There are several different types of wallets, with each one offering unique features and benefits. It’s important to choose a wallet that is right for you and your needs.
A non-custodial wallet is a software-based option that allows you to manage your keys directly. This type of wallet is ideal for those who want more control over their funds, such as when buying non-fungible tokens (NFTs) or staking a coin.
A custodial wallet is similar to a bank’s online account, with the added benefit of a password that you have to enter before you can access your money. If you decide to set up a custodial wallet, it’s important to pick an exchange that offers a high level of security and has an excellent reputation.
The most common and easiest way to set up a crypto wallet is by using a hosted wallet. These wallets are backed by a crypto exchange, so if you buy crypto on an exchange like Coinbase, your coins will automatically be stored in a hosted wallet on the exchange’s platform.
You can also set up a crypto wallet by downloading a software app, which will be available on desktop computers and mobile devices. These apps are generally more secure than browser-based wallets, but you may need to verify your identity before you can sign up for a wallet.
There are a variety of hardware wallets that allow you to store and trade your crypto. The most popular type is a USB stick-shaped device that plugs into your computer’s USB port. Some devices even have a built-in exchange that lets you trade your coins while the wallet is connected to your computer.
Backing Up Your Wallet
When you set up a non-custodial wallet, you are asked to write down and safely store a recovery or seed phrase. This phrase can be a random 12- or 24-word phrase corresponding to your private key, and it’s the only way to retrieve your tokens should you lose your password.
If you ever need to restore your wallet, you’ll need to re-enter the seed phrase into a new hardware device or software wallet. This process can take a while, but it’s essential to ensure that you can access your funds quickly and securely.
Cold Storage Wallets
For cold storage wallets, such as those that are powered by USB drives, you have to enter your password manually and re-enter it every time you need to log in. This makes it very difficult for hackers to gain access to your wallet.
Some hardware wallets have a tamper-evident seal, which prevents unauthorized access to your private key. If you use a hardware wallet, make sure to follow the instructions provided by your manufacturer carefully. Fortunately, most companies now offer backup features for their wallets that can help you retrieve your crypto in the event of a hard drive failure or another problem.