How to Set Up a Cryptocurrency Wallet

A cryptocurrency wallet is a place where you can keep your cryptocurrency safely. There are many different kinds of cryptocurrency wallets, but the most popular are custodial wallets, non-custodial wallets, and hardware wallets.

Which one is best for you depends on what you want to do with your cryptocurrency and what kind of safety net you want to have.

Custodial Wallets:

The most popular and easy to set up cryptocurrency wallet is a custodial wallet. When you buy cryptocurrency using an app like Coinbase, your cryptocurrency is automatically saved in a custodial wallet. It's called custodial because a third party holds your cryptocurrency for you, similar to how a bank would deposit your money into a checking or savings account. You may have heard of people "losing their keys" or "losing their USB wallet," but with a custodial wallet, you don't have to worry about any of that.

The main benefit of keeping your cryptocurrency in a custodial wallet is that you won't lose your cryptocurrency if you forget your password. The downside of a custodial wallet is that you don't get everything that cryptocurrency offers. However, as custodial wallets start to support more features, this may change.

How to Set Up a Custodial Wallet:

Choose a platform you trust. Your main concerns should be security, ease of use, and compliance with government and financial regulations.

Create your account. Enter your personal information and choose a secure password. It is also recommended to use two-step verification (also known as 2FA) for added security.

Buy or transfer cryptocurrency. Most crypto platforms and exchanges allow you to buy cryptocurrency using a bank account or credit card. If you already have cryptocurrency, you can also transfer it to your new custodial wallet for safekeeping.

Self-custodial wallets:

Self-custodial wallets such as Coinbase Wallet give you full control over your cryptocurrency. Non-custodial wallets do not rely on a third party (or "custodian") to keep your cryptocurrency safe. While non-custodial wallets provide the software necessary to store your cryptocurrency, it is entirely your responsibility to remember and protect your password. If you lose or forget your password (often called your "private key" or "mnemonic"), you will not be able to access your cryptocurrency. If someone else discovers your private key, they will gain full access to your assets.

Why have a non-custodial wallet? In addition to the security of having full control over your cryptocurrency, you also have access to more advanced cryptocurrency activities such as yield farming, staking, lending, borrowing, and more. But if all you want to do is buy, sell, send, and receive cryptocurrency, a custodial wallet is the simplest solution.

How to set up a non-custodial wallet:

Download a wallet app. Popular options include Coinbase Wallet.

Create your account. Unlike custodial wallets, you don't need to share any personal information to create a non-custodial wallet. Not even an email address is needed.

Be sure to write down your private key. It's a random 12-word phrase. Keep it in a safe place. If you lose or forget this 12-word phrase, you won't be able to access your cryptocurrency.

Transfer cryptocurrency to your wallet. It's not always possible to buy cryptocurrency with traditional currencies (such as USD or EUR) with a non-custodial wallet, so you'll need to transfer your cryptocurrency from somewhere else to a non-custodial wallet.

If you're a Coinbase customer, you can choose between a custodial wallet or a self-custodial wallet. The Coinbase app is a custodial wallet where you can buy and sell cryptocurrency. You can also download the standalone Coinbase Wallet app to take advantage of a non-custodial wallet. Some of our customers have both, which makes it easier for them to buy cryptocurrency with traditional currencies and participate in advanced cryptocurrency activities. Setting up either wallet is free.

Hardware wallets:

A hardware wallet is a physical device, about the size of a thumb drive, that stores the private keys for your cryptocurrencies offline. Most people don’t use hardware wallets because they add complexity and cost, but they do have some benefits: for example, they can keep your cryptocurrencies safe even if your computer is hacked. However, this advanced security makes them less convenient to use than software wallets, and they can cost up to $100 to purchase.

How to set up a hardware wallet:

Buy the hardware. Ledger and Trezor are two of the most well-known brands.

Install the software. Each brand has its own software for setting up a wallet. Download the software from the company’s official website and follow the instructions to create a wallet.

Transfer the cryptocurrency to your wallet. Similar to non-custodial wallets, hardware wallets typically don’t allow you to buy cryptocurrency with traditional currencies (such as dollars or euros), so you’ll need to transfer your cryptocurrency to your wallet.

Just as there are many ways to store cash (in a bank account, in a safe, under your bed), there are many ways to store cryptocurrency. You can keep things simple with a custodial wallet, keep full control of your cryptocurrency with a non-custodial wallet, take extra precautions with a hardware wallet, or even have multiple types of cryptocurrency wallets, the choice is yours.