How To Set Up a Crypto Wallet? Step-By-Step Guide

A crypto wallet is where you securely store your cryptocurrency.

Types include hosted, non-custodial, and hardware wallets.

The choice depends on your crypto use and safety preferences.

Setting Up Crypto Wallet
Setting Up Crypto Wallet: Photo source (Forbes)

Hosted wallets

The most popular and user-friendly cryptocurrency wallet is a hosted wallet.

When you purchase crypto through platforms like Coinbase, it’s automatically stored in a hosted wallet.

In this setup, a third party manages your crypto, much like a bank holds your money in an account.

With a hosted wallet, you don’t need to worry about losing keys or USB wallets.

The primary advantage of a hosted wallet is that if you forget your password, you won’t lose your crypto.

However, hosted wallets may have limited access to certain crypto features, though this could evolve as they expand their capabilities.

How to set up a hosted wallet:

  1. Choose a platform you trust. Your main considerations should be security, ease of use, and compliance with government and financial regulations.

  2. Create your account. Enter your personal info and choose a secure password. It’s also recommended to use 2-step verification (also called 2FA) for an extra layer of security.

Buy or transfer crypto. Most crypto platforms and exchanges allow you to buy crypto using a bank account or credit card.

If you already own crypto, you can also transfer it to your new hosted wallet for safe keeping.

Self-custody wallets

A self-custody wallet, such as Coinbase Wallet, grants you complete control over your crypto.

These non-custodial wallets don’t rely on third parties to safeguard your assets.

They provide the software, but you’re solely responsible for remembering and securing your password, known as a “private key” or “seed phrase.”

Losing it means losing access to your crypto, and if it’s compromised, your assets can be stolen.

Non-custodial wallets offer full control and access to advanced crypto activities like yield farming, staking, and lending.

However, if you just want to buy, sell, send, and receive crypto, a hosted wallet is the simpler choice.

How to set up a non-custodial wallet:

  1. Download a wallet app. Popular options include Coinbase Wallet.

  2. Create your account. Unlike a hosted wallet, you don’t need to share any personal info to create a non-custodial wallet. Not even an email address.

  3. Be sure to write down your private key. It’s presented as a random 12-word phrase. Keep it in a secure location. If you lose or forget this 12-word phrase you won’t be able to access your crypto.

  4. Transfer crypto to your wallet. It’s not always possible to buy crypto using traditional currencies (like US dollars or Euros) with a non-custodial wallet, so you’ll need to transfer crypto into your non-custodial wallet from elsewhere.

Coinbase customers can choose between a hosted or self-custody wallet.

The Coinbase app is a hosted wallet, while the standalone Coinbase Wallet app provides non-custodial benefits.

Many customers use both for convenience, allowing them to buy crypto with fiat and engage in advanced crypto activities. Setting up either wallet is cost-free.

Hardware wallets

A hardware wallet is a physical device, about the size of a thumb drive, that stores the private keys to your crypto offline.

Most people don’t use hardware wallets because of their increased complexity and cost, but they do have some benefits — for example, they can keep your crypto secure even if your computer is hacked.

However, this advanced security makes them inconvenient to use compared to a software wallet and they can cost upwards of $100 to buy.

How to set up a hardware wallet:

  1. Buy the hardware. The two most well-known brands are Ledger and Trezor.

  2. Install the software. Each brand has their own software that’s needed to set up your wallet. Download the software from the official company website and follow the instructions to create your wallet.

  3. Transfer crypto to your wallet. Similar to a non-custodial wallet, a hardware wallet typically doesn’t allow you to buy crypto using traditional currencies (like US dollars or Euros), so you’ll need to transfer crypto to your wallet.

Just as you have various ways to store cash, like in a bank account, safe, or under your bed, crypto storage offers options.

You can opt for simplicity with a hosted wallet, full control with a non-custodial wallet, added security with a hardware wallet, or even use multiple wallet types—it’s your choice in the crypto world.

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