If you’re ready to enter the realm of cryptocurrency trading, you’re going to need a cryptocurrency wallet. Just like a regular wallet, it serves as a repository for you to store your cryptocurrency – while also enabling you to tap into it or add to it at any given time.
Step 1: Pick the type of wallet you want.
Your first step will be to decide which type of wallet you’d like to use. Getting into the weeds for a moment, you have a choice between a hot wallet and a cold wallet – which is really a choice between whether you’d like to have ready access to your funds or if you’d like to store them in the most secure way possible.
For most crypto users, hot wallets are the go-to option (although it’s worth noting that some users prefer to keep some of their crypto in “cold storage” and the rest of it accessible in a hot wallet for optimal versatility). Generally a cold wallet is more secure since it isn’t connected to the Internet, so would not be vulnerable to typical hacker attacks. (Though there is still danger of losing the physical device or paper, or having it stolen.)
From there, it’s a choice between a desktop wallet, a mobile wallet or a web wallet – with each designation referring to where the access key is kept. If you’re going to keep your wallet on your own device (desktop or mobile), you’ll need to take every necessary precaution to ensure your device won’t be hacked. This means keeping its antivirus software up-to-date, using firewalls where needed, and generally minimizing its exposure to potential threats as much as possible.
Web wallets, on the other hand, rely on data being stored externally by the service that provides the wallet (such as Coinbase). This is the least secure method of storing your wallet, but it also tends to be the most popular due to the ease of access. Though there are many providers to choose from, you’ll want to be sure to pick one that takes security very seriously. However, with such a service, you’re essentially entrusting your funds to a third-party, so you have no direct control over the security of your cryptocurrency.
To get an idea of which wallet is right for you, you’ll need to do some research. Fortunately, there are a number of websites that offer reviews and rankings of wallets (with Coinbase recently rated best for beginners by Money.com). There are a lot out there to choose from, and they can range wildly in their features and reliability (with some wallets offering their own debit cards with rewards, for instance).
Step 2: Download the wallet.
Once you’ve picked a type of wallet and a service that can accomplish what you want it to do, your next step will be to download the app to your device. It’s important to make sure that you download the wallet from the actual company that provides it (rather than from a third party website, as that can invite malware).
Step 3: Make an account.
With the app downloaded, you’ll need to open an account next. Open the app and enter in your personal details as requested. For maximum security, use a unique username (not used for other platforms) and generate a strong password using a password manager. In some cases, you may be prompted to verify your identity by providing a copy of your government-issued ID.
Within the wallet app, you’ll then be able to create actual wallets. These would be individual addresses on the cryptocurrency blockchain, along with your private key which is stored securely by the app or the third-party managing your funds. You may create more than one wallet. Since wallet information exists publicly on the blockchain, some people like to use different wallets for different purposes for security and privacy reasons.
Keep in mind that with a third-party service, you usually won’t have direct access to an actual wallet on the blockchain. The service may create a wallet specifically for you to receive cryptocurrency, but the actual tokens are held by the service provider. Think of it how your bank doesn’t actually keep your money in a specific jar with your name on it, but rather puts everyone’s money into the same vault and keeps track of your balance on their ledger. That’s very similar to how third-party wallet services work.
Step 4: Start purchasing cryptocurrency.
To buy cryptocurrency using funds from your bank, you’ll need to set up and verify your bank account. After the security details have been handled, you’ll be free to purchase cryptocurrency for your wallet (which is now associated with your user ID). Depending on the wallet platform you opted for, you’ll be presented with a wide array of crypto coins to choose from.
If you’re using a wallet you set up directly, and not a third-party service, then you would need to acquire cryptocurrency through a marketplace or directly from someone else. Then you would give them one of your wallet addresses so the cryptocurrency can be sent to your wallet.
Step 5: Transfer in existing coins.
If you have cryptocurrency assets on another platform – such as Paypal, for example – you can transfer them into your wallet to consolidate your coins together. Whether or not you should consolidate your coins is up to you. Some users appreciate having their crypto all together, while others use a different wallet for every type of coin they maintain. You can also transfer your coins among your own wallets, but keep in mind there are typically blockchain fees for each transaction.
For example, if you use Coinbase to trade cryptocurrency, you could leave 10% sitting in your Coinbase account and transfer the rest out to your own personal cold wallet. Then when you need those funds, you can connect the cold wallet online (making it a hot wallet) and send the crypto wherever you need.
Step 6: Keep your keys safe.
Just like you wouldn’t want to lose the keys to your house or your vehicle, you don’t want to lose the keys to your crypto wallet. There are technically two types of crypto keys – a public key, which serves as the address that you can receive money at, and a private key, which is what you (as the wallet’s owner) access your wallet with. While it’s obviously fine if someone knows your public key, you don’t want anyone knowing your private key(s). For third-party services, you may not have a specific key for a specific wallet, but your login credentials would provide access to your funds. So make sure you keep those safe!
It’s always a good idea to have some kind of two-factor authentication set up as well so that if anyone gets access to your device, they’ll need to authenticate through some other method before being able to send your cryptocurrency somewhere.
It’s also worth noting that wallet apps will usually charge a fee for each individual trade that you make on their platform, so it’s best to plan ahead and buy a larger amount of a single coin at once rather than breaking it into smaller trades. Some, like Coinbase, also offer a subscription service that lowers or gets rid of transaction fees entirely.
Other than that, keep an eye on the market and enjoy your newfound easy access to the world of cryptocurrency!