If you’re looking to buy, trade or sell cryptocurrency, the first priority is making sure your investment is safely in your possession. A cryptocurrency wallet is the best and most secure way to protect your cryptocurrency, while allowing you to access it when needed. To use a wallet, you’ll need to know how to set up a cryptocurrency wallet. This guide will explain how to set up a cryptocurrency wallet and transfer cryptocurrency to it. For a better understanding of the topic, you will also find information about what is a cryptocurrency wallet and the various types of cryptocurrency wallets.
What is a Cryptocurrency Wallet
A cryptocurrency wallet is a digital wallet that allows you to store digital currency (cryptocurrency).
To be precise, a cryptocurrency wallet doesn’t actually store the cryptocurrency itself. The way that cryptocurrency works is that an owner has a private key, which corresponds to the publicly-known cryptocurrency.
The wallet stores the private key, which you can then access and match with the public key associated with your cryptocurrency in order to transfer it.
It’s worth understanding the difference between a cryptocurrency exchange and a cryptocurrency wallet. An exchange is a website that allows you to buy, sell and trade cryptocurrency either through the site directly or with other users. It is usually possible to leave your cryptocurrency on an exchange. In this case the exchange is then functioning as a wallet.
But strictly speaking, the idea of cryptocurrency wallets is that of a secure place in which you can store and retrieve your private keys, with no additional functionality.
Bonus read: How to Protect Your Cryptocurrency
Types of Cryptocurrency Wallets
Cryptocurrency wallets come in a number of different forms and groupings as follows:
A desktop wallet is a piece of software that stores your private keys on your hard drive. It’s worth noting that a desktop wallet is considered a ‘hot’ wallet, in that it is connected to the internet. Desktop wallets aren’t top of the line in terms of security, although they are safer than mobile or online wallets.
An online wallet differs from a desktop wallet in that your private keys are stored online on the cloud rather than on your hard drive. In using an online wallet, you’re trusting more in the creator of the application, especially in their security. Storing cryptocurrency on an exchange is essentially using an online wallet.
An example of an online wallet is Coinpayments.
A mobile wallet is similar to an online wallet, with the difference being that a mobile wallet is created to be used on a mobile device like a cellphone. Mobile wallets are generally seen as the least secure, because they’re tied to a very portable (and thus capable of being lost or stolen) device.
An example of a mobile wallet is Mycelium.
Hardware wallets (also known as cold storage wallets) are the most secure methods of storing cryptocurrency. They are autonomous pieces of hardware which plug into a computer, and then store your private keys off the internet entirely.
The most low tech wallet option of all is a paper wallet. A paper wallet is simply a printout of your public and private keys, which you then keep in a secure and safe place. As long as you can keep the paper undamaged and safe, this is a perfectly good way to store cryptocurrency.
How to Set up a Cryptocurrency Wallet
Now, we’ll cover how to set up a cryptocurrency wallet. In this case, we’ll choose a hardware wallet, the Trezor. The Trezor is widely considered to be the gold standard for security when it comes to hardware wallets. The following steps cover setting up the Trezor cryptocurrency wallet.
Step 1 – Open Package and Plug into Computer
Your Trezor will arrive in the mail as a package. The packaging will have a silver seal, which you should confirm is intact as proof that the device has not been tampered with.
Unpackage the Trezor and its USB cable. Use the USB cable to plug the Trezor into a computer for setup.
Step 2 – Install Software
There are two software options for interfacing with the Trezor device. The first is a google app extension, which can be installed onto your Chrome browser. The other is Trezor Bridge, which works with your operating system.
In this case, let’s choose the Chrome extension. Go to wallet.trezor.io, and choose the option you’d like to download, in this case the Chrome extension.
Once you’ve installed the software, you’ll want to install the latest firmware. To ensure maximum security, the Trezor is shipped without firmware. Download the latest firmware. Then confirm via the Trezor device that the firmware installed matches what your browser is saying was installed.
Once you’ve installed the firmware, unplug your Trezor, then plug it in again and go back to wallet.trezor.io.
Step 3 – Choose a Device Name and PIN
Use the Trezor software to first give your Trezor a name. You can change the name later. So, it’s not crucial that you pick something you wouldn’t want to change in the future.
More importantly, you’re going to select a 4 digit PIN. The Trezor’s PIN selection has been specially designed so that you can safely choose a PIN even on a computer you don’t trust.
On the computer screen, you’ll see a 3×3 grid that is empty of numbers. On the Trezor device, you will see a 3×3 grid with the numbers 1 through 9, in a uniquely generated ordering. To choose your PIN, you’ll hit spaces on the grid on your computer screen matching the numbers displayed on the Trezor device.
This means that even if the computer were being remotely viewed or keylogged by a hacker, that hacker has no idea what numbers you actually entered, since the numbers come from the Trezor device rather than the computer.
You’ll need to enter the PIN twice to confirm your selection.
Step 4 – Record Your Recovery Seeds
The Trezor offers a way for you to recover your cryptocurrency even if the device itself is lost or destroyed. To recover it, you’ll need a recovery seed, which is a sequence of 24 words. The Trezor device will display those words to you, which you’ll need to write down.
It’s very important that you make sure to keep the recovery seed safe and secure.
Step 5 – Use the PIN to log into your Trezor
Go back to wallet.trezor.io. Enter your PIN, and you’ll be able to access the Trezor wallet, which will display balances of all your cryptocurrencies. You’ll also be able to set any settings options you wish, or to lock or wipe all information from the device if you so wish.
The Trezor is now ready to store any supported cryptocurrencies.
The steps on how to set up a cryptocurrency wallet will vary somewhat depending on which type of wallet you use. However, the general concept tends to be fairly similar.
As you can see, there are a number of options out there for storing your cryptocurrency. Each of them has strengths and weaknesses. No matter which method of storage you ultimately choose, it’s important to know how to properly use your wallet, and how to set up a cryptocurrency wallet.
Please feel free to share any thoughts, questions or experiences you’ve had with any hot or cold cryptocurrency wallets in the comments below.