How to Make a Cryptocurrency Wallet
Do you know how to install software on your desktop or laptop? Have you ever installed an app on your phone? If so, then creating a crypto wallet will be easy.
When buying cryptocurrency, you have to store it somewhere. Cryptocurrency is completely digital, so it needs a secure storage solution. You can keep crypto on a cryptocurrency exchange, which has its pros and cons, or you can choose a self-custody or non-custodial wallet. We’ll explain what it all means on this page.
First, you might want to check out “How to Make a Cryptocurrency Transaction” for some background. However, if you’re already familiar with crypto and are looking for information on how to make a cryptocurrency wallet, you’ve come to the right place.
Hosted Wallets or “Web Wallets”
Hosted wallets are the most popular and straightforward way to set up a crypto wallet. This method essentially keeps your crypto on whichever exchange platform you choose. For example, you can download an app like Coinbase, register and verify, then start buying cryptocurrencies. Coinbase will then hold these coins in a hosted wallet.
A hosted wallet means a third party keeps or “hosts” your wallet on the blockchain, similar to how banks keep your money in a savings account. However, hosted wallets have their pros and cons.
Pros:
- Easy to start trading right away.
- Requires minimal research or additional hardware.
- Recoverable if you forget your password.
Cons:
- Limited functionality for your crypto.
- You might not technically own the crypto, depending on the platform.
- Vulnerable to hacks.
- Not regulated by any government body or organization.
- Not insured; if the platform goes bankrupt or is hacked, you lose your crypto.
It’s generally not recommended to store a large amount of crypto on an exchange due to hacking risks and custody issues. Web wallets are suitable for beginners but not ideal for serious crypto transactions.
Non-Custodial or Self-Custody Wallets (Software Wallets)
Non-custodial or self-custody wallets (software wallets) don’t rely on a third party to keep your crypto safe. A non-custodial wallet is software that you use to store your crypto. It’s as easy as downloading an app.
In this type of wallet, safeguarding and managing your password is your responsibility. In crypto, passwords are called a “private key” or “seed phrase.” You need this to access your crypto. With self-custody wallets, you have complete control over your crypto’s security and can participate in more advanced activities like lending and borrowing.
Here’s how to make a non-custodial wallet:
Download a wallet app like Coinbase, Ledger Nano X, Electrum, or Mycelium. Research which app suits your needs best. Some wallets are designed for mobile, while others work better on desktops. Many regard Coinbase as the best wallet for beginners.
Create an account without needing to share personal information. Some wallets don’t even require an email address.
Write down your private key. This key is a random 12-word phrase that secures your crypto. Keep it in a secure location. If you lose this key, it will be impossible to recover your crypto.
Transfer your crypto. Depending on the wallet app you choose, you may not be able to buy crypto directly using traditional currencies. You may need to transfer crypto from another location, like a hosted wallet.
Ensure your wallet is fully non-custodial, meaning you control 100% of the assets. However, since these wallets are stored online, they face the same vulnerabilities as crypto exchanges.
Hardware Wallets (Cold Wallets)
A hardware wallet (cold wallet) is a physical device that stores your crypto. This method is the most secure, as your crypto remains offline. Hardware wallets hold your private keys, making it impossible for hackers to access them.
Most casual crypto users don’t use hardware wallets due to their cost (up to $100) and complexity. However, they are essential for keeping significant amounts of crypto secure.
Here’s how to make a hardware wallet:
Buy a physical device from reputable brands like Ledger or Trezor.
Install the accompanying software. Follow the instructions provided with the device or refer to the brand’s online manuals.
Transfer your crypto to the hardware wallet. Like most self-custody wallets, hardware wallets typically don’t allow you to buy crypto directly with traditional currencies.
Frequently Asked Questions
Are all crypto wallets non-custodial?
No. Cryptocurrency exchanges like Coinbase provide custodial wallets, useful for basic activities like buying, selling, and trading. However, the exchange holds your crypto in trust.
Is hacking a severe risk for crypto wallets?
Not particularly. All online finances carry some risk, but mainstream platforms like Coinbase are as safe as traditional outlets like PayPal. Hardware wallets, being offline, are immune to hacking.
How do I know if my wallet is custodial?
Non-custodial wallets require you (and only you) to possess the private key associated with your wallet’s public address.
What is a crypto address?
A crypto address is a string of text signifying the location of a specific wallet on the blockchain. It functions like an address in real life and is used to send or receive crypto coins.
How do I send crypto with my wallet?
Get the address of the wallet you want to send crypto to. Often, the address is presented as a QR code for simplicity. Otherwise, it will be a string of text.
Summary: How to Make a Cryptocurrency Wallet
Creating a cryptocurrency wallet is straightforward if you’ve installed software or apps before. Whether you choose a hosted wallet, a non-custodial wallet, or a hardware wallet, each option has its benefits and risks. Evaluate your needs and security requirements to choose the best wallet for you. For further information, explore our guide on “How to Make a Cryptocurrency Transaction.”