The rise in cryptocurrency popularity has seen several colleagues and friends ask me where the safest place to store their crypto is. They want to know about crypto wallets and how to use them.
So, I thought writing this brief guide to cryptocurrency storage on one of the most popular devices might be useful.
Why Crypto Wallets
Record numbers of scams and hacks in 2022, coupled with the collapse of exchanges and other firms freezing crypto withdrawals, made self-custody a popular topic.
The risks of storing your cryptocurrency on an exchange were highlighted, increasing the inquiries about alternative methods.
If you do not hold the keys to your crypto, then, technically, they are not your coins. Even trusted exchanges such as Binance and Kraken warn their customers against storing more coins than are actively traded on their platforms.
The threat of third-party interference has resulted in a growing demand for safe and secure crypto wallets where you fully control the coins they hold.
Types of Crypto Wallets
Crypto wallets come in two main categories: online and offline, or ‘hot’ and ‘cold’, respectively.
In this article, I’m going to focus on offline wallets. Also known as ‘hard’ wallets, these are generally pieces of external hardware that store your crypto.
They are less susceptible to hacking, as they remain largely unconnected to the internet, and ensure you control your coins, not an exchange.
How it Works
To put it simply, a crypto wallet, whether hot or cold, stores the user’s private keys to enable access to their crypto.
A hardware wallet acts like a key, then, giving you access to the funds you have stored on the wallet application.
What happens if you lose your hardware wallet? It is possible to access your crypto by contacting the manufacturer and asking for a replacement wallet. As long as you have kept your seed phrase (usually a multiple-word security phrase) safe, you can simply use the new device to access your funds.
In Practice
It may be helpful to explain the basics of using hardware crypto wallets. I’m going to use the Ledger Nano S as an example, as it is one of the most popular hardware wallets on the market today.
Setting up your Ledger Nano is as simple as any other modern electronic product. Let me take you through the process step by step:
Set up as a new device –
- Connect the Ledger Nano S to your computer using the supplied USB cable. Your device should display Welcome to Ledger Nano S.
- Press the left or right button to navigate through the on-screen instructions.
- Press both buttons simultaneously to choose the option Set up as new device.
Choose your PIN code –
- Press both buttons when Choose PIN code’is displayed on the device.
- Press the right or left button to choose the first digit of your PIN code.
- Press both buttons to enter a digit.
- Repeat the process until you’ve entered four to eight digits.
- Select the checkmark and press both buttons to confirm the PIN code. Use the backspace icon to erase a digit.
- Confirm your PIN code by entering it once more.
Write down your Recovery Phrase –
- Your 24-word recovery phrase will now be displayed on the Ledger Nano S screen. The Recovery Phrase is the only backup of your private keys. It will be displayed only once.
- Take the blank Recovery sheet supplied in the box.
- Write down the first word (Word #1) on the Recovery sheet. Verify that you have copied it correctly in position 1.
- Press the right button to move to the second word (Word #2). Write it in position 2 on the Recovery sheet. Verify that you’ve copied it correctly. Repeat the process until the 24th word (Word #24)
- Press both buttons to confirm your Recovery Phrase.
- Select the requested word by navigating with the left or right button. Validate the word by pressing both buttons. Repeat this step for each requested word.
- Your device will display Processing, and then Your device is now ready once you’ve completed the setup process.
- Press both buttons to access the Dashboard. The Dashboard is where you can access the apps and settings on your device.
Ledger Live
Once you have followed this process, your device will be ready to use. However, in order to manage your holdings, you must download and install Ledger Live. Ledger Live is the interface to your hardware wallet and allows you to send, receive, buy, sell, stake, and mint crypto. Any coin supported by Ledger Live can use the application to reward its holders through airdrops or other innovative marketing programs.
Without Ledger Live installed, it is impossible to manage your crypto holdings.
You can find more information on Ledger’s website.
Much More to Learn
As I mentioned above, the topic of crypto wallets is a vast subject. It requires substantial research – much more than I can share in this brief guide to using one of the leading hardware crypto wallets.
As always, do your own research!
