Often a time, we have heard of strongrooms or bank vaults, built by banks to store the physical valuable assets of the bank. In the same way, digital assets especially crypto currency typically have their digital bank vaults called crypto wallets.
These crypto wallets are software or programs that store the public and/or private keys for cryptocurrency amidst other functions. Examples include Binance wallet, Metamask, TrustWallet, CoinBase, Trezor one, Internetmoney wallet, wirex among others. Irrespective of the wallet you choose to store your coin, one underlining maxim that should continually be your light in your crypto journey is, “not your keys, not your coins”. This means that it is possible to self-custody your coin. This gives you full control over your digital assets as well as any authorized transaction from your crypto wallet.
Difference between Self-Custodial and Non-Custodial Crypto Wallets
Crypto wallets come with a series of words or string of numbers missed up with letters. These words are the “private key” that controls full access to one’s assets or wallet. They are usually 12 or 24 seed words that should be kept in a secure offline location. Due to the design of digital valuables, it is never recommended to store one’s seed phrase in a computer or the cloud. However, when you decide to self-custody your digital asset, you are responsible for its security.
On the other hand, if you decided to give a trusted third party, under the form of a centralized exchange, access to keep or host your private keys, you give up full control of your funds. This is because when such a service is hacked or goes offline, you may find your funds at the mercy of these centralized exchanges. Would this be something you envisioned? For instance, one’s memory falls back to the “giant” exchanges that have fallen and in due course filed for bankruptcy. For instance, the FTX saga, Celsius, Luna, Voyager, and Zipmex among others.
Investors can bypass these dangers and have peace of mind with the practice or use of self-custodial wallets like the internet money wallet. However, to further enhance the security of a self-custodial wallet, the use of a cold wallet should be encouraged over a hot wallet.
What Are Cold and Hot Wallets?
Cold wallets are wallet that is not connected to the internet. That is, they store digital assets offline. This is possible through the use of physical hardware wallets, which look like the traditional way of securing money at the banks. These wallets, normally come in the form of USB stick-looking devices. Examples include Ledger Nano X, Safepal S1, and Trezor Model T among others.
Besides, hot wallets are crypto wallets, which are connected to the internet. Some of these hot wallets can be downloaded as mobile applications or desktop extensions. You can trade directly with these wallets since they are connected to the internet. However, got wallets are more susceptible to cybercrimes such as hacks since they are connected to the internet.
It will be worthwhile to see better improvements made around crypto wallets. For instance, the use of 2FA should be tested and implemented, especially on crypto hot wallets. This may alleviate the cybercrimes we see and experience using crypto wallets.
Also, users and investors are warned to stay clear of strange links online as they could be open to different forms of the hack. It would be worthwhile to see investors beaming with smiles pursuing different massive gains while having full peace of mind towards the safety of one’s digital assets