A crypto wallet is a place where you may securely hold your crypto. There are many different types of crypto wallets, however, the most popular ones are hosted wallets, non-custodial wallets, and hardware wallets.
Which one is proper for you relies upon what you need to do with your crypto and what type of protection you need to have.
The most popular and easy-to-set-up crypto wallet is a hosted wallet. When you purchase crypto using an app like Coinbase, your crypto is automatically held in a hosted wallet. It’s referred to as hosted because a 3rd party keeps your crypto for you, just like how a financial institution keeps your cash in a checking or savings account. You may also have heard of people “losing their keys” or “losing their USB wallet” however with a hosted wallet you don’t need to worry about any of that.
The most important benefit of keeping your crypto in a hosted wallet is if you forget your password, you won’t lose your crypto. A disadvantage to a hosted wallet is you can’t get entry to everything crypto has to offer. However, that could change as hosted wallets begin to support more features.
How to set up a hosted wallet:
Choose a platform you trust. Your most important considerations should be safety, ease of use, and compliance with government and financial regulations.
Create your account. Enter your personal information and pick a secure password. It’s also recommended to apply 2-step verification (also referred to as 2FA) for an additional layer of safety.
Buy or transfer crypto. Most crypto platforms and exchanges let you purchase crypto using a bank account or credit card. If you already own crypto, you may additionally transfer it to your new hosted wallet for safekeeping.
A self-custody wallet, like Coinbase Wallet or MetaMask, puts you in complete control of your crypto. Non-custodial wallets don’t depend upon a 3rd party — or a “custodian” — to keep your crypto secure. While they provide the software necessary to store your crypto, the duty of remembering and safeguarding your password falls completely on you. If you lose or forget your password — regularly called a “private key” or “seed phrase” — there’s no way to access your crypto. And if someone else discovers your private key, they’ll get complete access to your assets.
Why have a non-custodial wallet? In addition to being in full control of the security of your crypto, you may additionally access more advanced crypto activities like yield farming, staking, lending, borrowing, and more. But if all you need to do is purchase, sell, send, and receive crypto, a hosted wallet is the easiest solution.
How to set up a non-custodial wallet:
Download a wallet app. Popular options consist of Coinbase Wallet and MetaMask.
Create your account. Unlike a hosted wallet, you don’t need to share any personal information to create a non-custodial wallet. Not even an email address.
Be certain to write down your private key. It’s provided as a random 12-word phrase. Keep it in a secure location. If you lose or forget this 12-word phrase you won’t be able to access your crypto.
Transfer crypto to your wallet. It’s not always possible to purchase crypto using traditional currencies (like Canadian dollars or USD) with a non-custodial wallet, so you’ll need to transfer crypto into your non-custodial wallet from elsewhere.
A hardware wallet is a physical device, approximately the size of a thumb drive, that stores the private keys to your crypto offline. Most people don’t use hardware wallets due to their elevated complexity and cost, however, they do have a few advantages — for example, they are able to keep your crypto secure even if your computer or phone is hacked. However, this advanced security makes them inconvenient to use in comparison to a software wallet and they can cost upwards of $100 to purchase.
How to set up a hardware wallet:
Buy the hardware. The most well-known brands are Ledger and Trezor.
Install the software. Each brand has its own software that’s needed to set up your wallet. Download the software from the official company website and follow the instructions to create your wallet.
Transfer crypto to your wallet. Similar to a non-custodial wallet, a hardware wallet typically doesn’t let you purchase crypto using traditional currencies (like Canadian dollars or USD), so you’ll need to transfer crypto to your wallet
Just as there are numerous approaches to store cash (in a bank account, in a safe, under the bed), there are numerous approaches to store crypto. You can keep things easy with a hosted wallet, have complete control of your crypto with a non-custodial wallet, take greater precautions with a hardware wallet, or even have multiple types of wallets — with crypto the choice is yours.