Part 2: Crypto Wallets
However you acquire your cryptocurrency (coins), you’ll need to understand a few basic concepts about Wallets. Every address on the Ethereum network is issued a public key and a private key, and you’ll need a wallet to manage your crypto holdings.
Public key: Think of this as the crypto version of an email address. Your Ethereum public key is where people can send you ETH and Ethereum-based tokens like USDC and Dai. You can safely give this out to others.
Private key: Think of this like your password. You should generally avoid giving this out to people. A private key is a long string of letters and numbers. (It can also be in the form of a series of words called a seed phrase.) It’s crucial to keep track of your private keys. If you lose them, you lose your coins forever.
Wallet: To store and secure your coins you’ll need a wallet. If you’re just starting out, the easiest option is to make an account via the Coinbase app or coinbase.com — in which case you’ll interact with a “custodial wallet” that stores and secures your private keys for you. As you progress you might want to investigate other wallet options that are built for interacting with decentralized finance (or DeFi) protocols such as Compound (a lending and savings app) or Uniswap (a decentralized exchange that allows you to trade cryptocurrencies).
There are many different types of crypto wallets, but the most popular ones are hosted wallets, non-custodial wallets, and hardware wallets. Which one is right for you depends on what you want to do with your crypto and what kind of safety net you want to have.
The most popular and easy-to-set-up crypto wallet is a hosted wallet. When you buy crypto using an app like Coinbase, your crypto is automatically held in a hosted wallet. It’s called hosted because a third party keeps your crypto for you, similar to how a bank keeps your money in a checking or savings account. You may have heard of people “losing their keys” or “losing their USB wallet” but with a hosted wallet you don’t have to worry about any of that.
The main benefit of keeping your crypto in a hosted wallet is if you forget your password, you won’t lose your crypto. A drawback to a hosted wallet is you can’t access everything crypto has to offer. However, that may change as hosted wallets start to support more features.
How to set up a hosted wallet:
Choose a platform you trust. Your main considerations should be security, ease of use, and compliance with government and financial regulations.
Create your account. Enter your personal info and choose a secure password. It’s also recommended to use 2-step verification (also called 2FA) for an extra layer of security.
Buy or transfer crypto. Most crypto platforms and exchanges allow you to buy crypto using a bank account or credit card. If you already own crypto, you can also transfer it to your new hosted wallet for safe keeping.
A self-custody wallet, puts you in complete control of your crypto. Non-custodial wallets don’t rely on a third party — or a “custodian” — to keep your crypto safe. While they provide the software necessary to store your crypto, the responsibility of remembering and safeguarding your password falls entirely on you. If you lose or forget your password — often referred to as a “private key” or “seed phrase” — there’s no way to access your crypto. And if someone else discovers your private key, they’ll get full access to your assets.
Why have a non-custodial wallet?
In addition to being in full control of the security of your crypto, you can also access more advanced crypto activities like yield farming, staking, lending, borrowing, and more. But if all you want to do is buy, sell, send, and receive crypto, a hosted wallet is the easiest solution.
How to set up a non-custodial wallet:
Download a wallet app. Popular options include Coinbase Wallet and MetaMask.
Create your account. Unlike a hosted wallet, you don’t need to share any personal info to create a non-custodial wallet. Not even an email address.
Be sure to write down your private key. It’s presented as a random 12-word phrase. Keep it in a secure location. If you lose or forget this 12-word phrase you won’t be able to access your crypto.
Transfer crypto to your wallet. It’s not always possible to buy crypto using traditional currencies (like US dollars or Euros) with a non-custodial wallet, so you’ll need to transfer crypto into your non-custodial wallet from elsewhere.
Coinbase customers have a choice of a hosted wallet or a self-custody wallet. The Coinbase app, where you buy and sell crypto, is a hosted wallet. You can also download the standalone Coinbase Wallet app to take advantage of the benefits of a non-custodial wallet. Some customers have both, making it easy to buy crypto with traditional currency as well as participate in advanced crypto activities. Setting up either wallet is free. If you use my referral link we both get free Bitcoins!!! Click Here for my Coinbase Link!
A hardware wallet is a physical device, about the size of a thumb drive, that stores the private keys to your crypto offline. Most people don’t use hardware wallets because of their increased complexity and cost, but they do have some benefits — for example, they can keep your crypto secure even if your computer is hacked. However, this advanced security makes them inconvenient to use compared to a software wallet and they can cost upwards of $100 to buy.
How to set up a hardware wallet:
Buy the hardware. The two most well-known brands are Ledger and Trezor.
Install the software. Each brand has their own software that’s needed to set up your wallet. Download the software from the official company website and follow the instructions to create your wallet.
Transfer crypto to your wallet. Similar to a non-custodial wallet, a hardware wallet typically doesn’t allow you to buy crypto using traditional currencies (like US dollars or Euros), so you’ll need to transfer crypto to your wallet.
Just as there are many ways to store cash (in a bank account, in a safe, under the bed), there are many ways to store crypto. You can keep things simple with a hosted wallet, have full control of your crypto with a non-custodial wallet, take extra precautions with a hardware wallet, or even have multiple types of wallets — with crypto the choice is yours.
Reference: < https://www.coinbase.com/learn/crypto-basics>
Next in the Series: Part 3: DEX's and Sidechains