With advancements in technology and elevation in the crypto game, the digital world is speedily paving its way to adopt cashless transactions and virtual currencies. However, be it trading cryptocurrencies or building digital assets, every operation needs a crypto wallet.
This blog is a complete guide for crypto enthusiasts who want to explore crypto wallets. In this blog, we will learn what crypto wallets are, how they work, their types, and the methods to set up each type of crypto wallet.
What is a Crypto Wallet?
A crypto wallet is a digital space where people can store and manage their cryptocurrencies. A crypto wallet works similarly to the real-world physical wallet, where people pull out money from their wallets to pay for something and then keep the remaining money back in the wallet. However, a crypto wallet holds digital keys to access and manage cryptocurrencies instead of holding physical currency.
To make any transaction related to cryptocurrencies, digital assets like virtual real estate, and NFTs, having a crypto wallet is a must. Crypto wallets are fast to create, and any commoner with no knowledge of the crypto world can set up a crypto wallet easily.
How do Crypto Wallets Work?
Unlike regular wallets, crypto wallets do not simply hold the cryptocurrencies. Instead, they are stored on the blockchain network or public ledger.
Crypto wallets have private and public keys to facilitate the decentralized finance DeFi processes. Private keys are used to secure transactions with cryptocurrency. These are created when the crypto wallet account is created. Private keys are not stored on a central server. Therefore, they can’t be restored once lost.
Public keys are like unique numbers that record transaction data on the blockchain ledger. They show the transaction number but not any other details like the amount, owner name, place of transaction, etc., making the transaction much more secure.
Hence, private keys help people to make transactions on the blockchain, while public keys store the transaction record with a unique alphanumeric number on the blockchain ledger.
Types of Crypto Wallet
Before knowing how one can set up a crypto wallet, it is important to know about the types of crypto wallets, which are discussed below.
HOT WALLETS
- Desktop Wallets
- Mobile Wallets
- Web Wallets
- Custodial Wallets
COLD WALLETS
- Hardware Wallets
- Paper Wallets
- Air-gapped computers
- Non-Custodial Wallets
Crypto wallets are broadly categorized into Hot Wallets and Cold Wallets.
Hot wallets are crypto wallets that function digitally while connected to the internet. On the other hand, cold wallets are the ones that can function even offline.
Next, let us go into the details of each type of wallet.
Hot Wallets
Most crypto wallets are hot wallets. They are easy and convenient to use but are also prone to hacking. Following are the four types of hot wallets:
Desktop Wallets
Desktop wallets are software installed into the desktop, and your computer’s hard drive is used to store the private keys. This makes the wallet more secure as you do not need to use any external or third-party space to store your crucial keys. This type of wallet consumes more disk space and needs to be connected to a fast internet connection to do any kind of operation.
Examples of Desktop Wallets include Exodus, Electrum, and Bitcoin Core.
How to set up a Desktop Wallet?
- Download the Wallet: Choose a reputable desktop wallet like Electrum (for Bitcoin) or Exodus (for multiple cryptocurrencies) from the official website.
- Install the Wallet: Follow the installation instructions for your operating system (Windows, macOS, Linux).
- Set Up: Open the wallet application and follow the on-screen instructions to create a new wallet. This will generate a private key and a backup phrase.
- Backup: Write down the backup phrase and store it securely. This is crucial for recovering your wallet if needed.
- Secure: Set a strong password for additional security.
Mobile Wallets
Mobile wallets get installed like apps on smartphones and use the device’s storage to store private keys. They are convenient and can easily carry out any crypto transaction via QR codes anywhere and anytime. Though they can be used daily, mobile wallets are quite prone to fraud, hacks, and viruses.
Examples of Mobile Wallets include Trust Wallet, Coinomi, and Mycelium.
How to set up a Mobile Wallet?
- Download the App: Go to the App Store (iOS) or Google Play Store (Android).
- Install the App: Search for a reputable mobile wallet app like Trust Wallet or Mycelium, then install it.
- Create Wallet: Open the app and follow the prompts to create a new wallet. Write down the recovery phrase securely.
- Backup: Store the recovery phrase in a safe place.
- Secure: Set a strong PIN or password for the app to enhance security.
Desktop wallets and mobile wallets are also the types of software wallets. Software wallets are wallets in the software application forms. They are used via devices like desktops, laptops, or mobile phones to manage cryptocurrencies.
Web Wallets
Like normal websites, web wallets are accessed via internet browsers. They store the private keys on a server controlled by a third party. They are good for making small and quick transactions and can be accessed from any device if you have a browser and an internet connection. Web wallets are the least secure and prone to hacking and breaching activities.
Examples of Web Wallets include MetaMask, Coinbase, and Blockchain.info.
How to set up a Web Wallet?
- Visit the Website: Go to a trusted web wallet service like MetaMask or MyEtherWallet.
- Create Wallet: Follow the steps on the website to create a new wallet. Generate and record your private key and backup phrase.
- Backup: Store the backup phrase securely offline.
- Secure: Set a strong password for your account.
Custodial Wallets
Also known as Hosted Wallets. Custodial wallets are third-party solutions that are used by crypto users to manage their private keys. Usually, managing crypto funds is not easy, and choosing a reliable third-party service can help better manage these funds. It is preferable to choose the service provider offering insurance coverage for any theft or fraudulent activities.
Examples of Custodial Wallets include Binance and Kraken.
How to set up a Custodial Wallet?
Sign Up: Register on a reputable cryptocurrency exchange or custodial wallet service like Coinbase or Binance.
Complete Verification: Verify your identity as required by the platform.
Access Wallet: Once verified, log in to your account and access your wallet through the platform’s interface.
Security Measures: Follow the platform’s recommended security measures, such as enabling two-factor authentication (2FA) for enhanced security.
Cold Wallets
Hardware Wallets
Hardware wallets are said to be the most secure way to store cryptocurrencies. They are physical devices like USB keys, which might also have advanced safety measures like biometrics. Hardware wallets need to be connected to the computer to run the software for accessing the cryptocurrencies, so it is important for users not to lose their hardware wallets. Having their storage makes them less vulnerable to any hacking activities. Moreover, when the hardware wallet is disconnected, it is safe from any malware.
Examples of Hardware Wallets include Ledger Nano S and Trezor.
How to set up a Hardware Wallet?
Purchase: Buy a hardware wallet such as Ledger Nano S or Trezor from the official website or authorized resellers.
Setup: Follow the setup instructions for the hardware wallet. This usually involves connecting the device to your computer and initializing it.
Generate Wallet: Create a new wallet on the device and set up a PIN code for added security.
Backup: Write down the recovery seed provided by the device and store it offline in a secure location.
Paper Wallets
Paper wallets are physically QR-coded wallets. They are physical printouts or written records of public and private keys. They are immune to online attacks but have several flaws that have made them dangerous. Paper wallets offer a simple and cost-effective way to store digital assets offline, but they require careful handling to avoid physical damage or loss.
How to set up a Paper Wallet?
- Generate: Use a trusted paper wallet generator like bitaddress.org to create a new paper wallet offline.
- Print: Print out the wallet details, including the public and private keys.
- Secure: Store the printed paper wallet in a safe, dry place, away from potential damage or unauthorized access.
Air-Gapped Computer Wallets
An air-gapped computer wallet is a cryptocurrency storage solution that uses an isolated computer to enhance security. This computer, known as an air-gapped computer, is completely disconnected from all networks, including the internet, local networks, and wireless connections like Wi-Fi or Bluetooth. This isolation makes it highly resistant to hacking attempts and malware infections.
How to set up an Air-Gapped Computer Wallet?
Setup: Use a dedicated computer not connected to the internet for added security.
Install Wallet Software: Install wallet software like Electrum or Bitcoin Core on the air-gapped computer.
Generate Wallet: Create and manage wallets offline to minimize exposure to online threats.
Non- Custodial Wallets
Also known as Self-Custodial Wallets. Non-custodial wallets are a type of cryptocurrency wallet where the user has full control and ownership of their private keys. Users can only access and manage their funds without relying on a third party. These wallets come in various forms, including software wallets like MetaMask and Trust Wallet, as well as hardware wallets like Ledger and Trezor. The primary advantage of non-custodial wallets is enhanced security and privacy, as users are not dependent on external entities to safeguard their funds.
How to set up a Non- Custodial Wallet?
- Software Wallets: Download and install non-custodial software wallets like Electrum or MetaMask.
- Setup: Create a new wallet within the software and generate your private key.
- Backup: Always back up your recovery phase offline to ensure access to your funds in case of device loss or failure.
- Security: Set a strong password and consider additional security measures like two-factor authentication (2FA).
Hence, we have briefly compiled all types of wallets and the methods to set them up.
If you are a business looking to launch a crypto wallet, contact Blocktech Brew and experience the best crypto wallet development service ever!
I am the CEO and founder of Blocktech Brew, a team of blockchain and Web 3.0 experts who are helping businesses adopt, implement and integrate blockchain solutions to achieve business excellence. Having successfully delivered 1000+ projects to clients across 150+ countries, our team is dedicated to designing and developing smart solutions to scale your business growth. We are focused on harnessing the power of Web 3.0 technologies to offer world-class blockchain, NFT, Metaverse, Defi, and Crypto development services to businesses to help them achieve their goals.
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