Crypto Wallets: Understanding the Different Types and Best Practices for Safe Trading
If you’re interested in surfing around Web3 or investing in NFTs, you’ll need to choose a way to store your tokens and JPEGs. This is where wallets come in.
Today we’ll go over the different types of wallets, including custodial and non-custodial wallets, hot and cold wallets and all those fancy buzzwords. We’ll also cover the proper setup for a trader, as well as best practices for keeping your funds safe from hacks and scams.
Let’s dive in!
Custodial vs Non-Custodial Wallets
Custodial wallets are wallets that are managed by a third-party service. This means that the service has control over your private keys, and you rely on them to secure your funds and store your assets.
The most common example of a custodial wallet is storing your assets on a centralized exchange (CEX) like Binance, Coinbase, or Kraken.
Winter’s ‘Quick Custodial Wallet’ allows users that use the Winter Checkout to store their NFTs on-chain without having to go through the trouble of setting up a new wallet and memorizing a dozen words. Users can transfer their NFTs at any time. Now, your average joe can enjoy buying NFTs, traders can tap into other kinds of liquidity during limited-time snipes, temporarily store your assets during a surprise mint and more without sacrificing the security of the blockchain or the accessibility of a CEX
Non-custodial wallets, on the other hand, give you full control over your private keys. This means that you are responsible for securing your funds, but it also means that you have full control over your assets.
Examples of non-custodial wallets include hardware wallets like Ledger and Trezor, as well as browser and mobile wallets like Metamask or Rainbow Wallet.
You can think of a custodial wallet like a bank where you deposit your money. The bank is responsible for keeping your money safe, but you don’t have direct access to it and have to ask for permission to withdraw.
A non-custodial wallet, on the other hand, is like a safe in your home. You are responsible for keeping the safe locked, but you also have direct access to your money. You don’t need permission from anyone to withdraw.
Hot Wallets vs Cold Wallets
Hot wallets and cold wallets refer to the level of accessibility and security of your funds.
Hot wallets are connected to the internet, which means that they are more accessible but also more vulnerable to hacks and scams. Examples of hot wallets include mobile wallets like Trust Wallet and Rainbow Wallet, as well as browser and desktop wallets like Metamask, 0xFrame or Exodus Wallet.
Cold wallets, on the other hand, are not connected to the internet, which makes them much more secure. Examples of cold wallets include hardware wallets like Ledger, Trezor and Keystone Wallet.
You can think of a hot wallet like a checking account that you use to pay bills and make purchases. A cold wallet is like a savings account that you only access when you need to make a big purchase or save for the long term.
Proper Setup for Crypto Traders
If you’re a crypto trader, it’s important to have a proper setup for your funds. This means having a cold wallet to use as a vault and a hot wallet to use for trading and approving contracts.
Your cold wallet should be a hardware wallet that is never connected to the internet. This will be your main storage for your funds, and you should only access it when you need to move funds to your hot wallet or CEX for trading or cashing out.
Your hot wallet should be a mobile or software wallet that is connected to the internet. This will be your daily use wallet for trading and approving contracts.
Best Practices for Safe Trading
To keep your funds safe while trading in jpegs and tokens, it’s important to follow good opsec (operational security) practices. Here’s a quick wrap-up and some tips and tricks to help you stay safe:
- Use a hardware wallet for long-term storage and a mobile or software wallet for daily use.
- Always use strong, unique passwords and enable two-factor authentication for all of your accounts.
- Keep your private keys safe and secure. Do not share them with anyone.
- Never write down or screenshot your seed phrase to store. Store your private keys offline, safe and secure.
- Be careful of scams and phishing attempts. Always double-check the URL and SSL certificate before entering your login information.
TL;DR
In conclusion, crypto wallets are an essential tool for holding and managing your digital assets. It’s important to understand the different types of wallets and how to set them up correctly to ensure the safety of your assets. Remember to follow good operational security practices, keep your software updated, and watch out for scams to stay safe.
To wrap up, crypto wallets offer a range of options for storing and managing your digital assets. Whether you choose a custodial or non-custodial wallet, a hot or cold wallet, it’s important to understand the trade-offs between convenience and security.
A combination of both hot and cold wallets can provide the best of both worlds — the convenience of a hot wallet for trading, and the added security of a cold wallet for long-term storage. To keep your assets secure, be sure to follow good operational security practices, such as using strong passwords and two-factor authentication, storing your private keys and seed phrases in a safe place, and avoiding phishing scams. By taking these steps, you can confidently and securely manage your digital assets and start trading jpegs and magical internet beans.
Degen safely!
About Winter
Winter is an embedded NFT checkout solution for your business to start selling via credit cards, store NFTs via a custodial wallet, accept cross-chain payments and more.
