Self-Custody Solutions

Picture this: your crypto account is like a treasure chest. To open it, you need special keys. Every crypto account uses a key pair, to access and store digital assets on the blockchain, that consists of:

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1. Public key (wallet address)

Think of this as your username in the crypto world. Your public key is made up of a unique string of letters and numbers that serves both as your digital identity on the blockchain and as your storage for assets. You can share it with others, and it helps identify your transactions on the blockchain whenever you send or receive crypto.

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2. Private key (secret password) 

Meanwhile, this is the top-secret code that only you should know. Your private key should never be shared with anyone. When you first sign up for a self-custody account, you receive a recovery phrase (also called a seed phrase) that you will use to generate the private key and recover your account. If you could remember from the previous module, we said that it isn’t the assets that are being stored in your wallet; rather, it is the public and private keys you need to be able to access your account. Whoever has the private key holds full control over the assets.

If you want to store your assets in a safer way, self-custody wallets like OKX Wallet, Trust Wallet, Ledger, or Trezor are your best option. They give you full control of how and where you keep your crypto funds. But be extra careful with your private keys, if they fall into another person’s hands, possibly through hacking or scams, they can easily access your funds.

Now that we've discussed the locks and keys of a crypto story, we’ll move on to the very vault – the crypto wallet. There are two main types of wallets: hot and cold. Hot wallets are like your phone that’s always online, so they’re called ‘hot.’ Cold wallets, on the other hand, are like a safe that works even when it’s not online, hence, the name ‘cold.’

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1. Hot Wallet

Also known as software wallet, this is the type that can be accessed through downloadable apps or browser extensions. Right, like a digital wallet. With this, you can transfer crypto via:

• Wallet address 
• Scanning QR codes, or 
• Near-field communication (NFC) technology. 

Let’s also say a hot wallet is convenient but risky. Why do we say so? Hot wallets like OKX Wallet, Trust Wallet, Metamask, and Phantom are easy to use and access, and are meant mostly for beginners (convenience) but because they are connected to the internet, they’re prone to hacking, online threats, and scams (risks). It’s like carrying your wallet in a crowded place where pickpockets could strike anytime.

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2. Cold Wallet 

If you are someone who prefers extra protection, then maybe you’ll find a cold wallet a better option. Cold wallet is an umbrella term for multiple other types of wallets like hardware wallets, paper wallets, sound wallets, brain wallets, cold storage wallets and more. But for this course, let’s focus on hardware wallet as the main type of cold wallet. For some modules, we will use these two terms (cold wallets and hardware wallets) interchangeably! 

Cold wallet or hardware wallet is an offline wallet that is mostly used for long-term crypto and NFT storage. Because cold wallets are mostly kept disconnected from the internet, they are less prone to cyber threats than hot wallets. 

Designed with multiple layers of security, cold wallets like Trezor and Ledger are like a safe and are less vulnerable. Unlike hot wallets, which can be accessed from any device connected online, cold wallets will require you to have the physical hardware device on hand if you need to transfer funds. But no matter how secure your wallet is, you still risk losing your funds if your private keys fall into the wrong hands. 

Given the strengths and weaknesses of hot and cold wallets, have you decided which self-custody wallet is best for you? But before you rush to get one, let’s discuss a few tips for safekeeping of self-custody wallets. Golden rules it is! 

1. Choose a reputable custody provider: Avoid newly-released hot and cold wallets that might have bugs. Don’t buy hardware wallets from unauthorized sellers who may be selling corrupted or malware-infected devices. You don’t want to compromise your private keys.
2. Watch out for suspicious links: Be careful when clicking on links and downloading things related to your wallet. Double-check website URLs or run them through a link scanner before you click, especially if you don’t know the sender.
3. Use a separate device: Never connect your wallet to a shared device or public network. It’s safer to have a dedicated device just for your crypto.
4. Log out and disconnect: Sign out of your software wallet and keep your hardware wallet disconnected from your device when not in use (like locking your front door when you leave home).
5. Keep your device updated: Make sure your computer or phone has the latest security updates. 
6. Stay informed: Be aware of the latest scams and hacks in the crypto space. Remember, knowledge is your best defense. 
7. Write down important info: Take note of your private key, password, or seed phrase in a notebook and keep it in a safe place. Never store a copy online or on a device, and never share it with anyone else.
8. Use a strong and unique password: Create a strong and unique password for your wallet. You can also add an extra layer of security with 2-Factor Authentication (2FA). It lets you prove your identity by sending a one-time password (OTP) via email, text message, or an authenticator app.

Self-custody in the world of crypto offers both freedom and responsibility. On one hand, it empowers you with full control over your digital assets. But on the other hand, this independence comes with its own unique set of advantages and challenges. Let’s dive into the pros and cons of self-custody in crypto to help you make an informed decision about the right path for your digital wealth.

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That’s a lot to digest, but self-custody offers you the keys to your crypto kingdom. It might be a tad more complicated than third-party custody, which we will discuss in the following module.