Cryptocurrency wallet – how to set it up and how does it work?

Cryptocurrency wallet – how to set it up and how does it work?

Novice investors treat cryptocurrencies as a place not only for trading, but also for storing virtual assets. This is a big mistake, because while the exchanges already allow cheap and convenient cryptocurrency exchange, in the latter role they are already average. You can find out why this happens in a dedicated article where we explained how to store cryptocurrencies safely. At this point, we will limit ourselves to reminding you that, unlike a stock exchange, a wallet gives you complete control over your assets and is associated with a lower risk of losing them.

For the above reasons, you should keep cryptocurrencies on the exchange as short as possible. If you are buying it with a medium to long term investment horizon in mind, it is best to store it in a suitable cryptocurrency wallet.

What is a cryptocurrency wallet and what is its purpose?

To begin with, let us clarify that when we wrote about holding cryptocurrencies on an exchange or offshore wallet, we applied a certain simplification. It is popular because it captures the essence of the matter without going into its technically difficult aspects. However, to better understand the details of cryptocurrency wallets and their operation, you should take a closer look at these aspects.

You need to know that bitcoins , litecoins, ether and other digital assets do not leave their blockchain networks, and therefore are not “physical” sent to a separate exchange or wallet system. However, private keys are assigned to cryptocurrencies that allow you to access them, for example, transfer them to another address on the network. This means that anyone who knows a particular private key can use the assets assigned to it. Therefore, when we talk about cryptocurrency storage, we are actually referring to private key storage.

A cryptocurrency wallet is a place where not many digital assets are stored, but the private keys associated with them. It usually comes in the form of an online application or a physical device that works with your computer. Either way, it also allows you to send and receive encryption.

On the other hand, the private keys themselves are nothing more than random long strings of numbers and letters. It is practically impossible to remember them, so they are kept in special wallets. You can also keep such passwords, for example, ordinary pieces of paper (then we are talking about a paper wallet, that is, a paper wallet), which is a secure solution, but at the same time it is very inconvenient. Since keys are complex strings of characters, a lot of difficulties can occur once you type them and use them later.

Anyone who knows the private key has full access to the cryptocurrency assigned to it. It is essential to be able to transact with cryptocurrency, so losing it usually means losing your crypto as well.

Additional protection for your cryptocurrency wallet

If you forgot your bank account password or lost your payment card, you can easily solve the problem with the help of the bank. In the event that there are difficulties in accessing the cryptocurrencies accumulated in the wallet, it seems more complicated, because you cannot count on any help from any institution here. However, keep in mind that many cryptocurrency wallets (especially those that are physical hardware) use additional security in the form of so-called ‘stubs’. what is he talking about?

A seed is a group of English words that appear in a specific order and allow, among other things, to recover access to a lost cryptocurrency wallet. More specifically, if your computer or hard drive with private keys fails, or if someone steals your physical hardware wallet, you can still access cryptocurrencies using your passphrase. In this case, it is enough to purchase a new wallet or reinstall the necessary software, and then, when you first start the application, enter the source designated for the wallet, which will allow you to recover bitcoins or other cryptocurrencies.

Seed is the password for the wallet and its backup at the same time. As long as you have exclusive access to it, you can use your cryptocurrencies freely and securely.

Cryptocurrency wallets – basic types and how they work

Cryptocurrencies have been around for a good few years, so they already had a large number of storage methods. As part of the primary subdivision, each can be categorized as a cold wallet or a hot wallet. How do these solutions differ?

Cold wallets work offline, which means that they are isolated from the network and therefore have high security. These include paper wallets and hardware wallets, i.e. devices from Ledger or Trezor, which are like flash drives and connect to your computer via USB. Physical wallets are more convenient to use, but they are associated with expenses of up to several hundred zlotys, which is why they are mainly chosen by investors who invest slightly larger amounts in crypto.

Hot wallets, i.e. hot wallets, are online all the time. This makes it less resistant to hacking and theft attacks, but also offers greater convenience of use than hardware or paper wallets. Due to the low level of security, it is best to keep only small amounts.

Most importantly, there are many types of online wallets. We have mobile and desktop versions available in both lite and full version (includes downloading the entire transaction history from the blockchain network) and installed on your computer. There are also browser applications that you can connect to freely from any computer. Individual solutions may be for just one cryptocurrency or many different digital assets. Regardless of which online wallet is indicated, access to stored private keys is usually protected with a persistent password and possibly a login. Some mobile solutions also allow biometric login, using a fingerprint reader or face scanning.

Hardware wallets and other ways to store multiple cryptocurrencies simultaneously

A great facility is to use a wallet that allows you to store any digital currency freely. The problem is that one doesn’t exist and probably won’t be created for long. This is due to the fact that individual types of cryptocurrencies work slightly differently and have a separate and independent system.

On the other hand, you do not need to have a separate wallet for each cryptocurrency. There are hot and cold wallets in which you can keep hundreds or even thousands of different virtual assets. The most famous of them are:

  • checkout (desktop and mobile),
  • Atomic Wallet (desktop and mobile),
  • Coinomi (desktop and mobile),
  • Enjin (mobile),
  • Ledger Nano S (devices),
  • Tresor (devices).

These wallets differ in terms of the cryptocurrencies that can be stored, login or add-ons available. To choose the best solution for you, visit the website of the creators or producers and learn about the functions of each portfolio.

If you want to invest only in bitcoin , you have the largest number of storage options to choose from. The most important cryptocurrency is supported by every global wallet, as well as a number of other solutions dedicated exclusively to it. Among those there are, among others Wasabi, Green Adress, Wirex or Bitcoin Core.

Ledger and Trezor wallets

The highest level of security for storing cryptocurrencies, besides fiat wallets, is provided by hardware wallets. Their market is dominated by two large companies, Ledger and Trezor, which offer several models of their devices. The latter differ mainly in price, backed cryptocurrency, or material of manufacture (usually steel or plastic).

Trezor and Ledger devices share many features. They support more than 1,000 cryptocurrencies, including all ERC20 tokens in the ethereum network, and at the same time have small LCD screens and two buttons used to manage their software interface. In addition, it is compatible with both computers and smartphones running Android and macOS.

Trezor is an older company than Ledger, and also has a more established position in the market, which is why its products are more expensive and cost from about 70 to even 500 euros. On the other hand, the cheaper and more popular model of the competition, such as the Ledger Nano S, is available as standard for around €60 and in promotion for €40-50. Both manufacturers offer equally good and easy-to-use equipment, so when choosing an option for yourself, focus primarily on your needs and the functionality of individual models.

How can I create a wallet for cryptocurrency?

Since there are different types of cryptocurrency wallets, there is no one way to set them up either. In the case of hot wallets, the problem is usually resolved by installing the appropriate software and then adjusting the access data. Depending on the type of online wallet, you will log into it, for example via a mobile app, a browser extension or a program on your computer. The individual solutions look a little different, so if you want to set up a specific wallet, it is best to follow the instructions presented on their official website or in the application.

In the case of hardware wallets, you start the procedure with the hardware configuration. If it is, for example, a Ledger wallet (you can safely order it here), then in the first step you need to connect it to the computer via a USB cable, and then set the PIN code that you will enter each time you log in to the wallet. The first time you launch the Ledger, it will generate 24 random English words that you have to type in the order shown. This will be your wallet password, so you can continue to access it even if you lose your device. However, don’t enter it every time you want to open your crypto wallet – you only need the PIN to log in.

To be able to use the ledger, you need to install the appropriate application from the official website of the manufacturer. You launch Ledger Live every time you connect your wallet to your computer and want to perform an operation on it, for example checking your balance or transferring cryptocurrency.

When it comes to setting up a paper wallet, the activities are limited to generating and saving the private key. To get it, you can go to the website: bitaddress.org, where an open source generator based on Java Script is available. You can generate the switch when the internet is off, but keep in mind that it’s not 100% secure either. You can never be sure that your computer isn’t infected, so downloading the key and keeping it on disk, or even printing it (just keep the printer online), has minimal risk of data loss.


No cryptocurrency wallet offers complete protection, but keep in mind that funds in your bank account or stocks in a brokerage account are not 100% safe. Your behavior greatly affects the level of security of stored assets, i.e. how you handle passwords and whether you take all precautions when using your computer and the Internet.

However, the truth is that when it comes to cryptocurrencies, choosing how they are stored is crucial. Therefore, if you want to invest a large amount in it for a longer period, it is better to choose one of the hardware wallets that will provide you with the highest level of security and at the same time great convenience in use. On the other hand, if you intend to invest a small amount in crypto, and at the same time do not know whether you want to stay in this market for a longer period, then choosing one of the free online wallets will not be a bad solution.

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