How to Choose and Set Up a Basic Cryptocurrency Wallet

A cryptocurrency wallet is a secure place where you access and store your cryptocurrency for use online. When using such a wallet, it may sometimes feel like you’re using an online bank account. You set it up online, then digitally transfer funds in and out. However, cryptocurrency wallets have some important differences from bank accounts. If you’re a beginner, you should understand how cryptocurrency wallets work to ensure your wallet is safe and effective for your needs.

What Is a Cryptocurrency Wallet?

Crypto wallets are a specific type of computer software designed to store different cryptocurrencies. Their basic function is to allow you to spend and trade crypto easily online. There are different types and brands of wallets, each with different security and liquidity characteristics. The most common types are mobile, desktop, hardware and hosted wallets.

The name “wallet” gives you a hint as to how they work and how they differ from bank accounts. When it comes to your traditional wallet, you use it to hold cash, identity documents and cards. These are all important items that you don’t want to lose. If you fail to protect your traditional wallet and it falls into the hands of a criminal, you’ll lose any cash stored in the wallet forever. But, even worse, the criminals can use the documents in the wallet to affect your identity and cause even more problems for you.

Coins like Bitcoin and Ethereum cryptocurrency work kind of like online “cash”. If you lose them, they are gone. If someone has access to your wallet, they can cause huge problems for you, like stealing your crypto identity or tokens. That’s why your choice of wallet and how you use it is so important.

Here are some cryptocurrency wallet types you can browse through to choose a suitable one for your specific needs.

Mobile Wallet

Mobile wallets are designed specifically for use on your smartphone. They are the most convenient and very popular with cryptocurrency users. They are easy to use on the go but come with some security tradeoffs.

These are a type of “hot” wallet, which means they are continuously connected to the internet. This is convenient for fast transactions but it also leaves you more vulnerable to malware and online attacks. These wallets are also prone to the risk of you losing your phone.

Steps to Install and Use a Mobile Wallet

Simply pick the mobile wallet you want to use and download the app to your phone. However, be certain you are using a reputable app and that you are downloading it directly from the publisher.

Next, walk through the steps to set up the wallet. Depending on the app you choose, this could include uploading identity documents (e.g. in the case of using an app like Coinbase).

When using a mobile app, make sure it’s protected with all security protocols, such as two-factor authentication, and that you have backups of your keys in case you lose your phone. Then you can start trading crypto.

Desktop Wallet

Desktop wallets work on your regular computer. They are also hot wallets, but they are designed for use on your desktop. Your crypto keys will be stored there as well. Your wallet will allow you to make convenient crypto transfers when browsing online.

Steps to Install and Use Desktop Wallet

To use a desktop wallet, download the application, fire it up and follow the steps to set up your keys. Be certain you are downloading a verified app from a reputable seller. Also, make sure the desktop wallet is compatible with the different coins you intend to use.

As desktops are hot wallets, you need to be highly careful of malware and viruses. Also, make sure you have a method to restore your wallet in case you lose your computer.

Hardware Wallet

Hardware wallets are “cold”, as in they are not connected to the internet. This makes it difficult for attackers to reach your hardware wallet (as they can’t connect to it via the internet), meaning they are a secure place to store your coins.

They usually come as a physical device such as a USB drive. Hardware wallets are extremely secure but the transaction process is more difficult than with the hot wallets mentioned above.

Steps to Install and Use a Hardware Wallet

To use one, you’ll need to purchase a physical hardware device from a manufacturer. Install the software to set up the device and write down the passphrase and private keys. Finally, you can start transferring crypto to and from the wallet when it’s connected.

Ensure you only buy a hardware wallet from a top manufacturer. This guarantees it’s free from tampering and malware.

Hosted Wallet

Hosted wallets are similar to desktop or mobile versions but, rather than being stored on your machine, they are stored on someone else’s. These are the types of wallet you use when you load funds onto a cryptocurrency exchange. The exchange is hosting your wallet for you. The pros are high liquidity and access to cryptocurrency exchanges. The cons are that you have no control over your wallet or funds as you have handed it over to the hosting party.

Steps to Install and Use a Hosted Wallet

The most important step when setting up a hosted wallet is to choose a trustworthy platform. Then, set up your account. For most exchanges, you’ll have to verify your identity to set up a hosted wallet. You usually don’t have to do this with other kinds of wallet. Transfer or buy the funds you want to use on the platform and start trading.

How to Choose Wallet for Your Needs

Here’s a quick summary of our findings:

• Mobile/Desktop: Convenient, less secure.

• Hardware: Low flexibility and liquidity, most secure.

• Hosted: Flexible, access to exchanges, least secure, need to trust the provider.

Ideally, you should use a combination of these wallet types. Use a hardware wallet to secure the bulk of your crypto funds you don’t often use. Then, store a convenient amount in your mobile/desktop wallet depending on which device you use most. Finally, have only the amount you are currently using on an online platform in its hosted wallet.

Cryptocurrency wallets can feel complicated at first. But storing any kind of asset comes with skills you need to learn and some level of risk. If you can wrap your head around the types of crypto wallets described here and ways to use them, you’ll be using cryptocurrency safely and conveniently in no time.