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... and another post in the list of things to do before the Bull market arrives. As we are all too aware, during the bull market, there is just too much chaos and hype that is taking up our attention from all sorts of new projects. And there is the endless excitement of watching those numbers go up on seemingly unstoppable green candles.
And it is the time when the infrastructure that we have put in place for digital storage of cryptocurrencies really starts to get put to the test. When you are in the middle of exciting new discoveries and being distracted by lots of other more interesting things... well, that is the worst time to start discovering that you need to review and update boring things like... where the hell am I storing things!
So, in these quieter months... this is the best time to just sit down and get things properly set up, so that you can enjoy the fun to the fullest when the bull starts to poke its ugly had up!
First and foremost... it is a good idea to start thinking about what wallets/addresses are going to be used for what purpose. Loosely termed "hot" and "cold" wallets, these are probably best thought of in terms of how exposed they will be to the internet and online transactions. Namely, how often are they going to be signing transactions/signatures. Another way to think of this is in terms of a physical wallet, and a bank vault. You have things that can be used relatively daily in a physical wallet (your "hot" wallet) and that you don't mind losing... and others that are going to be stored elsewhere with your vault (a "cold" wallet) that you would prefer not to lose!
Of course, it is hard to interact with blockchains without signing transactions... so, it can be that your "hot" wallet addresses will have more assets in them than you would prefer... whilst your "vault" addresses might still have to sign the occasional signature/transaction. Ideally, the hotter the wallet, the higher the risk profile it is allowed to have... and more critically, the colder the wallet, the lower the risk profile.
In the not too distant future, smart wallets (aka account abstraction on Ethereum) will deal with the problem of securing accounts and delegation of authority. But until then, it is unfortunately all a bit mixed up... addresses tend to have to hold the assets that they want to be interacting with. That said, there is still some delegation authority that is possible through Ethereum projects like delegate.cash... not ideal, but still better than nothing.
Ideally, you would want to have a few different versions of each type of wallet (petty cash and vault... ), and possibly a bit of a spectrum of them as well. The ideal case would be a different address/wallet for each dApp... but that is going to be a gigantic pain in the arse, so that isn't going to be a feasibly solution for most people.
Now, the problem also exists of HOW to interface between private keys and transactions. Lets just say that entering your private key each time (or having it written down somewhere) is just going to be a recipe for disaster... so, that one is out.
Private keys are generated from a human-readable seed phrase that will generate all the keypairs required across a multitude of networks. I won't go into detail here... I had written a detailed piece about this at one time, but I don't own the rights to that anymore. So, I won't go into detail here as I can't be sure that I won't accidentally rehash the same wording... I wish they would just publish it though, so that I could just point to the article!
So, we have the seed phrase (securely stored and backed up... a post for a different time) that will need to "stored" in a way such that it can sign transactions. Mobile apps, browser extensions, and hardware wallets are the current methods for doing this.... and each have their own pros and cons.
Mobile apps (like Trust Wallet) are great for ease of use... but I would relegate these to only the most "hottest" of hot wallets. These are really petty cash uses... as there is the vulnerabilities of the phone, connection to the internet, and app developer to think about. Lots of areas to potentially go wrong...
Browser extensions (like Fire or Metamask) are going to be the second port of call in the chain of possible interfaces. I always prefer to sign and transact on a computer rather than a phone... it means that I'm actually sitting down and concentrating, and the extra screen real-estate means that I can be properly engaged with what I'm doing. Plus, these can usually be combined with a hardware wallet like a Ledger Nano S/X to give that extra layer of security by not needing to expose your seed and derived keys to the internet.
Finally, a Ledger Nano S/X or equivalent hardware wallet is going to be a must for the vault tier of storage wallets. These will rarely touch the internet... and only briefly to sign/interact with a specific intent. Most often, they are just recipients of transactions. The weakness for these vaults will be in the seed storage and back-up.
So, there is no real "right" way to do things at the moment... and everyone will have a different method that fits best with their own use case and patience. What I would definitely recommend is that you sit down and work out some minimum tiering of wallets (different SEEDS!)... at least one hot/petty wallet and another cold/vault wallet. That isn't too onerous, and although it is best to have a Ledger Nano S/X or other hardware device for the vault, it doesn't have to be.
The final thing after the mapping and organisation is sorted out... is BE DISCIPLINED! Only use the wallets for their intended purpose and don't mix things up for "convenience". Most of the time, things will be okay... but it is that one time, when things are NOT okay when you will regret it. Nothing moves that fast that it is worth taking unnecessary risks...
I can also be found cross-posting at:
Publish0x
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