Do you know how to install software on your desktop or laptop? Have you ever installed an app on your phone? If so, then creating a crypto wallet will be easy.
When buying cryptocurrency, you have to store them somewhere. Cryptocurrency is, after all, completely digital. You can keep crypto on a cryptocurrency exchange which comes with its pros and cons. Or you can choose a self-custody or non-custodial wallet. We’ll explain what it all means on this page.
First, you should check out “How to Make A Cryptocurrency Transaction,” for some background. However, if you’re already familiar with crypto, and are looking for information on how to make a cryptocurrency wallet, then you’ve come to the right place.
Hosted wallets or “web wallets”
Hosted wallets are the most popular and straightforward way to set up a crypto wallet. It is essentially keeping your crypto on whatever exchange platform you want. For example, you can download an app like Coinbase, register and verify, then start buying cryptocurrencies. Coinbase will then hold these coins in a hosted wallet.
It’s called hosted because a third party keeps or “hosts” your wallet on the blockchain. This is similar to how banks keep your money in a savings account.
However, there are plenty of pros and cons with hosted wallets.
- You can start trading right away
- It doesn’t require a lot of research or any extra hardware
- If you forget your password, you can still recover your crypto
- Limited with what you can do with your crypto
- You might not technically own the crypto (this depends on the platform)
- Vulnerable to hacks
- Not regulated by any government body or organization
- Not insured, so if the platform goes bankrupt or is hacked, you’re out of luck (and crypto)
It is generally not recommended not to store a lot of crypto on an exchange. Aside from hacking, there is the problem of custody. Like a traditional bank where you don’t have a legal claim to the money in your account. When you withdraw, you’re asking permission from the bank. Similarly, depending on the terms and conditions of the platform, you may not outright own these cryptocurrencies.
Web wallets are good for getting your toes wet, but there are better options for those serious about transacting in crypto.
Non-custodial or self-custody wallets (also called software wallets)
Non-custodial or self-custody wallets (or software wallets) don’t rely on a third party to keep your crypto safe. A non-custodial wallet is software that you can use to store your crypto. It’s as easy as downloading an app.
Safeguarding and managing your password is entirely your responsibility. In crypto, passwords are called a “private key” or “seed phrase.” You need this to access your crypto. With self-custody wallets, the responsibility is yours and yours alone.
The benefits of added responsibility go beyond completely controlling your crypto’s security. You can also participate in more advanced crypto activities like lending and borrowing.
Here’s how to make a non-custodial wallet.
1. Download a wallet app like Coinbase, Ledger Nano X, Electrum, or Mycelium. There are plenty more, so be sure to research which best suits your needs. Some wallets are made for mobile, while some work better on a desktop. Many regard Coinbase as the best wallet for beginners.
2. Unlike a hosted wallet, you don’t have to share your personal information with a self-custody wallet. You can even create an account without an email address.
3. Write down your private key. Keys are what make cryptocurrencies superior to traditional financial institutions. Your private key is a random 12-word phrase. Keep it in a secure location. If you lose this key, it will be impossible to get your crypto back. There’s no higher authority in a decentralized blockchain.
4. Depending on which wallet app you choose, you may be unable to buy crypto directly using traditional currencies like dollars or euros. If this is the case, you’ll have to transfer your crypto from another location, like a hosted wallet.
If you use this type of wallet, ensure it is fully non-custodial. This means you control 100% of the assets in your wallet. However, because these wallets are stored online, they face the same vulnerabilities as crypto exchanges.
Hardware wallets (also called cold wallets)
A hardware wallet (or cold wallet) is a physical device that stores your crypto. Cryptocurrencies don’t get any more secure than this. A hardware wallet holds your private keys, so your crypto is offline. After all, hackers can’t hack what’s not online.
Most casual crypto users don’t bother with hardware wallets. They can be costly (up to $100) and a little complex to set up. But they are highly beneficial when it comes to keeping your crypto secure. Hardware wallets are essential if you have thousands of dollars worth of crypto.
If someone hacks your computer, your crypto is safe. Even if someone breaks into your home and steals your physical hardware wallet – without the private key, they’re not getting access to your crypto.
Here’s how to make a hardware wallet.
1. Buy the physical device. Ledger and Trezor are reputable brands.
2. Install the software that comes with the hardware. Instructions will come with the device, but if not, both Ledger and Trezor have their manuals online.
3. Transfer crypto to your wallet. Like most self-custody wallets, the hardware wallet typically doesn’t allow you to buy crypto using dollars and euros.
Frequently asked questions
Are all crypto wallets non-custodial?
No, absolutely not. Cryptocurrency exchanges like Coinbase provide custodial wallets. These are useful for basic activities like buying, selling and trading. But your crypto is held in trust by the exchange.
Is hacking a severe risk for crypto wallets?
Not particularly. All online finances are fundamentally risky. But mainstream platforms like Coinbase are as safe as traditional outlets like PayPal. There is no risk to a hardware wallet.
How Do I Know if My Wallet is Custodial?
Non-custodial wallets require you (and only you) to possess the private key associated with your wallet’s public address.
What is a Crypto Address?
It’s like an address in real life. A crypto address is a string of text signifying the location of a specific wallet on the blockchain. An address can send or receive crypto coins. It can also be called a blockchain address.
How Do I Send Crypto with My Wallet?
Get the address of the wallet you want to send crypto to. Often, to make matters simpler, the address will be in the form of a QR code. Otherwise, it a string of text.