Choosing the right wallet to store your digital assets is crucial in ensuring your assets are kept safe. In addition to storage capabilities, your wallet allows you to send and receive digital assets as well as interacting with different platforms such as decentralised finance protocols and other blockchain-based applications.
From custodial to non-custodial wallets, and hot to cold wallets, there are over 150 crypto wallets available in the market. It can be daunting to pick the one that is most suitable for you, so it is important to understand the types of digital asset wallets.
Digital assets or crypto wallets are used to store your cryptocurrencies. They can also store other digital assets such as non-fungible tokens. They are somewhat similar in concept to your physical cash wallet. You can choose to keep some cash in your pocket, some in your bank account and some in a safe at home. In the same way, you can choose to store some of your crypto, NFTs or other digital assets on an exchange, in a crypto wallet, and on a hardware device.
As digital asset platforms remain susceptible to hacks, having your own digital asset wallet allows you to have better security and control over your assets, like how you have full control over the cash in your physical wallet.
Your digital asset wallet comes with a private and public key. Your public key refers to your wallet’s address. Similar to a bank account number, you can share your public key with someone who wants to send you digital assets.
On the other hand, the private key is like a password for you to access your wallet. Ensure that the wallet you pick supports your cryptocurrency and blockchain or risk losing them when transferring into the wallet that is unable to support it.
"Not your keys, not your crypto." This concept sums up the difference between custodial and non-custodial wallets.
You do not own your private keys with a custodial wallet.
Custodial wallets are popular amongst beginners because they are a lot easier to set up, and are often provided by cryptocurrency exchanges. They hold your private keys and serve as a middleman between you and the blockchain network to do all the heavy lifting.
However, there is a tradeoff to this convenience. Since they are hosted and managed by a third-party service provider, your privacy and security are affected. If the service provider gets hacked, you may stand a chance to lose your digital assets.
You own your private keys with a non-custodial wallet.
For the above-mentioned reasons, most advanced users prefer non-custodial wallets because they give you full control over your digital assets and enable you to interact with decentralised finance protocols. With full ownership of your private keys, you are solely in charge of the security of your funds. That means non-custodial wallets require more technical knowledge, as if you ever misplace your private keys, you may lose access to your digital assets.
In addition to custodial and non-custodial wallet types, digital asset wallets can be categorised as hot wallets or cold wallets.
The key difference between hot and cold wallets is that hot wallets are connected to the internet, while cold wallets are not. Hence, cold wallets are considered a more secure option for your cryptocurrencies or digital assets.
Hot wallets: Connected to the Internet for quick access
Everyday digital assets users prefer using hot wallets because of their connectivity. A hot wallet is often an app on your computer or phone that stores digital assets for immediate access when you want to trade or spend them. Hot wallets sometimes have additional security features to guard your assets against potential hacking, such as PIN codes or 2-factor authentication (2FA).
Cold wallets: Offline and secure from cyber threats
Advanced cryptocurrency users (“HODLers”) prefer using cold wallets because of their security, as they are not connected to the internet. The private keys in cold wallets are stored offline on a physical device like paper or hardware drives. Cold wallets work well for long-term storage because they do not face cyber threats that hot wallets do.
The first types of cold wallets were paper wallets, introduced in 2011. In fact, it was one of the recommended wallet types, until its popularity waned in 2016. As the name suggests, paper wallets are simply a piece of paper with two QR codes — one public address and the other a private key. Though it is truly offline and “unhackable”, paper is fragile, and you have to protect it from theft or loss too.
There are many cold wallet options in the market – some of the most popular ones include the Ledger Nano X and the Trezor Model T. Notably, Ledger is partnered with StraitsX because of its user-friendliness and compatibility with our stablecoins, XIDR and XSGD.
Both the Ledger Nano X and Trezor Model T work similarly in terms of executing transactions – it can only be completed (or “broadcasted”) when the user approves (or “signs”) the transaction by clicking on the device physically. However, other brands and models might differ in how they work.
A non-custodial crypto wallet means you are the sole owner and custodian of your own private key, which usually takes on a form as a 12-, 18-, or 24-word seed phrase, or a very long string of numbers and letters. Generally, having your private key as a 12-, 18-, or 24-word recovery seed phrase is preferred because it is easier to remember and to work with.
Storing your recovery seed phrases
There are multiple ways to store your recovery seed phrases:
This is one of the most cost-effective, portable, and durable ways to store your recovery seed phrases – they are nearly indestructible and you pay once for its security. Most steel capsules are quite portable, some of which come in the shape of a credit card, whilst others are more imaginative, like a tube.
You can choose to store your recovery seed phrase in a safe deposit box. Such safe deposit boxes are usually rented by banks.
You can store your recovery seed phrase on an offline memory device such as an SD card, USB drive, external SSD, or CD, amongst many others. However, you would need to ensure that your memory device is not exposed to an online device or a compromised device. Memory devices are also not time-proof as memory degradation is a thing.
You can employ a combination of the above-mentioned ways to store your recovery seed phrases by scattering them and storing them at different locations, like a treasure hunt. This will undoubtedly make it harder for malicious actors to find your recovery seed phrases, but it will also add complexity to your own recovery as well.
As with all digital assets, you will need to keep track of your private keys or recovery seed phrases. If you lose access to your private keys or recovery seed phrases, you will not be able to get your digital assets back. Such is the fate of Stefan Thomas, who lost access to 7,002 of his Bitcoin (BTC) because he lost his recovery seed phrases. You are the only custodian of your digital assets.
With that in mind, having your own non-custodial crypto wallet also lets you participate in Decentralised Finance (DeFi) protocols that come with much higher levels of autonomy and transparency in fees, as compared to the highly-regulated, traditional finance industry.
We have multiple partners in the StraitsX Ecosystem that provide wallets that are easy to use. Store, send or receive StraitsX stablecoins securely and quickly.
You can also mint, swap, and redeem with XSGD and XIDR with other stablecoins within the StraitsX Ecosystem and our DeFi partners.
Note: If you are a high net worth individual, or institution, you can take advantage of StraitsX’s OTC Desk feature that offers deep liquidity and OTC block trades.