Cold wallets crypto

PoGee

I'm spending time trying to learn a bit more about storing crypto seed phrases. I came across the 'material cold wallet' concept. Is this where you create your own seed phrases? These are not electronic, so how does crypto purchased and stored on crypto platforms 'know' what the phrases are?

masonic

The point of a cold wallet is that it isn't provided by an exchange, so you are responsible for keeping the key and using it to transact. You would generally need to transfer your crypto to an exchange wallet in order to exchange it.

PoGee

Thanks masonic. I have a small swissborg 'portfolio'. That's not an exchange wallet - that bit I understand. Is metamask what you mean by exchange wallet?

Scottex99

Custodial and non-custodial.

Custodial means the app/exchange does the custody for you - well actually I don’t know if that is technically right but sounds good enough.
You have a segregated account with them and maybe even your own bank details in your name. But you don’t control the private key or seed phrase. So you can deposit/trade/withdrawal as you like but if they go bust, decide to off-board you, get hacked etc etc then you’re potentially done for. Not your keys, not your coins.

Non-Custodial

MetaMask or other types of web3 wallets as well as hardware devices such as ledger and trezor.

There is no custodian here, you are the custodian. When you first sign up (mainly no KYC required) you are likely presented with your seed phrase of 12 words. Some blah blah blah cryptography “hashes” these into a private key and vice versa (don’t quote me) but mainly the point is if you forget your code/pw for access, the ONLY way to recover the wallet (and any assets) is with the seed phrase.

So nobody can shut you down but also you might lose everything through fault of your own. 

Something like 25-30% of historical BTC has already been lost like this, never to be recovered again. Mainly because people had 500 worthabout 50p and never thought the magic internet beans could become the hardest asset on earth.

I use cold storage and apps/exchanges. Realistically all major amounts should be in cold storage as it’s the safest way.

Hope that helps 

masonic

PoGee said:

Thanks masonic. I have a small swissborg 'portfolio'. That's not an exchange wallet - that bit I understand. Is metamask what you mean by exchange wallet?

What I mean by exchange wallet is the wallet you usually get assigned when you create an account with one of the exchanges. This is an unsafe place to store crypto, so you would only generally hold it there while you are trading it. Very basically, if someone else could potentially hack into your online account or your computer/tablet/mobile and access your wallet, then it isn't cold.

Seed phrase is just something non-digital you can use to reconstruct your wallet address and private key. It is the only information you need to gain control of your wallet, so you need to keep it very secure.