, but they aren’t typically recommended due to their lack of durability and the high likelihood of user error.
In hosted wallets, a third party holds the private keys on a user’s behalf. This is similar to a bank holding someone’s fiat currency. The process of how to open a crypto wallet on an exchange is the same as signing up for an account.
Hosted wallets might be the easiest of all to create. Users simply have to sign up for an account on a crypto exchange and buy or deposit crypto into the wallet of their choice. The process could take some time, however, as exchanges have to verify a user’s identity. This could involve waiting for several days or longer.
For sending and receiving crypto transactions, many people turn to wallets hosted on exchanges.
Also known as self-custody wallets, these are software wallets that aren’t controlled by a third-party service like an exchange.
Non-custodial wallets allow users to hold their own private keys. This removes the counterparty risk associated with letting another party hold the keys to an individual’s crypto. However, it also makes the person 100% responsible for their funds.
There are many types of non-custodial wallets. Desktop wallets like Electrum work as simple software programs with user-friendly interfaces. If a crypto investor wants to take custody of their own keys, they might use desktop wallets like Electrum or similar non-custodial wallets on mobile devices.
Web wallets like MetaMask allow users to store, send, and receive Ethereum (ETH) right from their web browser.
Steps to Setting Up a Non-custodial Wallet Using MetaMask
Wallets like MetaMask are often used for Ethereum-based applications like decentralized finance (DeFi) and non-fungible token (NFT) platforms. Since MetaMask is one of the most popular non-custodial ETH wallets, let’s look at the step-by-step process of how to set up a cryptocurrency wallet of this kind.
1. Download MetaMask. First, you’ll need to install the MetaMask browser extension. Visit Metamask.io and click on “Install MetaMask.” The extension is available for the following browsers: Chrome, Brave, Edge, Firefox.
3. Store your seed phrase. Write your seed phrase down on paper. Keep it somewhere safe and don’t share it with anyone. Don’t take a screenshot of the phrase or store it anywhere online.
4. Fund your wallet. The final step in setting up a cryptocurrency wallet is to fund it. MetaMask supports in-app crypto purchases, but you can also deposit some from another location. To do this, simply send a transaction to your wallet address. When logged in to MetaMask, click the icon of two squares laid on top of each other in the top-center part of the screen. This will copy your wallet’s address to your clipboard. Send the right kind of crypto to this address to put funds into the wallet.
The process of learning how to set up a cryptocurrency wallet is usually quick and simple. Developers have worked hard to make things as user-friendly as possible.
“Not your keys, not your crypto” is a popular saying among crypto enthusiasts. Some users like to hold their own keys while others may opt for hosted wallets for the sake of simplicity.
Note that software wallets are unique to a specific cryptocurrency. Hardware wallets often have the ability to hold multiple types of crypto. In any case, it’s very important to send the right kind of crypto to the appropriate wallet, otherwise those funds could be lost forever. Sending Bitcoin Cash (BCH) to a Bitcoin (BTC) wallet address, for example, could result in the sent funds being unretrievable.
Photo credit: iStock/Poike
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