There are three types of crypto wallets..and two categories (hot and cold).
- hosted wallet (hot)where you just leave your money in the account at the crypto exchange
- non custodial wallet(hot) where you put it in another website MetaMask or Coinbase
- off internet (cold) wallet like putting your account on a USB stick or card or $80 Trezor device
So a hot wallet means that your money is connected to the internet and could be hacked if you don’t have proper security and a cold wallet means that your account information is stored off the internet and it is totally safe unless someone steals it and somehow finds your private key information.
We have all heard of the crypto investor who died with about $200 million in crypto in his locked hardware wallet. (check the Canadian story about Quadriga)
Nobody could access it because of the massive security encryption.
People put their keys on a USB type device and some have special metal or rock objects that they have their seed words located.
Just like if you owned physical gold and you buried it at your cabin or in the back of your house.
Did you tell your wife or husband or friend about it or is this information in your will?
Even before you get an account to buy your first cryptocurrency you need to think seriously about security and whats called your crypto wallet.
Security is extremely important because unless you’re buying your crypto from a hard to find ATM crypto machine you’ll be setting up an account on an internet based crypto exchange and providing them with your personal identification and in many cases a copy of your latest bank statement.
I advise people who aren’t super knowledgeable about internet security and anti virus programs to not only set up a separate bank account for their crypto activities but to go to a completely different bank which will completely sever access to your main bank accounts.
So you are getting verified by giving your personal information to the exchange which is usually part o the regulations that banks used to have called the KYC or know your client which was a way to prove to the government that their clients weren’t doing illegal activites with their bank accounts.
The next step is for your security protection and its called a 2 factor authenication which basically makes you go to two steps to log into your account so a hacker can’t easily do it in the future.
Now its time to worry because your money will now get transfered over to the exchange and we now talk about wallets.
You’ll be asked to send money to your account on the exchange using your debit/credit card or by doing an etransfer or a wire transfer.
If you’ve never done online banking before then I’d suggest you stop and get that started first and spend a few days with that before you go to the big leagues of exposing your computer to the crypto world.
So now we get to talk about the 3 kinds of wallets to store your crypto. Hosted wallet, a non custodial wallet and a physical wallet like a USB stick or card or an $80 Trezor wallet.
The easiest and least advised way is the hosted wallet which is the first place that your money gets stored when you get an account with the exchange.
If the exchange goes broke or something bad happens then your money may be gone forever.
The exchange may ask you to use your debit card or to make an etransfer or a wire transfer to their company.
Hopefully you have a secure internet connection and aren’t doing this in a coffee shop using your cell and a wifi spot.
In the security section we’ll talk more about your personal keys and how encryption works with both a private and a public key.
Yes you could have your entire bank account wiped out and you could be made homeless in the worse case scenario. (sorry to be over dramatic but sometimes this is a good way to approach things).
If you were logged into your account and you suddenly got called out of the house before you logged off or you were home invaded….then someone can get on your account and trade and suck out your money.
Same with your cellphone if you aren’t careful.
What if your loving kids suddenly developed an addiction and they need money and they have your key. (sorry but these are actual stories).
(under construction Dec 16, 2021)