Over 3,000,000 people have invested in crypto for the first time this year.
With how popular it's become since the start of the pandemic, I believe that at the same time it's becoming more important to properly educate around crypto and how to safely use it.
So that's what this post is.
When investing in crypto, one of the most essential pieces is your wallet.
Wallets serve as the home of everything. They allow you to hold your crypto, send it to other people, make transactions, and more.
One way to think about a wallet is like a combination between a regular bank account and a debit card. If you had $500 in your crypto wallet, you could send that money to anyone in the world who also has a wallet, or you could purchase something online from a place that accepts crypto payments.
But before we dive into how to set one up, there's an important distinction to make between the 3 main types of wallets:
Hot wallets (aka soft wallets)
These are wallets such as MetaMask or Rainbow. They live online and are typically a browser extension or an app on your phone.
These kinds of wallets are generally what people use to buy NFTs as well. They're considered less secure than cold wallets (below) because they're always connected to the internet.
Cold wallets (aka hard wallets or cold storage)
On the flip side, cold wallets are similar to a USB drive. They live offline and because of this, they are considered more secure than hot wallets. This is why crypto investors generally transfer large amounts of crypto from their soft wallets onto their hard wallets for long-term storage.
These are wallets provided by a third-party such as exchanges like Coinbase, Gemini, etc. With custodial wallets, you do not have access to your 'private keys' - this may or may not be a concern to you but for hardcore crypto enthusiasts, not having access to your private keys is like a sin. Without the private keys, you don't truly own your crypto because the custodian holds the private keys. However, the nice thing with custodial wallets is that the cash held is generally FDIC-insured up to $250,000 and Coinbase "carries crime insurance that protects a portion of digital assets held across our storage systems against losses from theft, including cybersecurity breaches" and of course, you would be responsible for the cybersecurity and theft protection on your end (e.g. seed phrase storage).
If you're just getting your feet wet and only investing a small amount of money to get started, using a custodial wallet provided by the exchange is okay.
In other words, if you just want to buy $200 worth of bitcoin to get started and you're using Coinbase, you do not need to follow the steps below for setting up a separate wallet.
However, if you continue investing, the account keeps growing, and you don't plan to make consistent transactions, it's then recommended to set up a "hard wallet" so you can securely store your crypto offline.
But if you want to transact and make purchases online, like buying an NFT on OpenSea, you'll generally need a non-custodial wallet.
Since MetaMask is one of the most popular Ethereum non-custodial wallets, we're going to walk through how to set one up:
(Quick note: this is a walk-through on how to set up the browser version. Setting up the mobile app first is almost identical, you just download the MetaMask app on your phone first rather than the browser extension)
To create a wallet, you first need to install the browser extension.
Chrome, Firefox, Brave, and Edge browsers all support MetaMask.
Since there are many scams and fake websites out there, it's recommended to Google "download metamask" and ensuring that you're visiting https://metamask.io before giving out any info or downloading any extensions.
Once on MetaMask's website, you'll click "Install MetaMask for Chrome" and you'll be taken to the Chrome store to download and add the extension to your browser.
Once you've added the extension to your browser, the next step is setting up your account.
If this is your first time, after opening MetaMask, you'll most likely get a screen similar to the one below and you'll want to select "Create a Wallet".
Then, the most important step follows - revealing and then securing your seed phrase.
When you reach the screen below, you'll click 'click here to reveal secret words':
It will then reveal your 12-word secret backup phrase.
Do not screenshare when doing this or let anyone see this phrase.
Do not copy & paste these words into your Notes app or anywhere on your computer or phone.
These need to be written down and stored offline.
When writing down your seed phrase, remember that it must be written in sequential order in the same way that it was presented on the screen.
Losing a seed phrase or mis-writing it means that you'll lose access to all of the crypto held in that wallet.
You will then be asked to confirm that phrase in the same order it was presented in before.
After confirming, you're done with the wallet set up 🎉
Now that you've set up the wallet, you need to ensure that your seed phrase is safe and secure. These 12 words are like your social security number in the crypto world. Never give them out to anyone and keep them stored in a safe location.
For me, I wrote mine on 2 different pieces of paper and have them stored in separate locations in case I forgot where one was.
Whatever you do, don't store the seed phrase on your phone or computer - write it down, paint it, draw it, whatever form of storage you prefer that doesn't exist online.
Now that you have a wallet, if you want to use it, the next thing to do would be accessing your address and funding it.
If using the browser extension, click on the little orange fox logo on the top right of the browser, enter your password and sign in to your wallet, and then it should look something like the screenshot below:
Your wallet address will be at the top of the interface and if you click on it, it will copy the full 42 digit string of numbers and letters so you can paste them.
Now, this address is like your home address. You can give it out to someone who wants to send you crypto, or you can use it to send yourself crypto from an exchange.
To get crypto in your wallet, all you need to do is open an account at one of the many exchanges where you can buy it (Coinbase, Gemini, etc), link your bank account on their platform, purchase a crypto, and then once that investment goes through on the exchange, you can then send that crypto to your wallet using the 42 digit public key address.
MetaMask does support in-app purchasing of crypto, but I prefer to transfer it in from an exchange.
And after making a transfer, you have yourself a fully functioning, ready-to-use crypto wallet 🎉
While we only walked through the MetaMask set up, all wallet set ups are generally the same and there are a few things to always keep in mind:
But I know what you're probably thinking and yes, there is a lot of friction in crypto right now.
It's more difficult to get set up and make transactions than it should be.
But think about the financial industry 15 years ago.
Robinhood didn't exist. You couldn't really invest on your phone.
But now, buying and selling stocks has never been easier.
Crypto is going to be the same way. It's not super user-friendly yet but over time, better tech will be built and the overall user experience will be improved.
The learning curve can be steep and there are many nuances within crypto so if you have any questions, don't hesitate to reach out via DM.