Cryptospace will soon be a one-top-shop for newbies to pros for buying, selling, and storing cryptocurrency — with maximum security and peace of mind.
Our number one rule for crypto?
“Not your keys, not your crypto”
Not sure what that means exactly?
No sweat, read below for an introduction to beginning your crypto journey while keeping your crypto secure.
Custodial Services Vs Self-Custody
Thanks to incredible growth in the blockchain industry over the past decade, there are now a variety of different options for storing and trading cryptocurrencies.
Centralized custody services (typical of cryptocurrency exchanges) are by far the most popular choice in today’s markets, but cryptocurrencies were actually developed with the intention of cutting out third-party intermediaries.
Custodial services and exchanges are a lot like banks, and some of them are even regulated under the same licences as banks.
Storing large sums of cash or gold has always been a logistical challenge and a safety concern, which is why banks and other financial institutions were entrusted with the task of managing the world’s wealth.
However, now that it is possible to store assets on the blockchain, the vaults at the bank are becoming obsolete!
Make no mistake, cryptocurrency exchanges provide vital services to the ecosystem, like providing passage in and out of fiat currencies. Exchanges have come a long way in terms of security since the early days of the industry where hacks on big platforms were commonplace, but holding your own keys is still the safest option.
After you spend some time in the crypto community, you will likely hear some people say “not your keys, not your crypto,” which is a simple catchphrase that promotes the idea of self-custody.
In order to take custody of your own crypto, you’ll need to send it from an exchange to a mobile, desktop, or hardware wallet, which is a bit more complex than setting up an account with a centralized service provider, but it is an essential step to take if you plan on storing your wealth on the blockchain.
Just because you have access to an account does not necessarily mean that you actually own the crypto held there. The true owner of the crypto wallet is whoever holds the keys.
What Are The Keys?
It’s not the password that you chose when you opened your account with the exchange, it is a 12 or sometimes 24 word seed phrase that is automatically generated by your wallet when you open it.
If you never went through the process of generating your seed phrase and storing it somewhere safe, you don’t actually own your crypto.
It is also important to note that there are some exchanges and apps, typically those with roots in traditional finance, that have been giving their customers exposure to Bitcoin and other cryptocurrencies without actually giving them ownership of the underlying asset.
Traders on these platforms are not able to send their crypto to other people or other accounts, because they don’t actually have a wallet address. It is very easy to tell if your crypto is trapped in one of these walled gardens; just look for an option to send and receive, or deposit and withdraw. If you don’t see these options anywhere in the application, and you are only able to buy or sell within the platform, you may have exposure to the asset, but you don’t actually own any crypto.
Holding your own keys will protect you from the vast majority of the hacks that take place, and will also prevent you from getting caught up in any rugpulls on unscrupulous services, but the peace of mind that comes from holding your crypto in your own wallet is invaluable as well. Even something as simple as seeing your most trusted crypto exchange go down for maintenance unexpectedly can be terrifying if you are holding a significant portion of your savings there.
There are a few different options for storing your crypto, and they each offer different levels of security and accessibility.
You can choose between a hardware wallet, a mobile wallet, or a desktop wallet, but it is a good idea to become familiar with all of them, because there are plenty of unique situations and applications in the ecosystem that call for different storage solutions.
For example, a mobile wallet is extremely convenient and is essential for point-of-sale purchases in places where crypto is accepted, but storing large sums of money on your phone can also be risky.
Even if your security is totally on-point, you can always lose or misplace your phone. There is also the possibility of falling victim to a “sim-swap” attack, where a hacker gains access to your phone, and thus everything on it. Luckily, the vast majority of these attacks can be avoided by enabling 2-Factor Authentication (2FA).
Desktop and hardware wallets are a better bet for long-term storage, and some wallets, like Exodus, allow users to plug their hardware device into their desktop wallet for maximum security.
A hardware device, like a Trezor or Ledger, adds an additional layer of security by holding the keys to your wallet, which keeps them off of your computer where they can be found by hackers.
When you use a desktop wallet without a hardware device, your keys are stored on your computer, in an application that is frequently connected to the internet; this is what is known as a “hot wallet.” It is entirely safe to use a hot wallet if you follow best security practices, but now that it is possible to use desktop interfaces like Exodus while keeping your keys on a hardware wallet at the same time, many users are opting for that added layer of security.
Inside the Exodus wallet you will also be able to personalize the appearance with the the Cryptospace skin 🙂
There are several different hardware wallets on the market, but the most popular and trusted are Trezor and Ledger. If you decide to purchase a hardware device, it is essential to buy directly from the manufacturer. There have been numerous cases where new crypto users purchased hardware devices from third-party sellers on websites like Amazon or Ebay, and then later had all of their funds stolen because the seller knew the seed phrase to the device. Manufacturers seal their products with tamper-proof stickers and packaging in order to prevent these types of scams from happening, but it is important for newcomers to understand that you shouldn’t buy these devices used or second-hand, unfortunately.
It is difficult to decide between Trezor and Ledger because they support some different coins and each allow you to interact with different applications. For example, Exodus deals with Trezor exclusively, while other applications may only be available for ledger users.
One advantage that Ledger has is that it is quicker to add support for new assets and applications for its devices. However, one major edge that Trezor has in this contest is the fact that it is an open-source project, which means that its code can be examined and verified by independent auditors.
Trezor & Ledger – Pros & Cons
- Open source software
- Considered most secure by crypto experts
- Easy to use interface
- Slower to support new assets
- In app trading options not available yet
- Can’t earn yield on savings through staking yet
- Quick to support new assets and applications
- Earn yield on your savings by staking your crypto
- In app trading options
- Mobile phone connectivity
- Customer data leaked online, making users targets for phishing attacks
- 24 word seed phrase instead of 12 (More complicated but not more secure)
- Proprietary hardware instead of open source
How To Keep Your Keys Safe
The seed phrase to your crypto wallet is not like any other password you have had before because it used to access funds that can be sent anywhere in an instant without permission from any authority, so it is important to keep these words safe and protected at all times.
When you generate your seed phrase for the first time while setting up your wallet, it is always advised that you write it down on a piece of paper instead of keeping it in a document on your computer. Remember, passwords on your computer can potentially be accessed by hackers.
It is often recommended that crypto holders keep their keys in a safe deposit box at the bank, although this suggestion is a bit ironic considering that crypto gives you the power to be your own bank.
Nonetheless, you are going to want to keep the seed phrase in a special and secure location, not just on some sticky note in your desk.
In addition, it also is a good idea to try your best to memorize the series of words. This can be difficult but there are plenty of creative crutches that you can use to help. Some people use mnemonic phrases to help them remember, while others get even more imaginative.
Bitcoin pioneer Charlie Shrem famously engraved the first 6 words of his seed phrase on the inside of a ring that he always wore, allowing him to easily remember the other 6 words to complete the code.
When Do I Use My Keys?
You shouldn’t need to use your keys very often.
They are only necessary when you are trying to restore an old wallet, or load up your wallet on a new device. If your hardware wallet breaks, or if the computer hosting your desktop wallet stops working, you can easily recover your funds if you enter your seed phrase into a new hardware or desktop wallet.
You will never need to enter in a seed phrase to connect your wallet to an exchange, application or DeFi service.
The web is now filled with phishing scams that ask unsuspecting users to enter in their seed phrase in order to obtain an airdrop or to gain access to an application, but this type of information is not required for any legitimate services.
If a website or email is asking for your seed phrase, there is a 100% chance you are dealing with a phishing scam. In many cases, phishing emails or websites look extremely professional, and are often designed to impersonate trusted brands or influencers in the industry.
If someone is asking for your seed phrase, or asking you to send them money with promises of future gains, you might want to run in the other direction.
This may seem like a lot to take in. Protecting your crypto is the number 1 priority and worth taking time to study in detail. The requirements are quite clear:
- Custody your own crypto on a wallet such as Exodus.
- Buy and sell your crypto from a non-custodial exchange like Cryptospace where you can have your crypto immediately sent to your non-custodial wallet for safekeeping.