A complete beginner’s guide on crypto wallets

In this blog post we examine what a crypto wallet is and how you can create one in different ways with regards to your needs and security concerns.

So you have heard a lot about the cryptocurrencies in the media recently. And this time, it is not just Bitcoin on the headlines but the whole blockchain ecosystem is being mentioned. Buying Bitcoin on a cryptocurrency exchange and keeping it there for future profits is a thing for sure. However, blockchain ecosystem is a lot more than that. If you would like to take your place in Decentralized Finance (DeFi), like buying an NFT, investing in a cultural event and other DeFi Applications (Dapps), you need self-custody wallets. Thus, understanding the rationale behind setting up a crypto wallet is the action to begin with. So let’s start with the basics:

What is a crypto wallet?

Unlike a traditional wallet that holds your cash, crypto wallets technically don’t store your crypto. It is a storage for your private keys that are proving your ownership of your holdings in the respective blockchain and allowing you to send your holdings to someone else & to make transactions. In this regard, it is more like your password for your bank account to show your ownership and make transactions.

Types of crypto wallets

In order to own cryptocurrencies, you need to have a crypto wallet. There are many different ways to have a crypto wallet with different risks and capabilities associated. Even when you buy a cryptocurrency in a commercial cryptocurrency exchange, they create one for you and store your holdings there. The best option for you depends on what you are planning to do with your holdings and what security measures you want to take.

The main difference between a hosted wallet and a self-custody wallet is the custody of your private keys. In exchange hosted wallets, it is exchange’s responsibility to protect your wallet, yours is to protect your account password. However, in a self-custody wallet, it is all your responsibility to keep your private keys safe. There is a popular expression in the crypto world: “not your keys, not your coins”. So it is critical to know how important keeping your private keys safe and reachable(only for you).

In this post we will examine the most commonly used wallet options by retail users, which are; exchange hosted wallets and self-custody wallets. Each of them has their advantages and disadvantages, depending on the use cases. Thus, it is important to know both risks and rewards involved in using them.

How to set up crypto wallets?

Exchange hosted wallets

When you buy a cryptocurrency using an online centralized exchange like binance, it is automatically held in a hosted wallet. This is one of the most popular and effortless option to keep your crypto holdings. Exchanges automatically create a wallet for you and give you the public key, when you would like to send cryptocurrencies to that exchange. It’s simpler, more secure, but it also comes with drawbacks.

Firstly, there is the trust issue. The cryptocurrency exchange is responsible to keep and protect your crypto holdings. If there is a security breach at the cryptocurrency exchange your data and your holdings may be at risk. However, it may be thought as a safer option considering the security precautions that the big exchanges take. So it would be a safer bet to go with trusted, well known exchanges. Second issue is the centralized nature of the cryptocurrency exchanges, which may be thought as contradictory to the blockchain’s decentralized spirit. Thirdly, maybe the most importantly, the exchange hosted wallets do not allow you to make most of the advanced activities like swapping your coins in other decentralized exchanges, integrating your wallet with DeFi Applications etc.

Which hosted wallet should you choose?

Well, there is no single answer to this. However, it’s a good idea to consider these points when setting up a hosted crypto wallet on an exchange.

• Choose a trustworthy platform. Check out the financial compliance policies of the exchange. Examine the platform in terms of the team and the partnerships that they make.
• Make sure that the platform is legal in your country. Even though the exchange is trustworthy it may be critical to control that if they are legally available in your country. It is especially important when depositing or withdrawing fiat money to/from the exchange. Banks may block your money, if the exchange is not operating in your country or it may take long days to wait for your money to arrive.

How to set up a wallet in hosted wallet?

• Create your account in the exchange. Most of the exchanges require KYC policies, gather personal information about you. So enter all the required information and validate your account.
• Buy or transfer crypto. You can buy crypto by depositing fiat money from your account and then buying on the exchange or through credit card(beware of the fees involved). If you already own crypto in another wallet, you may also transfer it to your the cryptocurrency exchange hosted wallet not to deal with private keys issues.

Pros:

• Easy to setup, easy to use
• No risk of forgetting your private key

Cons:

• Limited action capability. (e.g. you can’t use specific DeFi applications)
• Centralized hosting, security breach risks

Overall, cryptocurrency exchanges may be a good option for buying and setting up your first crypto wallet. You may open an account in some of the biggest exchanges such as Binance, Coinbase, Kraken or Bitstamp. Every exchange has different KYC policies, so you may have to provide different information according to the place you live and the exchange you open your account. But it doesn’t have to mean you have to keep your holdings there all the time. You can transfer your holdings to self-custody wallets and explore a wide range of opportunities in the blockchain ecosystems.

Self-custody wallets

Self-custody wallets, as the name suggests, give the full control and also the full responsibility of your digital assets to you. Self-custody wallets do not rely on third party to protect your keys. So it is entirely your responsibility to keep your private keys safe. On the other hand, you have also the full control of digital assets, which allows you to access more advanced and rewarding crypto activities like staking, lending or borrowing your assets or using Decentralized Apps like Staxe, allowing you to invest in cultural events with the ease of few clicks.

There is a huge self-custody wallet ecosystem, providing different features in different platforms. You can keep your private keys on your browser with high connectivity and easy integration, on a hardware that has no internet connection, or on your mobile phone application with ease of use anywhere. It all depends on which features you value the most. Here we analyze the most commonly used self-custody wallet types, their differentiating features and how to set-up one.

Browser Wallets

Browser wallets are easy to use and easy to integrate with various decentralized blockchain applications. They allow users to interact with defi applications, send assets to peers and make p2p transactions. Most browser wallets also have mobile apps available too. This creates more convenient use cases for the users.

Metamask, Coinbase Wallet are the most commonly used browser wallets, thanks to wide usage of chrome browser. On the other hand, Opera has developed a built in crypto wallet in its browser, reffering itself as the first major browser to integrate a crypto wallet, enabling seamless access to the emerging web 3.

You can download and integrate the wallets following the links below:

• Metamask: https://metamask.io/
• Coinbase Wallet: https://wallet.coinbase.com/#signup
• Opera: https://www.opera.com/crypto

Desktop Wallets

Desktop Wallets are the wallets used by downloading from the internet to the computer. These wallets, which are easy to install and use, only work on the computer, and the installation is needed. If the computer is preferred for daily use and is regularly connected to the internet, it is necessary to ensure its security. A virus or malware that will infect the computer can access your wallet information. On the other hand, if the wallet does not have a backup on a different platform, hardware problems may also lead to the loss of your money.

Desktop wallets are considered to be among the safer options of crypto storage among the hot wallets (cryptocurrency wallets that are constantly connected to the internet).

The most widely used desktop wallets can be downloaded from the links below:

• Exodus: https://www.exodus.com/download/
• Atomic Wallet: https://atomicwallet.io/downloads

Mobile Wallets

Just like the desktop wallet alternative, data is stored on mobile devices in this Crypto wallet type. However, the digital wallet created on the smartphone’s software makes it possible to make transactions from almost anywhere. In addition, mobile Wallet, which has a smaller file size than desktop wallets, is offered to users with a simple interface.

Here are the mobile wallets that are used by both beginner and experienced crypto users:

• MetaMask: https://metamask.io/download.html
• Coinbase: https://wallet.coinbase.com/#signup
• Trust Wallet: https://trustwallet.com/download-page

Hardware & paper wallets

Cryptocurrency hardware wallets, also known as cold wallets, are alternatives that offer the highest level of security. Hardware wallets, similar to portable USB sticks, can be used by plugging them into any computer. Hardware wallets that are not connected to the Internet provide full protection against cyber attacks. Except these, some hardware wallets also have a screen that provides ease of operation.

Here are the top hardware wallets to examine:

• Ledger Nano X: https://shop.ledger.com/products/ledger-nano-x
• Trezor Model T: https://shop.trezor.io/product/trezor-model-t

The last but not least, there is the paper wallet option. You can simply write down your private key on a paper and keep it in a somewhere safe. The biggest disadvantage of paper wallets lies in their physical fragility. In the event of liquid spilling, burning, or ink being wiped off, coins may be lost if there is no paper backup. Of course, it is necessary to be careful about the risk of the paper being seized by an undesirable person.

Key Takeaways

• Crypto wallets are the future of the wallets for the digital world. It is crucial to get started and have one to be part of the future.
• Exchange hosted crypto wallets are easier and safer to use for basic activities like buying & selling, limits more advanced activities like using .
• Self-custody crypto wallets are key to getting into Decentralized Finance Applications.
• “Not your keys, not your coins”. Keeping your private keys safe and reachable(only for you) is crucial when using self-custody wallets.

If you are interested in decentralized finance and investing in a greater pool of options like cultural events or NFTs, you may want to check out Staxe to find out more. You can join our Discord channel here to get updated about the new investment opportunities for cultural production.

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