Are you finally jumping in the crypto craze? Crypto trading can be a profitable and exciting activity for investors like you. However, despite it being an asset, cryptocurrency behaves differently from fiat or any other traditional assets.
That is why, as a beginner, you should familiarize yourself with all you need to know about crypto before deciding on anything. This is to ensure that you can make sound decisions and actions in trading different crypto tokens and altcoins.
One of the things you should first know in crypto trading is how to use a cryptocurrency wallet. Learn all about it and many more here at BTC Post!
What is a cryptocurrency wallet?
A cryptocurrency wallet is a software program that allows crypto traders to store and retrieve their digital assets to make a transaction. It facilitates the transfer of crypto coins between peers, as well as giving ownership of the crypto balance to a trader.
Most crypto wallets can be run on a computer or even a smartphone. There are also physical devices that provide the same capabilities of a wallet app without having to log in online.
Types of cryptocurrency wallet
A crypto wallet can be classified as cold or hot wallets based on the way they store digital assets and if they need internet connectivity or not.
A hot wallet uses the Internet to allow users to make daily transactions. On the other hand, a cold wallet stores digital assets offline, making it a more secure way of HODLing or storing your coins for the long-term.
There are five main types of cryptocurrency wallets you can choose from:
- Desktop wallet – It is a type of computer program that can be installed on operating systems such as a desktop computer or laptop. It functions as an address for the user to send and receive crypto coins.
This type of cryptocurrency wallet gives users complete control over their wallets using a private key. Some of the most trusted desktop cryptocurrency wallets in the market right now are:
- Bitcoin Core
- Hive OS X
- Web wallet – It is a cryptocurrency wallet that allows access to a trader’s digital assets from an internet browser. This can be done using any compatible device such as a desktop or laptop.
It can be a hosted or non-hosted platform that stores a user’s private keys online. Some of the popular web wallets you can use are:
- Mobile wallet – It is another hot crypto wallet that functions the same as a desktop wallet. It allows users to make payments in physical stores through a ‘touch-to-pay’ system and near field communication (NFC) scanning of a QR code.
Due to their reliability, this type of wallet is perfect for users who make daily transactions. They are compatible with both iOS and Android users. Some examples of this cryptocurrency wallet are:
- Bitcoin Wallet
- Hive Android.
- Hardware wallet – It is arguably the most secure type of cryptocurrency wallet since they store digital assets on a piece of physical equipment. This device that usually looks like a USB with an OLED screen and side buttons can then be plugged into a computer through a USB port.
It is practically impossible to get any virus attacks and there are only a few instances of theft that have been reported. A few known hardware wallets are:
- Ledger Nano S
- Trezor T
- Paper wallet – It is a type of cryptocurrency wallet in which the private keys are physically printed QR codes. However, there are some paper wallets that allow users to download the code and generate a new address offline.
Since it is a form of cold storage, it is not prone to hacking attacks. They were mostly used before hardware wallets came into the scene. If a user wants to withdraw or spend their stored digital assets, they will have to transfer funds from their paper wallet to their software wallet.
How to set up a cryptocurrency wallet
All types of cryptocurrency wallet share a couple of features such as a private key, public key, and an interface to identify your available funds, transaction history, and security options.
Have you chosen your preferred cryptocurrency wallet? Learn how to set it up depending on its classification.
Option #1: Using a crypto exchange platform as a hot wallet
Once you make a purchase on an exchange site, the platform automatically creates a wallet for you without any sign-up process. This is the most liquid option for users since you can cash out anytime and anywhere you want.
There are also no requirements to keep your digital assets on the exchange. All you need to do is enable the 2-factor authentication for your account on the site.
Option 2: Using a hardware wallet
It is the type of cryptocurrency wallet option that poses the least risk, giving its users peace of mind. You will need to purchase a hardware wallet such as the Ledger Nano S. Each device comes with a set of instructions you can follow once you plug it into an internet-enabled computer using a USB cable.
From there, you can choose to make a new wallet or import an existing cryptocurrency wallet. Assign a PIN code and a recovery phrase. Then, you can install its app on your computer or use a browser extension.
Option 3: Using an online wallet
It is a good alternative to a hardware wallet. Instead of a physical device, it relies on software that you can access anywhere. You can either install an app or use an internet browser. Different online wallets may need different requirements to access it.
To decrypt a wallet you created, you will need a copy of your private key to input into the wallet software. For added security, make sure your antivirus is up to date to avoid viruses and malware.
Option 4: Using a cold wallet
Since it is an offline method of storing digital assets, all you need to do is print your private key and public address on a piece of paper. You should then put it in a waterproof container to avoid any damage. Some crypto traders use a personal safe at home or rent a lockbox for their paper wallets.
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