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How to Set Up a Crypto Wallet | A step-by-step guide

Zoya Khan

December 3, 2021

A crypto wallet is a digital wallet that allows you to keep your crypto secure. The most popular crypto wallets include hosted wallets, non-custodial wallets and hardware wallets, even though there are many more different kinds of them. The right one for you depends on what you wish to do with your crypto and what level of safety you seek.

Hosted wallets -

This type of crypto wallet is most popular and considerably easy to set up. When you purchase cryptocurrency through apps like Coinbase, the crypto automatically gets held in a hosted wallet. The reason it is called a hosted wallet is that the cryptocurrency is kept by a third party. That is similar to money getting stored in a checking or savings account in a bank. You might have heard about people losing their USB wallets, but you do not have to worry about that here. The primary benefit of keeping crypto in a hosted wallet is that even if you end up forgetting your password, you cannot lose your crypto. But a notable drawback is that you cannot get access to everything crypto offers. However, hosted wallets have gradually begun supporting more features, and this problem may soon get eliminated too.

How to set up a hosted wallet:

Choose a trustworthy platform after considering its security, ease of use and government or financial compliance.

Create your account by providing all the necessary details like personal info and adding a secure password. (Do try to look for 2-step verification for an extra layer of security).

Buy or transfer crypto -

Most crypto platforms and exchanges allow crypto trading using a bank account or credit card. And if you already own cryptocurrency, you can also transfer it to your new wallet for safekeeping.

Self-custody wallets -

Self-custody wallets are the kinds that put you in complete control of your crypto. An example can be the MetaMask wallet. Non-custodial wallets do not rely on third parties to keep your crypto safe. They may provide the software to store your crypto, but the responsibility of remembering the password stays on you. And in case you forget your password or the private key, accessing crypto can become incredibly difficult. Moreover, if your password or the private key gets discovered by anybody else, that person can get complete access to your assets.

Why have a non-custodial wallet in that case?

Along with having complete control of the security of the crypto, you can also access more advanced crypto activities like staking, yield farming, lending, borrowing and more. But if you only want to do the usual activities like buy, sell or receive crypto, a hosted wallet can be the best solution.

How to set up a non-custodial wallet?

  1. Choose from a popular option of wallets like MetaMask and download one.
  2. Create an account after keeping in mind all security protocols. Do not share your personal information or email address.
  3. Set a 12-phrase private key and keep it in a secure location. Because if you happen to lose this private key or password, you cannot access your crypto.
  4. Transfer the cryptocurrencies into your wallet. You will have to transfer crypto into your non-custodian wallet from somewhere else because you cannot buy crypto using traditional currencies with a non-custodial wallet.

Most apps offer you the option of choosing between a hosted wallet or a self-custody one. Some apps even provide you with the choice to keep both wallets so that you can participate in advanced crypto activities. Mostly setting up any wallet on such apps is free of cost.

Hardware wallets -

Hardware wallets are physical devices. They are about the size of a thumb drive, and they store the private key to your crypto offline. Despite some notable benefits like keeping your crypto secure even if your computer gets hacked, this type of wallet is not as commonly used by the majority of people because of its complexity and high cost. Its advanced security makes it quite complicated and more expensive than other software wallets. So, in case you want to buy a hardware wallet, be ready to shell out anything like $100 or above.

How to set up a hardware wallet -

  1. Choose from the available brands such as Ledger, Trezor etc.
  2. Install the software from their official website and follow the instructions provided to create your wallet. Remember that every brand has its own software and protocols to set up a wallet.
  3. Remember what you did in a non-custodial wallet? Transfer your crypto to the hardware wallet as well. A hardware wallet also does not allow you to buy crypto using traditional currencies. So you have to transfer cryptocurrency to your new wallet.

Just like there are so many ways to store your cash, there are various ways to store your crypto as well. But if you want to keep things simple, it's best to go for a hosted wallet. And if having complete control is your priority, you can opt for a non-custodial one. On the other hand, the ideal option for you if you prefer an extra layer of security is a hardware wallet. Ultimately the choice depends on your preferences, and you can keep any number of wallets, be it one or multiple.