How to set up a crypto wallet?
You are familiar with the ways of storing your fiat currencies, debit, credit, and rewards cards using a physical wallet, but that is not how you store digital assets or crypto-holdings. You need a dedicated, fully-feature cryptocurrency wallet to securely store your holdings.
A cryptocurrency wallet is a software application with/ without a physical device employed to safely store both public and private keys – which are critical to proving ownership and initiating transactions.
In cryptocurrency wallet, the term “custody” matters a lot – it determines whether you (the owner, investor, and holder) own the private keys of the wallet or the wallet service provider. On top of that, the public key is the one that enables you to receive and transact funds/ assets over blockchain protocol. And private key is the key that is used to sign and agree to transactions.
The following section discusses different types of cryptocurrency wallets and the way to configure them for your daily use.
The best crypto wallet is a non-custodial wallet where the owner is in full control of their funds and holdings. With a “non-custodial” cryptocurrency wallet, you don’t need to rely on a third-party services provider or custodian. With a non-custodial cryptocurrency wallet, if you lose the seed phrase or the private keys, then there is no way to recover your holding or get access to your accounts. But on the upside, because the owner has full control over their holdings, they can further generate recurring returns on investments by participating in the web3.0 ecosystems such as yield farming, staking, decentralized lending, and borrowing while ensuring wallet security.
The process of setting up a “non-custodial” cryptocurrency wallet.
Step 1: Install a wallet app.
Pick a “non-custodial” cryptocurrency wallet – web or mobile.
Step 2: Set up your account.
Non-custodial wallets are considered to be the best crypto wallet because, as a user, you don’t need to provide all your personal information to just set up a cryptocurrency wallet.
Step 3: Prepare a paper-based backup for your private keys.
While setting up your cryptocurrency wallet, a random 10+ word passphrase will be generated by your wallet. It is critically important to ensure that the 10+ word passphrase is stored in a secure location. Always remember that if you lose or misplace the 10+ word passphrase, then you won’t ever going to be able to access your digital holdings.
Step 4: Transfer digital holding to your “non-custodial” wallets.
Using the best crypto wallet – “non-custodial,” holders cannot directly purchase digital and crypto assets with fiat currencies such as US Dollars or Euros, or Indian Rupees. To store funds in your “non-custodial” cryptocurrency wallet, owners and holders need to manually transfer the digital assets from the exchange wallet to your non-custodial cryptocurrency wallet.
“Custodial” Wallets or Hosted Wallets
Hosted/ custodial cryptocurrency wallets are among the most preferred and easy-to-setup wallets for every average user. It is considered among the best crypto wallet because it provides access to exchanges in conjunction with a fully-featured cryptocurrency wallet. The best part of a custodial wallet is that if the owners or holders lose access to their keys or lose their physical hardware device still, they can recover their holdings.
The process of setting up a “custodial” cryptocurrency wallet.
Step 1: Pick a trustworthy platform.
Prior to picking the best crypto wallet, it is important to ensure that platform is secure, convenient to use, and adheres with financial regulatory bodies and government authorities.
Step 2: Quickly set up an account.
To set up your cryptocurrency wallet account, you need to provide all your personal details for verification purposes and choose randomly generated secure passwords. On top of that, you can add an extra layer of security by enabling 2-step verification (2FA) process.
“Cold” Hardware Wallets
Nothing beats the best crypto wallet – the cold “hardware” wallet in terms of security and fund safety. But exactly how it secures your funds? The cold cryptocurrency wallet is an external device that stores private keys in an offline mode. A cold cryptocurrency wallet provides advanced security but is not so convenient to use when compared to a hot wallet. The best crypto wallet viz. A cold wallet is fairly complex to set up and can cost upwards of $90 to purchase.
The process of setting up a “hardware” cryptocurrency wallet.
Step 1: Purchase the hardware wallet:
Looking for the best crypto wallet (hardware-based) in the market – either pick a Ledger or Trezor device. Both are the leading hardware wallet providers with a strong community.
Step 2: Download and Install software packages:
This step might vary based on your operating system of choice – Mac, Windows, and Linux. After purchasing the hardware device, the user needs to find, download and install the right software package from official software vendors to set up a cryptocurrency wallet appropriately.
Step 3: Transfer your holding to your cold cryptocurrency wallet:
Hardware cryptocurrency wallets don’t provide native exchange features like hot/ software-based wallets. Users cannot purchase crypto-assets employing traditional fiat currencies such as US Dollars, Euros, or Indian Rupees. So, as a digital asset holder and owner, you first need to purchase assets using a native cryptocurrency wallet provided by the exchange. Next, you’ll need to transfer assets from the hot wallet to the cold crypto currency wallet.
How to safeguard the private keys?
Safeguard your cryptocurrency wallet in three easy steps:
- Employ multiple computers to store private keys of your best crypto wallet with access controls. The directory systems of computer systems allow you to restrict user access. But it is the least preferred way of storing private keys because standard features provided by operating systems provide poor access control.
- Encryption is the ideal way to store private keys of your best crypto wallet. The cryptocurrency wallet owners should encrypt the private keys and store in a password-protected folder. To compromise your cryptocurrency wallet, the malicious actor needs to apply brute force techniques to crack the passwords and decrypt the private keys.
- The ideal way to store the best crypto wallet private keys is usings a hardware security module device. The HSM or hardware security module is a physical device build to safeguard and effectively manage your valuable data and cryptocurrency wallet private keys. The device either encrypts the keys or makes it impossible to easily retrieve keys in case of the loss.