What Kind of Cryptocurrency Wallet is Best for You?
Deciding which kind of cryptocurrency wallet is right for you can be a daunting task. Especially when you don’t know anything about cryptocurrency wallets. This is what we have decided to address in episode 13 of the Go Full Crypto Podcast. We have seen several people make the mistake of leaving their funds on an exchange, only to have lost them. This was really no fault of the individual, other than the lack of understanding that there was a better alternative. To many first timers, owning bitcoin on an app like ShakePay, is the same as any other way to own bitcoin. We’re here to tell you different. In general, there are four types of wallets. Depending on your crypto strategy, one wallet will be better for you than the other.
TLDR;
Hot Custodial Wallets are the least safe, and carry the highest risk for your money
Cold Custodian Wallets are used by exchanges, users don’t typically get exposed to this wallet type
Hot Non-Custodian Wallets are mobile or desktop apps that are great for quick access, as well as security
Cold Non-Custodian Wallets are hands down the best way to store your cryptocurrency
Listen to episode 13 to hear Mrugakshee and Keegan discuss the various kinds of wallets.
The Four Kinds of Wallets
There are wallets that are either online or offline (hot / cold). Then there are wallets where you own the keys (non-custodial) and wallets where you do not own the keys (custodial). All wallets have a mix of these attributes. That is, you can have a hot custodial wallet, or a cold non-custodial wallet. But what is the best wallet for your crypto strategy? In order to answer that question, you need to know what your crypto strategy is. Go Full Crypto can help you build your crypto strategy.
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1: Hot Custodial Wallets (Exchanges)
Exchange based wallets are the most common types of wallets that people are exposed to first. Not many exchanges take the time to explain this to new users though. Which is where Go Full Crypto comes in. We help people understand the pros and cons of using one service/wallet over another. A Hot custodial wallet is the most risky of wallets for two reasons.
Hot wallets are connected to the internet, and therefore more vulnerable to attack
With custodial wallets, you do not own your money directly, and are therefore more vulnerable to be lost
When to Use a Hot Custodial Wallet?
Hot Custodial wallets are almost always used to acquire cryptocurrency. In order to purchase cryptocurrency from a service like ShakePay, you need to deposit government money (CAD, USD, EUR, INR) onto the exchange and trade it for cryptocurrency. So in short, hot custodial wallets are used for trading, and acquiring cryptocurrency. If you do not intend on trading the cryptocurrency once you have it, you should not leave your funds on the exchange.
2: Cold Custodian Wallets
Exchanges use Cold Custodian Wallets at their own discretion. In fact, the more reputable exchanges such as kraken.com does not keep the majority of user funds in a hot wallet. Most of the funds are kept in a cold wallet in order to enhance security. This type of wallet is abstracted away from the user, so you never really have to worry about choosing a cold custodian wallet. Although, when choosing an exchange to use, picking one that has a portion of their funds kept in cold storage is a good choice, as there is less risk of total failure of the exchange.
3: Hot Non-Custodial Wallets (Desktop / Mobile Wallet)
A Hot Non-Custodial wallet is something like the Exodus wallet which can be downloaded on your laptop, desktop, or phone. As long as your device is connected to the internet, the wallet is vulnerable to attack. Be careful when accessing your hot wallet on a public network such as those found in libraries or cafes. Non-Custodial wallets do offer additional layers of security though, because they make you download a backup phrase. This backup phrase is the access to your money. Custodial wallets like those found on exchanges do not give you a backup phrase, and therefore you do not have direct access to your money.
When to Use a Hot Non-Custodial Wallet?
Hot Non-Custodial wallets are perfect for individuals who want maintain complete ownership over their funds, as well as carry the access to their cryptocurrency. For example, hot non-custodial wallets are great for spending cryptocurrency, or easily checking your balance. They are also good for interacting with cryptocurrency platforms on the go, as they are connected to the internet. Ultimately, you have complete ownership over your funds when they are stored in non-custodial wallet, which makes this type of wallet the go-to wallet choice for the majority of cryptocurrency users in general.
4: Cold Non-Custodial Wallets (USB / Paper Wallet)
Cold storage is the safest way to store your cryptocurrency. Combined with the direct ownership of funds that is provided by non-custodial wallets, Cold Non-Custodial Wallets are the safest, most secure way to store cryptocurrency. Everyone in the cryptocurrency space knows this. As divided as the community can be sometimes, there is no dispute here. Nothing beats a cold non-custodial wallet. There are wallets that you’ve copied down your 12-24 word backup phrase onto a piece of paper or a USB, and you’ve stored in a fireproof safe.
When to Use a Cold Non-Custodial Wallet?
If you’re intending on holding cryptocurrency long term, without touching it, this is hands down the best wallet for you. You can rest easy knowing that no one has the ability to hack your wallet as it sits in your fireproof safe in your closet. Buy some crypto, transfer it from an exchange to a non-custodial wallet, copy down your 12 word phrase, and then lock it in a safe. Come back 20 years later, and your money will be ready for you to move.
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