With so many cryptocurrency wallet software available in the market, it can be hard to find the perfect software for you which is secure as well as easy to use.
Generally, cryptocurrency hardware wallets are categorized as:
While using a custodial wallet such as Coinbase, you trust the company to store your coins and tokens safely and protect them from theft. You may also choose to enable 2FA on your account to protect your assets, in case, your login details are breached.
While using a software or hardware wallet, it is your own responsibility to safely store and protect your assets. For instance, losing your coins to a malware or keylogger happens often when using a software wallet because the virus may be able to sniff the private keys or mnemonic phrase when you type them in. It is also important to backup your mnemonic phrase or write it down on a paper in case you lose the data on your computer.
Hardware wallets such as Ledger and Trezor are fundamentally the same as software wallet. However, instead of storing the private keys on your computer, they are directly stored on a secure device that connects to your computer. This device is responsible for signing the transactions, generating addresses and so on. This grants you extraordinary safety even if your computer is compromised or hacked. However, you are still vulnerable to a clipboard malware virus which replaces the address in your clipboard with a malicious one, so always double check the recipient’s address on your hardware wallet’s screen.
If you are a day trader and always need a balance in your exchange (i.e., a custodial wallet), it is best to keep your trading balance there. It can be frustrating as well as expensive to deposit and withdraw from your exchange every single day.
However, when you are holding long-term, you should always move your funds to a non-custodial wallet. This is because when using a custodial wallet, you don’t own your funds, your exchange or wallet provider does!
There’s a popular saying in the community “Not your keys, not your coins!”
For example, Coinbase in 2020, when Twitter was hacked, they stopped their customers from sending their Bitcoins to a scam address. While it was a noble initiative, this indicates how much control they have over your assets. Read more about it by clicking here.
When holding a significant quantity of cryptocurrencies, it’s a good idea to use a non-custodial (aka self-custodial) wallet as they offer you security and full control over your funds. This means there’s no one to stop you even if you want to send your Bitcoin into an oblivion!
One thing to note here is that a software wallet won’t magically protect you. In fact, it could be less secure than a custodial wallet if your computer is hacked or compromised. As soon as a keylogger takes your private key, mnemonic phrase or wallet passphrase, consider it game over.
One thing to note here is that a software wallet won’t magically protect you. In fact, it could be less secure than a custodial wallet if your computer is hacked or compromised. As soon as a keylogger takes your private key, mnemonic phrase or wallet passphrase, consider it game over.
Some software wallets also offer wallet encryption. This means that even if your wallet file is stolen (via a hacker), they would have to guess your password to open it! Consider it as a 2FA, but you should never let a hacker steal it in the first place. Always use a minimum of password with special characters, numbers, and mixed case.
While using a software or hardware wallet, it is necessary to backup your mnemonic phrase or write it down on a paper, just in case, your device or hard-drive breaks down. If you don’t remember your mnemonic phrase, you’ll lose your coins!
I don’t recommend using a custodial wallet at all, so I won’t lay down any suggestions here. However, in terms of a self-custody wallet, we have plenty of good options!
Personally, I suggest the following software wallets as they support a large number of cryptocurrencies.
There are also some coin specific wallets that you can use.
When looking for a hardware wallet, I suggest the following as they are well established within the cryptocurrency community.
There are other hardware wallets, perhaps, not as widely used as Trezor and Ledger. They are as follows:
In my opinion, when storing cryptocurrency worth $50,000 or more, use a hardware wallet, otherwise a software wallet on a secure computer is a great alternative!
P.S. I’m not affiliated to any of the companies I listed here. Always do your own research (DYOR)!