Whether you’re new to the world of cryptocurrencies or seeking a refresher on wallet management, understanding how to use a cryptocurrency wallet is essential. This guide aims to demystify the process and equip you with the necessary knowledge to navigate the complexities of cryptocurrency wallets effectively.
Crypto Wallets Explained
- Public keys are like your bank account numbers – they are used to receive cryptocurrencies.
- Private keys can be thought of as your debit/credit card PIN, used to access the cryptocurrencies in a crypto wallet.
How Do Crypto Wallets Work?
A crypto wallet stores the private keys. These keys prove your ownership of the crypto tokens and allow you to send them to another address or use them on decentralized applications (DApps).
To transfer crypto to another wallet, the sender enters the recipient’s public address, chooses how much to send, and initiates the transaction.
They need to have enough funds available in the wallet to cover the amount plus the fee for processing the transaction, known as the gas fee.
Types of Crypto Wallets
Choosing the right type of cryptocurrency wallet is an important step if you are new to the world of cryptocurrencies. Let’s go through them.
- Hardware Wallets: These are physical devices that securely store private keys offline. They are considered the most secure crypto wallet option. Hardware wallets are also known as cold wallets.
- Software Wallets: These are software applications that can be downloaded on computers or mobile devices. They are convenient, free-to-use and feature-packed. Software wallets are known as hot wallets because they are always connected to the internet, which makes them less secure compared to hardware wallets.
- Paper Wallets: The use of paper wallets refers to writing down your private keys on paper. This method removes the risk of hacking but is prone to mishandling.
- Multi-Signature Wallets: These are advanced wallets that require two or more signatures to authorize transactions. Multisig wallets are typically used by companies, decentralized autonomous organizations (DAO), and escrow services to add an extra layer of protection by requiring multiple approvals.
Software wallets are best suited for beginners to learn how to use a crypto wallet. These wallets are not only easy-to-use but they also come with browser features for you to explore DApps on the internet. Once you get the hang of it, you can consider using a hardware wallet to safeguard your crypto holdings.
How to Set Up a Cryptocurrency Wallet
In this section we will focus on how to set up software wallets on your phone and on your laptop. We chose to take MetaMask as our example because it is the most popular cryptocurrency wallet in the world.
Learn how to get a crypto wallet and how to create one by following these simple steps below.
How to Set Up a Mobile Crypto Wallet
- You can find crypto wallets in the App Store on your Apple device and on your Google Play store on your Android device.
- Search for the cryptocurrency wallet you want to download. For this example, we choose “MetaMask.”
- Open the app and click on “Get Started.”
- Click on “Create a new wallet” and agree to the wallet’s terms and conditions.
- You will be prompted to create a password that will be used to access your crypto wallet. Later, you can set up Face ID or Touch ID authentication to access your wallet seamlessly.
- After you click on “Secure my wallet,” you will find a 12-word secret recovery phrase (SRP).
- Write down the 12-word SRP in your diary or store it on your device or cloud. This is the most important step when creating a crypto wallet. You will need SRP to recover your wallet in case you lose your phone or delete the mobile application.
8. In the next step, you will have to confirm the 12-word secret recovery phrase. Enter the words in the correct order.
9. Click “Done”. Your cryptocurrency wallet is ready to use.
Most mobile crypto wallets require you to follow similar steps when setting them up. Remember, it is crucial that you safeguard the SRP in your wallet. If you lose the SRP, you will not be able to recover your wallet. If someone gains knowledge of the SRP, they will be able to access funds in the cryptocurrency wallet.
How to Set Up a Desktop Crypto Wallet
- First, check whether your browser can support the desktop crypto wallet you want to download. As MetaMask is the wallet of choice in this example, we see that it is supported on Chrome, Firefox, Brave, Edge, and Opera. In such a case, a Macbook user can download any one of these browsers, as MetaMask is not available on Safari.
- Visit the website of the desktop crypto wallet you want to download. Double-check whether you are on a legitimate website. In this example, we visited MetaMask’s official website.
- Find the download page and hit “Install MetaMask.”
- Chrome users will be directed to the Chrome web store. Download the MetaMask browser extension by clicking “Add to Chrome.”
- Give the application the required permissions and click “Add extension.”
- Once the download is complete, you will be required to follow the same steps mentioned in the mobile crypto wallet setup example above.
- Create a strong password that will be used to log in and access your desktop wallet.
- Again, it is crucial to store your SRP securely.
Best Practices for Securing a Crypto Wallet
Creating a crypto wallet is fairly easy. Securing it – that is where things get tricky. In a world full of crypto scammers and hackers, it is crucial to learn the best practices to secure your cryptocurrency wallet.
We have created a concise list just for that:
- We will repeat this again – the SRP to your wallet is the most important piece of information that you have to safeguard. SRP gives access to your wallet. You will need the SRP to recover your wallet in case you lose your phone/laptop or delete the application by mistake. Writing down your SRP in your diary is considered the best way to secure it. You can choose to save the SRP on your device or on the cloud, however, devices and the cloud are vulnerable to hacks.
- Create a strong password with alphanumeric characters for your cryptocurrency wallet. It is best not to use your birth date or names that can be guessed by an attacker.
- Diversify your holdings across different wallets.
- Keep your wallet application up to date. Developers regularly add patches and upgrades to keep the wallets safe against new threats.
- Always double-check the transaction before signing it.
- Double-check the website you are entering.
- Never click on random links on social media and emails.
- Do not fall for too good-to-be-true deals. There are scammers who lure victims in by offering freebies and insane returns.
- Never post sensitive information, wallet addresses, email addresses, and other personal information on social media. Scammers will use them against you.
- Use two-factor authentication whenever possible. It adds an extra layer of security which is always helpful.
- Avoid public Wi-Fi networks.
- Use a burner wallet for airdrops. Airdrops are attractive but can be risky as scammers use them to lure victims in.
- Use cold hardware wallets for HODLing. Hardware wallets are expensive and have limited features, but they are the most secure way to safeguard your crypto savings.
- Use multisig wallets for team and company accounts.
Transacting With a Crypto Wallet
Now that we have learned how to keep your cryptocurrency wallet safe, let’s get to the fun part – transactions and using wallets on DApps.
For example, an Ethereum wallet address cannot accept Bitcoin. Double-check the transaction before signing on it. Ensure that you have enough gas fees so that the transactions go through. You will encounter times when the gas fees will be higher than normal. You can choose to wait for them to decrease as network traffic decreases. You can also limit the amount of gas fees you want to pay through your wallet application.
To send cryptocurrencies to another wallet, you will have to select the token you want to send and add the recipient’s wallet address. Make sure that the recipient’s wallet is compatible with the blockchain you are transacting on.
You will need your wallet address to receive cryptocurrencies. It is best if you copy and paste the wallet address directly from your wallet application instead of typing it. You can even use QR codes to send and receive cryptos.
A crypto wallet can access multiple blockchain networks. The number of blockchains available to you will vary and will depend on your crypto wallet. Always check that you are on the right blockchain before performing transactions.
Each time you perform a transaction, you will have to pay transaction fees which are commonly referred to as gas fees.
You can check the history of transactions on your wallet app. The historical transaction data will show you which smart contract you interacted with, the addresses you sent cryptos to, gas fees paid, and blockchain transaction details.
Cryptocurrency wallets are the gateways into the decentralized finance (DeFi) world. The DeFi website requires users to log in with crypto wallets. You can stake, lend, and borrow cryptocurrencies using your crypto wallet.
Most software cryptocurrency wallets come with NFT-compatible features. You can store, view, buy, and sell NFTs directly from your crypto wallets.
For example, an Ethereum wallet address cannot accept Bitcoin. Double-check the transaction before signing on it.
Ensure that you have enough gas fees so that the transactions go through. You will encounter times when the gas fees will be higher than normal. You can choose to wait for them to decrease as network traffic decreases. You can also limit the amount of gas fees you want to pay through your wallet application.
Common Wallet Scams and Security Threats You Should Be Aware of
It is important to be one step ahead of the threat, and being aware of the common wallet scams and threats is the best way to do so.
Typically, phishing attacks occur via emails and social media platforms. The attacker will lure you into clicking a compromised website link or sharing your sensitive information with them.
Fake Initial Coin Offerings (ICO) and Giveaways
Scammers target investor greed in luring victims to participate in fake ICOs and giveaways. These scams are very sophisticated to make them look as realistic as possible.
Here a scammer tries to trick a wallet owner into sending funds to the scammer’s address. The scammer achieves this by studying the transaction history of the target wallet. Once a wallet address that the owner frequently transacts with is identified, the scammer will create a wallet address that resembles the frequently interacted wallet.
The scammer will then send a small amount of crypto to the owner’s wallet, creating a transaction history with the fake address.
The scammer is counting on the owner to check only the last four-five digits of the wallet address (which will be the same as the frequently interacted wallet), copy-paste the fake address from the transaction history, and send funds to the scammer’s account.
Rug pull is a common crypto scam where the scammer lures crypto investors into investing in a token in hopes of making massive returns. The scammer will abandon the project and disappear with the investor funds, and the token price will come crashing down.
Scammers are always working on new and more sophisticated ways to trick crypto users.
Keep the following things in mind to keep your cryptocurrency wallet secure:
- Always DYOR.
- Beware of too-good-to-be-true investments.
- Do not share sensitive information on social media or with anyone.
- Do not enter suspicious links and websites.
Cryptocurrency wallets represent the ethos of the crypto community. These devices empower users with self-custodianship and decentralization.
In being a responsible cryptocurrency wallet owner, you are not only protecting your crypto investments but also representing the best the crypto community has to offer.
How does a crypto wallet work?
How do I cash out my crypto wallet?
How do I pay with a crypto wallet?
- MetaMask’s Official Website (MetaMask)