Find out how choosing the right wallet can impact the security and accessibility of your cryptocurrencies.
Crypto wallets play a crucial role in the world of cryptocurrencies. They allow users to store, manage and transfer their digital assets securely and conveniently.
The bankruptcy filings of several major cryptocurrency exchanges and platforms have led to a lack of trust in the crypto space and emphasized the importance of having a reliable and secure crypto wallet. These incidents have shown that even the most well-respected and seemingly secure businesses are vulnerable and that trusting a third party with custody of your assets is not always a safe option.
So, what are the most important considerations when choosing a digital wallet, what types of wallets are available and what do the experts think is the best way to store crypto?
When choosing a crypto wallet, there are several factors to consider. The first and most crucial is security. A good wallet should provide robust security features such as encryption and multi-signature options.
Another important factor is accessibility. The wallet should be easy to use and allow you to quickly and easily access your funds.
Compatibility also plays a significant role. Some wallets only support a few cryptocurrencies while others are more versatile, compatible with multiple blockchains and support a wide range of digital assets.
Finally, to choose the right crypto wallet for your needs, it's essential to understand the type of wallet and whether to use a custodial or non-custodial option.
Types Of Wallets
A growing number of crypto storage options are available and choosing a wallet that best fits your needs and preferences can be confusing and time-consuming. Let's take a look at the three most popular options and each one’s advantages and disadvantages.
Custodial wallets are those where the wallet provider, such as an exchange or centralized crypto platform, holds the wallet's private keys on your behalf.
These wallets are often considered the least secure option as you entrust the custody of your assets to a third party.
That said, custodial wallets are typically more user-friendly than non-custodial alternatives and provide a convenient way to manage your crypto assets.
Non-custodial software wallets give you complete control over your funds and private keys. However, you are solely responsible for your wallet security and asset management.
The wallet issuer, be it MetaMask, Trust Wallet or another provider, does not have access to your funds or private keys and cannot assist you in restoring your password or recovery phrase if you misplace or forget this information.
Hardware wallets, otherwise known as cold storage wallets, are physical devices that store the user's private keys off the internet.
Cold storage wallets are often considered the most secure way to store cryptocurrencies. You must have physical access to the device, which is kept offline and away from potential hackers and online vulnerabilities.
Some hardware wallets support additional security features such as a back-up seed phrase that make it easier for users to recover their funds in case of a lost or damaged device.
While hardware devices provide greater security than exchange and software wallets, they require you to take additional protection and safe storage measures.
With the recent collapse of FTX and other prominent crypto platforms, questions have been raised about whether investors should transfer their digital assets from exchanges and into non-custodial software or cold storage wallets.
Finder recently interviewed 56 fintech specialists to get their opinion on the different types of crypto wallets available and the safe storage of digital assets.
The majority of the panel or 62% believed that crypto holders should transfer their assets into non-custodial wallets while 34% argued this was unnecessary. The remainder of the experts interviewed were undecided on the matter.
Mitesh Shah, founder and CEO of Omnia Markets, Inc, explained his point of view.
"The general rule of thumb is that any coins kept on exchanges are not truly yours. In a decentralized world, self-custody is always the safest and best option for storing your crypto."
Asher Tan, CEO of CoinJar, has a contrary opinion and doesn't think transferring your crypto from exchanges into non-custodial software or cold storage wallets is necessary.
"There is no single solution that works best for everyone," Tan stated. "You should be aware of the strengths and weaknesses of the wallet you use and have as much redundancy as possible."
The panel was divided regarding the most effective method for storing crypto. 67% believed hardware wallets were the best choice while 10% favored software wallets.
2% of the experts interviewed preferred to keep their crypto in the custody of an exchange and 15% believed that alternative methods such as memorizing a seed phrase or using a multi-signature vault were superior options.
With the growing popularity of DeFi and crypto self-custody, non-custodial wallets have gained traction due to the higher level of security and control they offer users.
There is currently a significant lack of trust in the crypto space due to many platforms and exchanges facing bankruptcy or legal concerns. It's not surprising that the majority of Finder's panel of experts have taken a ”not your keys, not your crypto” approach to digital asset storage.
93% of those interviewed expect the usage of hardware wallets will grow while 56% predict a decrease in the use of exchange wallets.
Selecting the correct type of wallet is crucial when safeguarding your digital assets. Whether you opt for a hardware wallet, a software wallet or another solution, it is important to weigh the available choices and pick whichever suits your specific requirements and preferences.