Learn — Wallets
Setting up a
crypto wallet.
Where you buy crypto and where you store it are different things. Understanding that distinction is one of the most important steps in your education.
The trade-off
Exchange, software (hot), and hardware (cold)
The backup phrase that recovers your self-custody wallet
Self-custody means only you can access your funds
Exchange wallets (custodial)
When you buy crypto on Coinbase, Kraken, or Gemini, it sits in your exchange account. The exchange holds the private keys on your behalf. This is custodial storage — you are trusting a company to look after your assets, much like a bank holds your pounds.
Verdict: Fine for small amounts and beginners. Convenient but not truly self-sovereign.
Hot wallets (software, self-custody)
A hot wallet is an app on your phone or browser extension on your computer. MetaMask, Trust Wallet, and Phantom are popular examples. You hold the private keys — which means you control the crypto directly. No company can freeze your account. But if you lose your keys, nobody can recover your funds.
Verdict: Good for active use and interacting with DeFi. Always connected to the internet, so more exposed to hacks.
Cold wallets (hardware, self-custody)
A cold wallet is a physical device — roughly the size of a USB stick — that stores your private keys offline. Ledger and Trezor are the two dominant brands. You plug it in only when signing transactions. The rest of the time, your keys exist on a device with no internet connection.
Verdict: The most secure option for long-term holdings. Worth it once you hold more than you would be comfortable losing.
The seed phrase: your master key
When you create a self-custody wallet (hot or cold), you are given a seed phrase — typically 12 or 24 randomly generated words in a specific order. This phrase is the master backup for your wallet. If your phone breaks, if your hardware wallet is stolen, the seed phrase recovers everything.
Write it down on paper.Not in a notes app. Not in a screenshot. Not in an email. On paper, stored somewhere secure — ideally in two separate physical locations.
Never share it. No legitimate service, exchange, or support agent will ever ask for your seed phrase. Anyone who does is trying to steal your funds. This is the number one rule of self-custody.
When do you need a wallet?
Day one: you don't.If you are buying Bitcoin or Ethereum through an FCA-registered exchange and holding it there, the exchange custodies your assets. For a first purchase of £50 or £100, this is perfectly reasonable.
When the amount matters to you.The moment you hold more crypto than you would be comfortable losing to an exchange failure, move it to a self-custody wallet. That threshold is personal. For some people it is £500. For others it is £5,000.
When you use DeFi.To interact with decentralised applications — lending protocols, decentralised exchanges, NFT marketplaces — you need a self-custody wallet. Exchange accounts do not connect to DeFi.
Hardware wallet recommendations
Ledger Nano S Plus(~£65). Supports thousands of assets. Connects via USB. The companion app (Ledger Live) handles portfolio tracking and firmware updates.
Trezor Safe 3(~£60). Open-source firmware you can audit yourself. Supports a similarly wide range of assets. Trezor Suite is the desktop companion app.
Buy directly from the manufacturer's website. Never buy a hardware wallet second-hand or from a third-party seller. Tampered devices are a known attack vector.
Next
Buy your first crypto
Pick an exchange. Deposit GBP. Make your first purchase. Step-by-step guide.
How to buy crypto in the UK →