The cryptocurrency world is constantly evolving, with new tokens being released regularly. While many people are familiar with popular cryptocurrencies like Bitcoin (BTC), Ether (ETH), and Solana (SOL), there are always new tokens emerging. For those interested in holding cryptocurrencies, there are two main options: using a centralized exchange (CEX) wallet or a private self-custodial wallet. Both approaches have their pros and cons.
This article will focus on self-custodial wallets and provide step-by-step instructions on how to set up a beginner-friendly Trust Wallet to take control of your crypto assets.
Pros and cons of using centralized exchanges to hold cryptocurrencies
A centralized exchange (CEX) holds a user’s crypto tokens on their behalf. It operates similarly to a traditional bank or stock brokerage account, where users create an account, buy and sell tokens on the exchange, and rely on the exchange to handle their account and holdings. However, there are some key differences.
One major drawback of using a centralized exchange is that the exchange owns the user’s tokens. In the event of a hack or bankruptcy, users have no recourse to retrieve their funds. This lack of control and protection over deposits and assets has led to the popular saying, “not your keys, not your coins.” Exchange failures are not uncommon, so it’s important to consider this risk and avoid exposing oneself to large losses.
Despite these risks, centralized exchanges provide an accessible entry point for newcomers to the crypto world. Users can create an account with a reputable exchange, complete the necessary Know Your Customer (KYC) checks, and start buying and selling cryptocurrencies. It’s important to enable additional security features like two-factor authentication to protect your account.
What are private self-custodial wallets?
Blockchains are inherently public, which means that anyone can see the tokens owned by a particular wallet address. However, a self-custodial wallet is considered “private” because the user controls access to their tokens.
What sets self-custodial wallets apart is that users own the seed phrase or private key required to perform transactions with their wallet. As long as users keep their private key secure, they are the only ones who can control the funds in their wallet. No third party can access or control those funds.
How do self-custodial wallets work?
Self-custodial wallets typically start by generating a unique seed phrase for the user’s wallet. It is crucial for users to securely store this seed phrase in a safe place. Writing it down on paper or using another offline medium is recommended, as storing it on a computer or mobile device can expose it to potential hackers.
Self-custodial wallets can take various forms, including browser extension wallets like MetaMask, desktop applications like Exodus, mobile applications like Trust Wallet, or hardware wallets like Ledger. These wallets are categorized as either hot or cold wallets, depending on their intended use and level of security.
Hot wallets are connected to the internet and are more vulnerable to hacks and security threats, while cold wallets (hardware wallets) are usually offline and only connect to the internet when needed for transactions. Users concerned about security often use cold wallets for storage and keep them disconnected from internet-based applications.
The evolution of crypto wallets
Some wallets are innovating beyond the traditional seed phrase mechanism to enhance security and simplicity, which could help drive wider adoption. Certain mobile wallets offer features that allow recovery by trusted contacts and prioritize biometric security. Additionally, specific hardware wallets pair with mobile apps and utilize chip cards for asset protection, emphasizing the need to secure the chip card like a safe key. Multisignature wallets require multiple approvals for transactions, adding an extra layer of security against unauthorized access and potential fraud.
Key steps to setting up Trust Wallet
Trust Wallet supports over 100 blockchains and can be installed on both mobile devices and as a browser extension on laptops. To get started, follow these simple steps:
Step 1: Install the Trust Wallet app on your mobile device.
Step 2: During the account set-up stage, securely write down the seed phrase and keep it in a safe place. Losing the seed phrase means losing access to your wallet and funds.
Step 3: Follow the on-screen instructions to complete the setup. Once the backup and verification process is complete, you will be directed to the main wallet interface, where you can find a selection of cryptocurrencies available for funding.
You can fund your Trust Wallet directly using a credit or debit card through the app, thanks to integration with various providers that sell cryptocurrencies. If you already have an account with a centralized exchange, you can also transfer cryptocurrencies from the exchange to your Trust Wallet.
Steps to fund a crypto wallet using a mobile app
To fund your crypto wallet using a mobile app, follow these steps:
1. Choose the token you want to buy and specify the quantity.
2. Select the most economical quote from a provider.
3. Enter your payment details (debit or credit card). Note that some banks and cards are more cryptocurrency-friendly than others.
4. In some cases, you may need to undergo a KYC check.
5. Once the transaction is complete, you will see the cryptocurrency credited to your wallet.
These steps constitute the “crypto on-ramp,” where you can convert your fiat currency into cryptocurrency holdings. Self-custody is a key principle of Web3, and creating a private self-custodial wallet is a practical first step that opens up opportunities for decentralized finance and social interactions within the cryptocurrency ecosystem.
How to transfer crypto assets to Trust Wallet: A step-by-step process
The following sections explain how to transfer crypto assets from Coinbase and MetaMask wallets to Trust Wallet.
Steps to transfer crypto from Coinbase to Trust Wallet
1. Download and install Trust Wallet.
2. In the Coinbase app or website, click on the “Send” button.
3. Select the cryptocurrency and the amount you want to transfer, then click “Next.”
4. Enter the receiving address from your Trust Wallet and follow any additional prompts to confirm the transaction. This ensures the secure transfer of digital assets between the two wallets.
Steps to transfer crypto from MetaMask to Trust Wallet
1. Install Trust Wallet.
2. In the MetaMask wallet, click on the “Send” button.
3. Enter the Trust Wallet address and specify the amount to be transferred.
4. Verify the transaction details and click “Send” to finalize the transfer. This allows for the secure exchange of digital assets between the two wallets.
The future of self-custodial wallets
Self-custodial wallets have come a long way from their early days, where technical skills were required to set them up and users had to be extremely cautious to avoid losing their cryptocurrencies. However, seed phrases are just one aspect of the bigger picture. The risk of losing a wallet due to misplaced seed phrases or private keys, as well as the lack of simple methods for transferring wallet ownership to family and friends, remain significant barriers to widespread adoption by everyday users.
Future self-custodial wallets ideally won’t rely solely on seed phrases but will incorporate a combination of biometrics and multiple layers of authentication and approvals to make it easier for more users to onboard while providing peace of mind and security for the ownership of digital assets.
Regarding privacy, future regulations may require KYC procedures for individual wallet addresses to facilitate transactions. Therefore, the adoption of self-custodial wallets primarily aims to enhance control over crypto assets and provide access to opportunities within the cryptocurrency ecosystem, rather than preserving anonymity on the blockchain.