You need a Bitcoin wallet to start trading cryptocurrencies. Click through to learn how to make a Bitcoin account and the differences between cold and hot wallets! You must have a wallet if you want to trade bitcoin and other cryptocurrencies. In this guide, you’ll learn everything about the different kinds of bitcoin wallets and how to make them!
What Is a Bitcoin Wallet?
A bitcoin wallet is an app that holds your bitcoin. They’re called wallets because, like traditional physical wallets, they keep your bitcoin accessible in one place. There are over 68 million crypto wallet users, with over 800 thousand holding more than 1 BTC.
You can also send and receive cryptocurrency from other users through bitcoin wallets. To send cryptocurrency to another person, follow these steps:
- Enter their wallet address.
- Choose which cryptocurrency to send.
- Decide how much to send.
- Approve the digital asset transfer with your private key.
- Pay the transaction fee.
Receiving cryptocurrency from others is easier. All you need to do is provide your address to the sender, and your payment will be automatically approved.
What Kinds Of Bitcoin Wallets Are There?
There are many kinds of cryptocurrency wallets with different features and security measures. We can divide bitcoin and cryptocurrency wallets into two major categories:
Hot wallets are crypto wallets that are always connected to the Internet. They’re generally better for trading because you can buy or sell crypto directly without moving funds between wallets. Crypto exchanges host most hot wallets, so you rely on them to keep your coins safe.
However, they may be more vulnerable to attacks due to their always-online nature. You may lose your coins if the exchange is hacked or otherwise compromised.
There are two subtypes of hot wallets:
- Hosted wallets: This is the most popular crypto wallet setup, where the wallet provider (typically a crypto trading platform) keeps your coins safe. If you forget your password, you must contact the exchange to get a new one.
- Non-custodial wallets: You keep the private keys to non-custodial wallets. If you misplace it, you’ll lose access to your account, turning it into a dormant wallet.
In terms of their platforms, hot wallets are further divided into three types:
- Desktop wallets: These wallets can be downloaded to your computer. Prominent desktop wallet providers include Electrum and Mycelium.
- Web wallets: Web wallets are accessible through your browser – you don’t need to download any apps. Crypto exchanges like Binance and Coinbase are examples of web wallets.
- Mobile wallets: These wallets can be downloaded to your mobile device. Many crypto exchanges, like Binance and Coinbase, come with mobile wallet apps.
Cold wallets are more secure because they’re rarely connected to the Internet, reducing the risk of online attacks. These wallets come in the form of hardware you need to pay for, contrasting most free hot wallets that are software-based.
However, transactions take longer with cold wallets because you need to connect them to the Internet first. You also need a bit of cryptocurrency know-how to properly set up a cold wallet.
The two cold wallet types are:
- Paper wallet: A paper crypto wallet is simply a piece of paper that contains everything you need to access your digital currency information. They’re more secure because nobody online can reach them, but if you lose the document, you’ll lose everything in your crypto account as well.
- Hardware wallet: Hardware wallets like the Trezor Model T are physical devices that save your private keys offline. These devices validate your transactions before you can send or receive bitcoins. Hardware wallets combine convenience and security, but devices can cost up to $200.
How To Make a Bitcoin Wallet
The steps to making a bitcoin wallet and buying your first digital currency differ depending on which wallet you plan to create. Here, we cover how to make three types of bitcoin wallets: hosted, self-custody, and hardware.
Follow these steps to create a hosted cryptocurrency wallet on an exchange. Different exchanges have different sign-up steps but generally follow the same structure:
- Choose a trustworthy cryptocurrency exchange, such as Binance or Coinbase.
- Create an account on that cryptocurrency exchange and pass the verification process.
- Apply two-factor authentication for extra security.
- Connect your credit card or bank account.
- Buy bitcoin or other cryptocurrencies with your fiat money.
Here are the steps to make a self-custody crypto wallet:
- Choose a trusted self-custody bitcoin wallet, such as Coinbase Wallet or Mycelium.
- Create your account.
- Write your private key down, preferably on a piece of paper. Don’t lose this because it’s the only way to access your account.
- Buy cryptocurrency from an exchange and transfer it to your wallet.
Here’s how to set up a hardware crypto wallet:
- Buy the wallet from a trusted vendor.
- Download the wallet software on your computer.
- Write your seed phrases down and store them securely.
- Transfer cryptocurrency from an exchange into your hardware wallet.
Best Practices for Safely Storing Bitcoin In Wallets
Your cryptocurrencies are investments that must be protected. Here are extra tips to improve the security of your hard-earned money:
- Use cold wallets whenever possible to reduce the risk of online attacks.
- Spread your cryptocurrency over several wallets.
- Move cryptocurrencies into hot wallets only for trading.
- Store your private keys securely in an offline location.
- Apply password protection on all your phones and computers.
- Implement two-factor authentication to secure your crypto wallets.
- Keep your personal information safe and be aware of phishing attempts.
You need a bitcoin wallet to store and trade cryptocurrencies. There are two types of wallets with different levels of security and risk: hot and cold wallets. Whatever wallet you choose, take extra security measures to keep your investments safe.