If you wish to buy your first cryptocurrency, understanding the process of setting up a crypto wallet is important. This article explores the different types of wallets and teaches how to set up one.
What is a Cryptocurrency Wallet?
A crypto wallet is a digital program that allows people to send, receive, and store digital assets like Dogecoin, Ethereum, Ethereum, and even NFTs. Most crypto wallets have private keys that must be kept safe. Wallet owners need those keys to access their crypto assets.
Now let’s explore the various types of crypto wallets.
Types of Cryptocurrency Wallets
There are two major types of crypto wallets: Cold wallets and hot wallets. Let’s discuss each in detail.
Hot wallets store crypto assets online. Therefore, users need internet connectivity to access them. You can use such wallets to store small amounts of digital assets you require in your daily transactions. Most hot wallets are available for free. However, being connected to the internet makes them vulnerable to cyberattacks.
Hot wallets are categorized into two: Custodial or hosted wallets and self-custody or non-custodial wallets.
Custodial crypto wallets are controlled by external service providers such as crypto exchanges. That means the private keys to your wallet are held by the service provider. In other words, they store your cryptocurrencies on your behalf, just like banks hold customers’ funds in their current or savings accounts.
Although custodial wallets are convenient for beginners, they come with several risks. For example, if the service provider files for bankruptcy, their funds will get stuck in the wallets.
These wallets give users total control over their digital asset holdings. This means instead of an external custodian managing the private key to your wallet, you are given that responsibility. Nonetheless, they have their own disadvantages. For example, losing your private key could lead to permanent loss of your crypto assets. The wallets are also vulnerable to malware and phishing attacks.
Unlike hot wallets, cold wallets store cryptocurrencies offline. And since they’re not connected to the internet, they are considered more secure. Therefore, cold wallets are ideal for people who need to store large amounts of crypto assets. Their downside is that most of them are considerably expensive.
How Do You Set Up a Cryptocurrency Wallet?
Picking a reputable custodian to manage your cryptocurrencies is key. We have chosen ZenGo for this guide. Here is how to set up a custodial wallet with ZenGo:
Step 1: Download the ZenGo app from Google’s Play Store or Apple’s App Store.
Step 2: Enter your email and verify it.
Step 3: After that, you will need to complete the know your customer process. ZenGo will ask you to scan your face and provide personal details.
Step 4: Once your information gets approved, your wallet will now be ready for use. But before that, ensure you secure it by enabling the 2FA (two-factor authentication) method.
There are several self-custody wallets. Two of the most popular are Trust Wallet and MetaMask. We chose the latter for this guide.
So here is how you can set up a MetaMask wallet.
Step 1: Go to metamask.io and download the wallet’s version compatible with your device.
Step 2: After installing it, open it and click “Create New Wallet.”
Step 3: Now, enter your email and a strong password.
Step 4: On the next page, MetaMask will display a 12-word phrase that you must note down. This phrase is your private key.
Step 5: Confirm the phrase to access your newly created wallet. To fund it, you can deposit tokens from an external source or buy them using your debit card.
To set up a hardware wallet, you must first purchase it. Some of the recommendable wallets include SafePal, Trezor, and Ledger. After buying one, there is software you need to install from the wallet’s official website to create an account. Note that you cannot buy crypto assets using fiat within these wallets. Therefore, you must deposit them.