Paper wallets are basic wallet options that generate a key and security phrase, which can then be written down and hidden for later access or recovery. ?Using a metal plate or temperature-resistant item is advisable, as it's fireproof/waterproof, etc. This is the best option for investors or users looking to keep crypto in “cold storage” (offline and not traded) for extended periods of time. Those wishing to trade crypto, engage in DeFi activities or utilize applications would be unsuitable to utilize a paper wallet.?
2. Hot Wallet
?Hot wallets are the most popular and widely utilized wallet form in the crypto economy. Hot wallets allow users and investors to actively use their crypto assets in trading, swapping, staking, and any other DeFi-related mechanics. Hot wallets include popular options like MetaMask. These wallets have the capability to stretch across ecosystems (Ethereum, Avalanche, Polygon, etc.) and access numerous decentralized applications.
The vibrant access that hot wallets enjoy also comes with extensive attack vectors. While cold wallets store keys completely offline, hot wallets can be stored directly on a PC or a cellphone. This means any security breaches to the device can result in the loss of keys (potentially funds).
Popular hot wallets in specific sectors include:
- Ecosystem-specific wallets - Phantom and Glow on Solana, Braavos and Argent X on StarkNet, ELECTRUM for Bitcoin, etc.
- Mobile - Rainbow wallet
- DeFi - Zerion, DeBank, and Zapper
- NFT - Castle and Genesis
- Teams or institutions - Squads, Gnosis, and Fireblocks
Software or “Hot wallets” are wallets connected to the internet and kept in a downloaded software/app on your computer, phone, or tablet. This method of storing your crypto adds a bit of convenience but at the risk of potential hacking and malware. It is usually recommended you only store a small amount of the BTC you intend on using in a “hot wallet” and the rest in a “cold wallet.” This is similar to how one does not walk around with their entire life savings but rather lets a bank hold onto the majority.
Hot wallet attack vectors
- Computer hacks
- Copy + paste bug
- Screen tracking
- Keyboard tracking
- Malware from plug-ins
- Phishing (email and Twitter)
- Give-away scams (typically Twitter)
- Fake URL/website
- Social engineering
- Exploiting customer help to obtain personal information or bypass security
- SIM swapping
- Fake re-sellers or tampered devices
- ONLY buy DIRECT from the retailer. No Amazon, eBay, Facebook, etc.
3. Cold Wallets
Hardware wallets are a type of “cold storage” that keeps your BTC secure, offline, and away from potential hackers. This is the most recommended option for storing cryptocurrencies. Fortunately, there are several great options for BTC. TheLedger Live tutorial, ColdCard, and KeepKey are currently the four most popular, while BillFodl and CryptoSteel add another dimension of security for storing your seed phrase/private key.
Hardware Wallet Best Practices
The below suggestions are a bit advanced. A huge percentage of “lost crypto” is due to the owner simply being phished or key mismanagement (losing your seed phrase). In both scenarios, THE OWNER is the issue. Not some thief with a wrench. Be honest with yourself about your own operational security, how reliable you are as a steward of the keys, and the lengths you’re willing to go to protect YOUR money.
Many will be too lazy or say, “Well, it’s just X amount of dollars. It’s not that much and worth all this hassle.” However, you should protect your crypto now like it’s worth 20x its current value because that has happened time and time again. That $10,000 turns into $200,000+ and is secured by a binder in a closet next to old receipts.
Once your crypto stack becomes large enough that you would be upset if it all disappeared, you’ve waited too long! It’s now time to take measures to protect your stack.
- ?Keep duplicates- there’s a saying in some industries, “One is none. Two is too few. Three is key.” For incredibly important things, like a seed phrase/private key, have duplicates to remove any single points of failure.
- Now that you have multiple copies of a seed phrase, you need different locations to store them. Storing them all under your bed accomplishes nothing. Try to have two very different and distinct locations. A safety deposit box at a bank is a decent 2nd location.
- Buy hardware wallets from different companies in case one goes bankrupt, gets exploited, or acts maliciously
- Seed phrase storage - Do not label your seed phrase “Joe’s Crypto Password.” Be discreet. Do not make it obvious to anyone should they get access to it.
- Durable - Your storage locations need to be resistant to fires, floods, kids, pets, natural disasters, etc. Don’t just write it on a piece of paper and keep it in a drawer. People have lost tens of millions of dollars due to simple floods and pets.
- Secret - This is a matter of personal preference (and well, really, all of this is) but keeping a low profile is better than not. Social media, your friends, people on Tinder, etc. do need to know “when you got into Bitcoin” or “how much crypto you have.” It puts a target on your back, and you will be surprised how many people come reaching out after the next BTC all-time high.
- Back-up plan - If you die, fall down a well, get divorced, etc. Private key custody is hard. Succession/inheritance plans are another wrinkle. Look into plans that fit your needs. Some specialize in exactly this.
