One of the questions newcomers to cryptocurrency ask me, is how do I choose a wallet? When you know nothing about public keys, private keys, exchanges, or custodianship, choosing a wallet is really tough. As simple as we try to break things down, wallets remain one of the more technical aspects of cryptocurrency. Furthermore, all things aside, wallets is actually one of the more important aspects of cryptocurrency the average individual should understand. Choosing the wrong wallet could lead to the total loss of your funds. If there is something to get right, its key management and your wallet choice. This of course, depends on your Crypto Strategy.
On Episode 13 of the Go Full Crypto Podcast, Keegan and Mrugakshee discuss the four kinds of wallets, and the pros and cons of them. A separate take, and elaboration on the content is below.
Your Crypto Strategy
What actually is your strategy at the end of the day? Are you a day trader, a hodler, or a little bit of both? Do you have less than $10k in crypto or more? If you're a whale, you're going to need a different strategy than someone who is a recreational investor. Regardless of who you are, and what your intentions are for being in crypto, you'll need a wallet that suits your needs.
The Four Kinds of Wallets
- Hot Custodial: Exchange Trading Wallets
- Cold Custodial: Custodian Ship Services, Exchange Long Term Storage*
- Hot Non-Custodial: Mobile / Desktop / Laptop Wallet that is connected to the internet, and has given you a backup phrase
- Cold Non-Custodial: Hardware / Paper Wallet that is offline
Hot means that the wallet is connected to the internet. Cold means that it is not connected to the internet.
*Not all exchanges separate their holdings into hot and cold wallets. When an exchange does make this separation, your funds are more safe than they would be otherwise. Users do not use Cold Custodial Wallet directly.
It depends on how much money you're dealing with, but in general, traders want to have both a cold non-custodial wallet to capture long terms gains, as well as a hot custodial wallet for day to day trading. Traders should opt to use exchanges that have implemented the separation of their funds into hot and cold wallets. These exchanges tend to be more reputable, and trustworthy, as they've taken additional measures to secure your funds. As a trade, who will always have some of their funds on the exchange, long term security is crucial.
A true hodler does nothing but buy, and store. These are the people that are doing nothing but stacking Satoshi's. They have a cold hardware wallet that they pump full of cryptocurrency. They only use hot exchange wallets to move more FIAT money into cryptocurrency.
A general adopter doesn't need a very complicated wallet. In fact, they may enjoy the familiarity and simplicity brought by several custodial solutions. They might want a wallet that does it all for them, including the purchase of cryptocurrency. In this case, a good exchange providing a hot wallet may the best option for these folks. Perhaps a neo-bank that provides high grade cold custodianship services is in order for the general public. ShakePay is our favourite Exchange wallet in Canada for its ease, simplicity, and trust factors. To boot, if you use this link to sign up for ShakePay, you'll be able to shake your mobile device, and earn Satoshi's every single day. It's called Shaking Sats and its a fun way to get engage and earn a little bit of crypto every day of the week.
Crypto enthusiasts tend to want to try everything. If you're familiar with more than just Bitcoin and Ethereum than you know as you try out different cryptocurrencies, many of them have their own proprietary wallets. They typically enable the full range of functionality available to the cryptocurrency you're dealing with. Enthusiasts therefore typically have multiple hot, cold, custodial and non custodial services. That being said, since they have pots of money in many places, they've likely picked the best wallets for each and every situation (trading, hodling, staking, interaction with dApps).
After you've obtained a large number of wallets, managing the keys from these wallets can be an unruly task. You want to do this safely, securely, but simply enough that you can access the keys if you would like to. As a general rule, keep every backup phrase you're ever given, forever, in multiple places. Keep them in a fireproof safe, or similar protection mechanism in a place that you, and one other trusted party knows about such as a family member. If you have more than one hot exchange based wallet, it is best to not use the same password for each of your accounts. I suggest a password manager that'll create unique, and difficult password for you. This way, if one of your accounts is compromised, all of your accounts will not be hacked. For good measure, set up 2FA (Two Factor Authentication) for each of your accounts. Beyond this, key management is up to you, as far as I know there is no one good solve all solution for managing a large number of wallets and keys
(Add a Comment to Tell Me About Wallet Management Solutions)
The Go Full Crypto Vision
We want to help people opt-into the world of cryptocurrency, one dollar at a time. In order to do this, people must need a reason. They need their own "why" behind discarding their government currency for the world currency of the future. Go Full Crypto is putting out content to help people discover the reason why they want to get involved in cryptocurrency.
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