A crypto wallet is a place where you can keep your cryptocurrency securely. There are many different types of crypto wallets, but the most popular ones are hosted wallets, non-custodial wallets and hardware wallets.
Which wallet is right for you depends on what you want to do with cryptocurrency and what kind of security you want to have.
Hosted Crypto wallets
The most popular and easiest type of cryptocurrency wallet to set up is a hosted wallet. When you buy cryptocurrency using an app like Coinbase, your cryptocurrency is automatically held in a hosted wallet. It’s called hosted because a third party stores your crypto for you, similar to how a bank keeps your money in a checking or savings account. You may have heard of people “losing their keys” or “losing their USB wallets”. But with hosted wallets, you don’t have to worry about this.
The main advantage of keeping your cryptocurrency in a hosted wallet is that you won’t lose your cryptocurrency even if you forget your password. The disadvantage of hosted wallets is that you won’t be able to enjoy all the possibilities that cryptocurrency has to offer. However, this may change as hosted wallets start to support more features.
Creating a hosted wallet:
Choose a platform you trust. The main things to look out for are security, ease of use, and compliance with public and financial regulations.
Create your account. Enter your personal details and choose a secure password. It is also recommended to use 2-step verification (also called 2FA) for an extra layer of security.
Buy or transfer cryptocurrency. Most cryptocurrency platforms and exchanges allow you to buy crypto using a bank account or credit card. If you already have crypto, you can also transfer it to your newly hosted wallet to keep it safe.
Non-custodial Crypto wallets
Self-custody wallets, such as Coinbase Wallet, give you full control of your cryptocurrency. Non-custodial wallets do not rely on a third party or a “custodian” to keep your cryptocurrency safe. While these wallets provide the necessary software to store your cryptocurrency, you are entirely responsible for remembering and protecting your password. If you lose or forget your password (often called a “private key” or “seed phrase”), you have no way to access your crypto. Also, if someone else finds your private key, they gain full access to your assets.
Why use a non-custodial wallet? In addition to having full control over the security of your crypto, you can access advanced crypto activities such as yield farming, staking, lending, borrowing and more. But if all you want to do is buy, sell, send and receive crypto, a hosted wallet is the easiest solution.
Create a non-custodial wallet:
Download a wallet app. Coinbase Wallet is one of the popular options.
Create your account. Unlike a hosted wallet, you don’t need to share any personal information to create a non-custodial wallet. Not even an email address is required.
Make sure to note down your private key. It is presented as a random 12-word sentence. Keep it in a safe place. If you lose or forget this 12-word phrase, you won’t be able to access your crypto.
Transfer crypto to your wallet. With non-custodial wallets, it’s not always possible to buy crypto using traditional currencies (like US dollars or euros). Therefore, you need to transfer crypto to your non-custodial wallet from elsewhere.
If you’re a Coinbase customer, you can choose between a hosted wallet or a non-custodial wallet. The Coinbase app where you buy and sell crypto is a hosted wallet. You can also download the standalone Coinbase Wallet app and enjoy the benefits of a non-custodial wallet. Some of our clients have both. This makes it easy to both buy crypto with traditional money and participate in advanced crypto activities. Both wallets are free to create.
Hardware Crypto wallets
A hardware wallet is a physical device the size of a flash drive that stores your cryptocurrency’s private keys offline. Most people don’t use hardware wallets because they are more complex and costly. However, they do have some benefits. For example, they can keep your cryptocurrency safe even if your computer gets hacked. However, this enhanced security makes them less convenient than a software wallet, which usually costs around $100 to buy.
Creating a hardware wallet:
- Buy the hardware. The two best known brands are Ledger and Trezor.
- Install the software. Each brand has its own software that is required to create your wallet. Download the software from the company’s official website and install the wallet.
- Transfer crypto to your wallet. Similar to a non-securable wallet, a hardware wallet usually doesn’t allow you to buy cryptocurrency using traditional currencies (like US dollars or euros). Therefore, you need to transfer the cryptocurrency to your wallet.
Just like there are many ways to store cash (in a bank account, in a safe, under a pillow, etc.), there are also many ways to store cryptocurrency. You can keep things simple with a hosted wallet, have full control over your cryptocurrency with a non-custodial wallet, take extra precautions with a hardware wallet, or even have more than one type of wallet. With cryptocurrency, the choice is yours.