How to set up and create an Ethereum wallet

Creating an Ethereum-based wallet is usually the first step for anyone who wants to participate in the Ethereum ecosystem. With the wallet, users can trade or hold Ether (ETH) and interact with decentralized applications (DApps) and smart contracts built on the Ethereum platform. Thus, the wallet facilitates financial and interactive experiences for the user in the Ethereum ecosystem.

This guide explains how to set up and create an ETH wallet on a centralized exchange (CEX) and a decentralized exchange (DEX) and how to set up a hardware wallet.

Set up a Centralized Exchange (CEX) ETH wallet

As the name suggests, CEX wallets are a product of centralized exchanges (CEXs) that allow users to hold and trade cryptocurrencies. Easily accessible and user-friendly, CEX wallets allow users to trade ETH and other cryptocurrencies using a secure interface, with integrated support for multiple blockchain networks.

Although CEXs offer convenience, it comes with the need to trust the exchange with your funds. Therefore, it is very important to choose a reputable exchange with a solid track record to keep users' crypto assets safe.

Let's understand how to create a wallet on Binance with examples.

A step-by-step guide to creating an ETH wallet on Binance

By following the steps below, one can create an ETH wallet on the Binance website or on their smartphone wallet.

Step 1 User can register on Binance through their Google or Apple accounts. They can also choose to register with their phone number and email address.

Step 2: The user must agree to the terms of service and privacy policy by ticking the white box, after that they can click “Verify” to create an account on Binance.

Step 3: Once registered, the user will be taken to their wallet dashboard, where they can engage in activities such as trading, exchanging, peer-to-peer (P2P) transfers, buying cryptocurrencies and more.

Step 4: Users can deposit ETH to their wallet by clicking on “Deposit”; However, the user needs to meet the Know Your Customer (KYC) requirements.

Step 5: After the user meets the KYC requirements, they can deposit ETH into their wallet by selecting “ETH” from the menu.

When using a CEX wallet like Binance, users should enable two-factor authentication (2FA) to add an extra layer of security to their ETH holdings. For added security, they can set a separate email for all their crypto transactions.

Setting up a decentralized ETH wallet

Decentralized wallets put full control of crypto in the hands of users. There is no centralized system to protect users' login credentials. Users set a recovery phrase when setting up their account in a decentralized wallet.

If the recovery phase is lost, the funds stored in the wallet will be lost forever. Decentralized wallets are called trustless systems because users don't need to trust a third-party entity to protect their login credentials.

Let's learn how to set up a decentralized ETH wallet using a Coinbase wallet.

A step-by-step guide to installing a Coinbase DEX wallet

Coinbase operates one of the largest centralized exchanges. The Coinbase Wallet is a unique product that offers a decentralized wallet solution, giving users more control and responsibility over their money and its connection to blockchain networks.

Step 1: Users need to visit the Coinbase website on their smartphone and click “Sign Up”. It can be installed as a browser extension on the desktop.

Step 2: Select the account type and click “Start”.

Step 3: Users can now download the Coinbase wallet.

Step 4: A Google Chrome browser extension helps users understand how this works. This will take users to the Chrome Web Store, where they can download the wallet by clicking “Add Extension” in the popup.

Setting up the Coinbase Wallet

Step 1 Users start by clicking on the Coinbase Wallet extension and clicking “Create New Wallet”.

Step 2: During the setup process, users will be asked to store 12 consecutive words in a secure location. If you forget the password, these words must be kept safe as they are necessary to restore access to the wallet.

Step 3: Now users need to create a strong password for their wallet, agree to the terms and click “Submit”.

Step 4: Users are now ready to receive, store and send ETH.

Although decentralized networks provide better security compared to centralized networks by allowing users to hold their private keys, without proper auditing, money laundering can occur. Cybercriminals are always on the move to exploit software vulnerabilities.

Preparing a hardware wallet for ETH

Considered the most secure of the lot, the hardware wallet stores digital assets, including ETH, offline, making them inaccessible to hackers.

Here is a step-by-step guide to creating a hardware wallet for ETH. However, keep in mind that there are multiple hardware wallets and the process may vary on these devices.

Step 1: Launch the wallet

Users must turn on the device and begin the initialization process, which includes setting a PIN and typing in a recovery phrase, which serves as a backup in case the wallet is lost or damaged.

Step 2: Update the firmware

Users now need to connect the device to an internet-enabled computer, go to the manufacturer's website and update the firmware.

Step 3: Set up the wallet interface

To interact with the hardware wallet, users must install the necessary software on their computer or smartphone. Ledger wallets usually use Ledger Live, while for Trezor devices one needs to use Trezor Suite.

Step 4: Create an Ethereum account

Users must create an Ethereum account in the Wallet interface. Users use this account to send, receive and manage ETH. For ease of identification, giving a recognizable name is preferred by many users.

Although hardware wallets are known for offering the highest level of security among wallets, users should keep a few points in mind. They must obtain their wallets from reputable vendors, update their wallets, keep their seed or recovery phrase confidential, use a strong PIN, avoid public WiFi networks, and regularly audit wallet activity.

Exploring the path to the Ethereum ecosystem

Anyone who is constantly active in the Web3 space usually needs CEX, DEX and a hardware wallet. All three options are distinguished for comfort, control and safety. A collection of Ethereum wallets serves as a tool for managing ETH and gives users a place in decentralized finance.

Risks such as market volatility and security flaws in both centralized and decentralized exchanges are important when navigating the Ethereum ecosystem. CEXs are convenient, but hackers can easily compromise them.

Although autonomous, DEXs are vulnerable to smart contract vulnerabilities. ETH's price volatility makes the risks even higher. A balanced strategy combines centralized and decentralized services for improved security and access, diversified portfolios and risk management. With a balanced approach and understanding of these challenges, users can navigate the Ethereum ecosystem with confidence.