Last editedFeb 20222 min read
If you want to accept cryptocurrencies such as Bitcoin at your business, you need to know how to set up a cryptocurrency wallet. It is not difficult, as wallets are basically software programs that enable users to send, receive and manage digital currency.
Here we will show you how to set up a cryptocurrency wallet, how they work and what different types of wallet there are.
How cryptocurrency wallets work
Digital wallets for cryptocurrency do not store currency like the traditional wallet in your pocket as digital currencies don’t actually exist in any physical form. A cryptocurrency wallet simply keeps a record of all your cryptocurrency transactions.
Integrating a cryptocurrency wallet software program will store your public and private keys and interface with various blockchains. You can then monitor and manage your balance, as well as send and receive digital payments.
The payment exchange works by the person who owns some cryptocurrency signing-off ownership of it to you. Your crypto wallet keeps a record of this exchange, and thus legally assigns you as the new owner of the cryptocurrency amount used in the transaction. To then use the cryptocurrency yourself, you must have the private key which matches the public address the currency is assigned to. No physical object is ever exchanged, just the record of ownership.
Types of cryptocurrency wallets
There are three main types of cryptocurrency wallet. UK and global businesses should be aware that each one has its strengths and weaknesses. The three types of cryptocurrency wallet are:
Cold or paper wallet
A soft wallet mostly uses downloadable software and is one of the most common types of cryptocurrency wallet to keep records of your crypto assets. They are usually easy to use and have good security, although can be vulnerable to malware and viruses.
The sub-types of soft wallet include desktop, mobile and online wallets. Both desktop and mobile wallets require you to download the software or the app to your device. This does put desktop wallets at risk from key-loggers, and mobile wallets at risk from the device being lost or stolen. Online wallets can be accessed from any device via the special keys and codes provided, which may put them at risk from phishing scams.
A hardware wallet is much more secure than a soft wallet, primarily because it is stored on a separate piece of hardware. It is a physical device that stores your transactions and balance and cannot be hacked or phished. However, they are expensive and inconvenient.
To set up a hardware wallet, you need to buy one then insert it into a USB port. You can then simply follow the on-screen instructions to create the new wallet, or import a pre-existing wallet.
Even with PIN codes adding extra security, you should still store your hardware wallet somewhere safe.
Cold or paper wallet
Cold wallets or paper wallets are also very secure because your sensitive information is all stored offline. The simplest way to create a cold wallet is to print your private key onto paper, hence the alternative name. For a thief to now decrypt your wallet and steal your cryptocurrency, they would need access to that piece of paper.
The major concern with this cryptocurrency wallet is that paper can be easily damaged or destroyed. For this reason it is advised to keep two copies of your private key equally secure in two different locations.
We can help
If you’re interested in finding out more about how to set up a cryptocurrency wallet, or any other aspect of your business finances, then get in touch with our financial experts at GoCardless. Find out how GoCardless can help you with ad hoc payments or recurring payments.