Opening a wallet – the first step to cryptocurrency investmentSviatoslav Piliaiev / Jul 15, 2022
A cryptocurrency wallet is software that secures your crypto assets, allows deposits and transfers. It is a crucial decision to open a crypto wallet that would suit your needs, have proper safety and performance. The main function of the wallet is to store the private key required to sign all transactions with your account.
Normally wallets are split on hardware and online. Offline wallets are physical data storage devices that are not connected to the internet. They do still need to be plugged in to use the assets stored within. The main benefit is security, but it comes at the expense of simplicity and speed. Having crypto stored online is much more convenient as it is always available to exchange, sell or transfer.
Choosing an online wallet provider
Major exchanges like Simple offer a quick and easy method of creating a wallet and adding assets to it. It is paramount that the online exchange is regulated and offers custodial wallets. That means there is a governmental authority that oversees the legitimacy of operations on an exchange and that wallets of the clients are protected from hacking attacks on the platform.
Creating your online wallet
It is much easier and more suitable for beginners to open a crypto wallet online. Similar to creating a banking account, you will need to download the app, create an account and confirm your identity. Now all in one place, you have a way to purchase crypto, secure storage, and ways to earn additional passive income. The main benefit being that it can be used for purchases and transfers.
Concerns about keeping assets online
Most regulated crypto exchanges keep the assets of their clients in cold storage for increased protection and only a lesser part to facilitate withdrawals and transactions. Just like in a regular bank, that means that the security of your funds is shifted from your own wallet in your pocket to the vaults of the bank.
Setting up a hardware wallet
Opening a hardware crypto wallet usually requires purchasing a flash-like device. Ledger Nano and Trezor are the leading brands and offer a range of wallets that cost from $50 to $500. For crypto to be moved from and to such a wallet it would need another device, usually a computer with an internet connection. Some high-end wallets even display the amount of stored crypto assets.
Issues with an offline wallet
Limited storage for transactions and a variety of coins that can be kept in the wallet. They are not as easy to set up and during times when connected to the internet are at increased risk. Manufacturers that produce them may also be the target of hacking attempts to steal personal data. Never purchase a used hardware wallet! It could be infected with malware that aims to steal any deposited assets. They are also at risk of being lost or destroyed.
There is no “best” solution here, each type of wallet serves a different purpose. For newer people or those who tend to use their crypto, having it on an exchange would be beneficial. But for people with a vast amount of crypto, keeping a larger portion on an offline wallet would be preferred. So as you build up your wealth, it is probably best to find a combination of both to store your assets.