A cryptocurrency wallet is an online software, program, or physical device that stores private or public keys and digital assets such as cryptocurrencies and NFTs. Millions of crypto wallet users today follow the explosive rise of cryptocurrencies. Knowing how to create a crypto wallet is fundamental to your crypto experience. There are different types of crypto wallets; hardware, software, and paper wallets which may be classified as either cold or hot storage. In this article, you will learn why crypto wallets are essential, how to set up a crypto wallet, and how to develop a crypto wallet to protect your assets.
This is how crypto wallets work:
With Public key
One important consideration when learning how to create a cryptocurrency wallet is to decide if you want a public key wallet or not. A public key is the first part of a pair of keys that make cryptocurrency transactions work. A public key is like a mailing or email address through which you receive messages. It is a cryptographic code that allows crypto wallets to accept transactions. Wallet addresses are shortened versions of public keys. The public key is not the wallet address but more complex cryptographic data that identifies you as the wallet's owner so the wallet can receive assets.
With Private key
A private key is a set of encrypted data used to access a wallet. When you create wallet for cryptocurrency storage, the wallet generates cryptographic private keys that work together with the public keys to allow access to the wallet. Private keys can be in different forms, such as a QR code, 256-binary code, key phrase (mnemonics), or a hexadecimal code (typically four digits). When a transaction is made on a crypto wallet, the software encrypts the transaction using the private key, signaling the network that the transaction is permitted. Private keys are for access and encryption.
When a crypto wallet is created, the wallet generates private keys for access and encryption. Private keys are stored in a centralized exchange (CEX), web browser, or mobile device. A self-custody or non-custodial wallet holds private keys off of CEXs, allowing owners to keep the private keys themselves. The private keys are usually a 12- or 24-word phrase required each time the wallet is recovered. Self-custody wallets also have standard security features such as biometrics and passwords.
Features of self-custody wallets:
- Offline and online storage
- No third-party interference
- Owners retain complete control over private keys
Consider these advantages of self-custody wallets:
- The owners forever own wallets, and the platform has no access to users' funds
- Self-custody wallets are more secure than custody wallets.
- If private keys are lost, owners can use a third-party authentication to recover their accounts.
If you are learning how to create cryptocurrency wallet, here's how to start.
How to set up a self-custody wallet:
Here’s how to make cryptocurrency wallet (self-custodial):
- Download the wallet: There are over a dozen popular self-custodial wallets that you can use. Simply visit the wallet’s website or your phone’s app store to download the wallet app. It is best to download from only verified sources and the latest version.
- Create a wallet account: Self-custody wallets do not require personal information to create new accounts. You can simply enter non-personal details and get your account running in a few minutes.
- Copy and store private keys: Your wallet will generate a 12-word phrase which is your private key. Copy and hold that key safely. If you lose it, you lose access to your wallet and all funds in it forever.
- Setup security protocol: Setup additional security such as biometric or password to login into the wallet.
- Transfer your crypto asset to the wallet: Because most self-custody wallets don’t support crypto purchases with fiat, you might need to purchase crypto on a third-party platform and send the funds to your new wallet.
A hosted, or custodial wallet is hosted on a third-party platform. Hosted wallets do not allow users to have private keys. Private keys are held by the platform, which provides access to the wallet for storage, exchange, or trading of cryptocurrencies. The third party is typically a financial provider, a centralized exchange that offers crypto trading and other crypto-related features.
The features and benefits of a hosted wallet are:
- Wallets are hosted on third-party platforms
- The provider is primarily responsible for backend wallet safety
- Funds are within the provider’s domain; the provider can freeze funds in the event of a security breach.
The paramount importance of hosted wallets is that they reduce the burden of securing private keys and can act quickly to mitigate attacks. Hosted wallets don’t charge for funds transfers and typically allow anyone to purchase crypto using fiat currency.
Knowing how to make crypto wallet on hosted third-party platforms is essential.
How to set up a hosted wallet:
Here’s how to create crypto wallet on a hosted platform:
- Choose a platform: When choosing a platform, you should consider factors such as trust, compliance with government regulation, reputation, ease of use, security, and the range of assets covered.
- Visit the website of the platform or download the official app and register. Hosted wallets usually require personal information as part of the know your customer (KYC) condition for government permissions. Ensure to input correct details as most hosted wallets require verification. Complete the signup and verification processes. You should also set 2FA for extra security.
- Transfer funds in Once you create cryptocurrency wallet on the platform, you can go ahead to send in crypto assets that are supported. Most exchanges allow users to purchase crypto directly using various methods. You can leverage this to get your assets in the wallet. If your assets are on another wallet, you can send them to your new wallet for storage.
There’s also a type of crypto wallet called a hardware wallet.
A hardware wallet is a physical device granting access to stored cryptocurrencies online. Hardware wallets are small, often plug-in devices that are the private keys to online wallets. In simple terms, a hardware wallet stores the private key granting access to crypto assets held on blockchains. Hardware wallets are the most secure wallets and allow owners to retain complete control of their assets at all times. Assets may only be lost when the hardware wallet is lost or damaged. Hardware wallets are easy to use; simply plug the device into your computer, enter the pin or other security, create a blockchain transaction, and authorize the transaction.
The benefits and advantages are:
- Complete control of private keys
- Wallet-to-wallet trading
- Dual-purpose; for signing in and authorizing transactions
- Absolute security without risk of malicious phishing attacks
- Multi-blockchain compatibility provides access to all assets in one place
Here’s how to make a crypto wallet:
How to set up a hardware wallet:
- Buy a hardware wallet: You should go for established brands such as Ledger and Trezor, the two most popular brands. Although hardware wallets are secure, it is vital to ensure that you are not buying some fake or poorly made device. Poorly made devices may develop mechanical damage, permanently losing private keys and access to funds.
- Install the wallet software: Hardware wallets require unique software to function. Each brand has different but similar software used to create crypto wallet. Ensure downloading and installing the correct software from the hardware wallet company website. After installation, carefully follow the instructions to set up your wallet.
- Transfer crypto assets to the wallet: Once the setup is complete, your wallet is ready to receive assets. You can send all your crypto assets to the wallet for secure storage. Hardware wallets support assets on every blockchain. You cannot purchase crypto assets from a hardware wallet using fiat currencies but can send and receive.
How to protect your assets in a Crypto-currency wallet?
Wallet and funds security is a priority in the crypto industry today. Crypto owners take it seriously and are primarily proactive in preventing unauthorized access and loss of funds. Now you know how to make a wallet. Here's how you can keep your wallet safe:
- Use 2FA: 2-Factor authentication provides an extra layer of security for your wallet. The wallet will send a code to your preferred channel for authorization when signing in.
- Update your wallet software regularly to get the latest security protocols, debugs, and general functionality.
- Store your private keys in secure locations. Losing them may result in permanent loss of your assets.
- Spread your crypto assets and investments across multiple wallets to mitigate risk and diversify income.
- Avoid clicking unsafe links. Phishing attacks may log your keystrokes or bypass your phone security to screen-record your activities. If you know how to create a bitcoin wallet, you must learn safe online practices to secure your account.