How to choose and set up a crypto wallet? You will need a crypto wallet whether you want to trade your crypto coins or simply hold them with anticipation that the prices of the coins will rise in the future and sell them off then.
You will need to choose a crypto wallet according to your goals.
Well, easier said than done, with a wide range of alternatives available out there, and most of them being offered by the wallet providers for free, it may not be an easy task to choose the types of wallets you need and use.
Crypto wallets have been around right from the early days of Bitcoin and serve a lot of different purposes over and above holding the crypto, or the keys to be more precise.
Choosing the right crypto wallet is extremely important in the crypto industry irrespective of the type of coin you use.
But, you may not know how to pick the best one from such a humongous list of crypto wallets especially if you are new to this exciting world.
This is why this article is good since it covers all the relevant points that will help you to choose, set up, use, and keep your crypto wallet safe.
Through this article, you will come to know about the different types of wallets, how they work, what the best ones are and what to consider while choosing one for your needs, with more focus on the choosing aspect.
How to Choose and Set up a Crypto Wallet for You?
Crypto wallets do not actually store the crypto coins.
These wallets are actually software programs and store the public and private keys that allow access to your coins and trade them.
This software is typically connected to a hardware that resembles a USB flash drive.
These are much like the traditional bank accounts that keep a track of your balances and make transactions from the same place.
The crypto wallets can also be used for storing digital collectibles such as NFTs or Non-Fungible Tokens.
You can buy, sell or trade them and even transfer them to another wallet or to a person.
Ideally, crypto wallets are decentralized in nature. This means that you are responsible for what is inside it.
Therefore, it needs you to remember the password as well as the secret seed phrase to access it, unlock it, and manage your coins.
Therefore, with all these aspects kept in mind, it can be said that when it comes to choosing a crypto wallet, there are a lot of factors to consider beforehand.
First, you will need to consider what you intend to do with your crypto. For example, if you are interested in dealing with NFTs you will need to choose a wallet that can connect to the NFT marketplaces.
Not all types of wallets will do in this case because specific NFT marketplaces may operate on a specific blockchain.
This will determine the type of wallet to choose. If you want to deal with crypto coins only, this will not be necessary.
Another important thing to look for before you choose your crypto wallet is whether or not it comes with a mobile app version.
A lot of wallets are designed to be a desktop version only and may not be suitable for you if you travel a lot and want to trade crypto on the go!
If you want to have maximum security, then the hardware wallets will be the only suitable option for you.
You can connect and disconnect these to and from your computer which ensures maximum security.
You will also need to do some research on the pros and cons of each type of wallet because you will have total control of your funds without expecting any help from a third party.
Therefore, you will need to find out whether or not there are any usability issues and chances of theft.
It is always recommended to choose a wallet with a good track record of the service provider.
There are typically two broad groups in which the crypto wallets can be categorized namely, the custodial wallets and the noncustodial wallets.
- The custodial wallets are usually centralized. The keys stored in the custodial crypto wallets are typically held by a company along with your funds. You, in turn, get to use an interface to manage your crypto coins.
- The noncustodial crypto wallets are just the opposite of the custodial wallets. Here, you are actually allowed to manage your crypto and no one else.
These custodial and noncustodial crypto wallets can be further broken down into a few more different categories. These are:
- Desktop wallets, which are safe and can be downloaded and installed in your computer irrespective of the operating system being used
- Online wallets, which are convenient and run on the cloud and can be accessed from anywhere but are risky since all keys are centralized
- Mobile wallets, which are same as the desktop wallets but are designed to function on a mobile phone making them most convenient, stylish, and extremely user-friendly types but has several security limitations
- Hardware wallets, which are good and secure for long term storage but are quite expensive and
- Paper wallets, which store your private and public keys in printed format generally via QR codes and can be on a piece of paper or plastic as our credit card but can easily be lost, stolen or damaged.
As for the paper wallets, one of the most significant downsides is that when you want to spend money from it first you will need to transfer it to a software wallet which is a process called ‘sweeping.’
If you are a crypto trader dealing with a lot of different crypto coins, you can use a combination of hot and cold wallets.
The hot wallets or custodial wallets will allow you to make faster purchases and trades while the cold wallet or non-custodial wallets will help you to store the bulk of your crypto assets.
Choosing a Wallet
When it comes to choosing your crypto wallet, things usually depend on your preference over and above a few practical and pragmatic reasons.
It is not easy to find the right type of crypto wallet to use on the first try.
You will need some basic understanding of the process, especially if you are new. You will also need to know the concept and terminologies.
The first and perhaps the most important thing to consider while choosing your crypto wallet is why you need to use one in the first place.
This is important because different wallets are designed in different ways and each of these wallets has different use cases, pros, and cons.
Therefore, you must first make sure that the wallet you choose is able to interact with the different crypto networks.
Ideally, you will be better off to ask a few questions to yourself before you make your final decision. These are:
- Do you need to access your wallet quickly and on a regular basis?
- How many different types of currencies do you wish to store in the wallet?
- Do you want enhanced privacy features in the wallet as well?
- What is the cost involved in the solution you intend to choose?
- How important is the security aspect to you?
- Are you okay to trade security for convenience or vice versa?
As for the cost factor, most of the crypto wallets come free but the hardware wallets need some initial investment.
As for the security, it should be your top priority and you will need to do a lot of research to ensure the wallet you finally choose is one that offers utmost security.
Now, take a look at the factors in detail that you should consider while selecting your crypto wallet, starting with the security, the top concern.
It is vital for a crypto wallet to come with the first and last line of defense. This will save your funds from falling into the wrong hands even if someone else gets hold of your device.
This means that the crypto wallet should be unlocked every time you want to use it. A strong password is recommended instead to unlock the wallet initially.
It is good to use a PIN for that matter but that can cause some real inconvenience when you want to use your wallet on a regular basis.
Instead, going for those crypto wallets that can be unlocked by using fingerprint or facial recognition feature will make accessing the wallet a breezy affair and at the same time will maintain the highest level of security as well.
You should check the reputation of the maker of the crypto wallet or the service provider as the case may be and never, ever, fall for cheaper alternatives that may have little or no market reputation at all.
When you choose to use a wallet from a reliable source, it is less likely to have any security flaws built in its design itself or made accidentally.
This will not put your crypto assets at risk.
Visit different forums to find out what people are saying about the maker, how long they have been in service, the number of users they have, and more that will raise your level of confidence in them.
The crypto wallet you choose to use should provide easy access to your private keys. If you do not have access to it you will not have control over your coins.
Someone else will have the custody and control of your coins and you will have nothing more than a ‘claim.’ If, in case, the custodian goes bankrupt, it is highly likely that you will never see your coins again.
Moreover, if you do not have access to your private keys, you will have to ask for the permission of the custodian every time you want to use your coins because it is the custodian who is the only one controlling your funds.
The problem may not be in seeking the permission but in the delay that the custodian may cause to process your request.
Sometimes it may take even days. And, the painful factor is that you will be charged some fees to be ‘allowed’ to use your own coins!
Therefore, when you use a crypto wallet and have the private keys, you can interact with the public blockchain directly without needing any middleman.
Most of the crypto wallets today come with several useful features but the most significant one to look for is the backup features.
Ideally, a good crypto wallet will make it very easy for you to manage or create a backup of your private keys.
This can be an arduous task especially if you are used to writing your private keys in a piece of paper, use more than one wallet, or hold more than one type of crypto coins in your wallet.
With a proper private key management or back up features, the entire process will be easier and safer.
Though most of the hot crypto wallets are available for free there may be some that charge some fees from the users.
If you intend to use such a crypto service, make sure that you are allowed to customize the fees that you need to pay the miners or the public blockchain validators.
Ideally, it is good to use a crypto wallet that comes with convenient and practical presets such as slow, medium, and fast.
Each of these presets have different meanings and fees charged.
For example, if you choose the fast option, you will be able to complete a given transaction in quick time but for that you will need to pay higher fees.
If you research well then you will also come across a few specific types of crypto wallets that will allow you to choose the exact amount of fees you need to pay for making a single transaction.
You can decide this according to the precise Satoshi or byte rate of the crypto transaction.
On the Ethereum blockchain, this may be determined on the basis of the exact gas price of every transaction.
You can go for those shared wallets which are commonly known as multisig wallets.
This is a good feature to have in your wallet where approval from more than one person is required for every transaction made from the wallet.
While choosing a multisig crypto wallet, make sure that you focus on the number of participants it can have and the number of people required for approving each transaction.
For example, if you choose to use a ‘3 of 6 multisig wallet’ it can have 6 participants but will require only three of them approving any transaction.
However, any of the six participants of the wallet can propose a transaction but, essentially, at least three of them should approve it.
This adds another layer of security to your funds and wallet because even if any one participant loses the private key.
This type of crypto wallets is very useful to manage the funds of an organization.
Most of the crypto wallets are user-friendly and ensure absolute mobility.
Here are some of the other features that you should look for in the crypto wallet you intend to choose:
- It will be nice to use a crypto wallet that allows adding texts to your transactions. These personal notes will help you to keep a track of when you sent, who you sent, and where you sent the money.
- Displaying currency and toggling between them is another useful feature to look for in a crypto wallet you choose to use. This will enable you to know about the crypto units as well as the local currency.
- Additional features like switching between local currencies such as USD, EUR, GDB, and others is also nice to have.
Finally, if you are allowed to create unlimited wallets it will be nice and easy for you to manage and sort out your funds according to your needs and as you feel fit.
Setting Up and Using it
Now that you have made your choice of crypto wallet, it is time to install it and use your crypto account.
Different types of crypto wallets may need to follow different types of setup process.
You can download a few directly as an app from the internet or set it up as a browser extension.
These can be very easy to use because you can bring them up easily at any time by using a keyboard command.
You may even connect to particular websites that support that particular crypto wallet to use it.
When it comes to setting up your crypto wallet, this does not merely involve setting up the password.
You will also need to generate the ‘seed phrase.’ This is actually a string of words that you can use to recover your crypto wallet when you forget the password to it.
Therefore, setting up your crypto wallet will take some time.
A hardware wallet:
Setting up a hardware wallet is perhaps the most time consuming of all. Ideally, the process to set it up will come included in the package. There are usually three steps in it such as:
- Downloading the related software of the hardware crypto wallet to your computer
- Noting down the recovery seed phrase carefully for the private keys and
- Connecting the wallet to your computer.
A hosted wallet:
It is very easy, perhaps easiest to set up a hosted crypto wallet which is why these types of wallets are so popular. All you have to do is:
- Choose a reliable crypto platform that is easy to use, safe and secure, and compliant with the financial and government regulations
- Create your own crypto account by entering your personal info and choosing a strong password along with a Two-Factor Authorization called 2FA commonly for an added layer of security and
- Purchase or transfer your crypto coins using a bank account or your credit card as the case may be.
A self-custody wallet:
These types of wallets that allow you to have complete control over your crypto are also quite easy to set up where you are required to follow these steps:
- Download the app of the wallet you choose
- Create your crypto account which will not need sharing any of your personal info and not even your email address
- Take note of the private key consisting of an arbitrary 12-word phrase and
- Transfer the crypto to your wallet.
A mobile wallet:
Setting up a mobile crypto wallet is much easier and involves a couple of easy steps such as:
- Choosing a good mobile crypto wallet from the app store related to your device and
- Taking a proper backup of the private keys consisting of a 12 or 24 letter seed phrase on a piece of paper, if required, before starting to trade your crypto coins.
A desktop wallet:
The setting up process of a desktop wallet is also the same as that of a mobile wallet.
All you have to do in this case is select the software of the particular crypto wallet and run it to initialize the set up process.
Sometimes, depending on the particular software of the desktop wallet, you may be asked to create a backup of the seed phrase related to your private keys just as you may be asked during the setup process of your mobile crypto wallet.
Finally, it is also a good idea to delete the wallet altogether and again restore it by using the secret recovery seed phrase.
This will allow you to know how exactly it works.
Keeping it Safe and Secure
Now, you have come to the end of the article that will tell you about the final step to keep your crypto wallet safe and secure.
If you are dealing with NFTs, you can create a ‘burner wallet’ which is a safe and a common practice.
This actually refers to creating a secondary and temporary wallet and using it to make a single transaction.
This will ensure that the risk in trading is limited to only the funds in the secondary wallet and not all your funds that you have in your primary wallet.
These burner wallets are typically deleted after a transaction is completed which may involve buying an NFT, transferring an NFT or the remaining funds to the primary wallet.
As for a hardware wallet, it is safe by itself since you are usually not online while using it which minimizes the chances of any pilferage.
However, you may lose the device or your password may be compromised when you plug it and go online.
In such situations, you will lose your crypto coins unless you find a replacement device and recover them by using the password and seed phrase.
Therefore, the best way to keep it safe is by creating a proper backup either in software or another hardware device.
Software wallets are more vulnerable to hacks which may not always be by the bad actors.
It may also be a result of an error by the user.
In order to keep your software wallet safe, stay away from sketchy crypto projects or websites with tall promises and wanting to connect to your wallet.
Most of these are scams. Start with small investments and be careful about the sites you visit while being connected to the internet.
Also, do not post your private key online or give your wallet address to anyone and everyone, unless it is not related to a charitable organization.
You should always use a Two-Factor Authentication if it is offered by the custodial wallet.
This will provide additional security to your coins, as said earlier.
In addition to focusing on the security aspect of your crypto wallet, you should also focus on the security of your computer for that matter because the hackers also look for vulnerable end points.
Different types of virus protection software and firewall should be installed and used to ensure that your computer is safe and secure to install and use your crypto wallet to trade the assets.
Now that you are done with it all and have set up your crypto wallet, make sure that you start initially with small amounts. This will save your money in case something goes wrong.
It is not a simple decision to choose a crypto wallet. In order to ensure safety and security of your coins, you should never take it lightly.
You will need to do a lot of reading and some experimentation for it, or go through articles like this one for help.