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Cryptocurrency Self-Custody and Hardware Wallets

How to stay safe in the crypto space and how do I protect my cryptocurrencies? How can I store my cryptocurrencies safely? Many cryptocurrency investors are asking questions like these.

I believe that cryptocurrencies that you do not intend to trade short-term should be self-custodied. This has become even more relevant given the latest issues around FTX and other exchanges as well as rumours of further bankruptcies. Crypto is still a young space that is not yet strongly regulated. This means we have to deal with challenges of exchange hacks, possible scams, bankruptcies and other issues. I, therefore, cannot make any strong recommendation for any exchange, be it centralised or decentralised. Personally, I use KuCoin and Bybit, sometimes Coinbase and Binance. However, also they can face challenges and we only know what we know, we are no insiders. The list of recommended exchanges can change on a weekly basis. The space is just too young and too fluid.

If you do not intend to trade cryptocurrencies short-term, I would always move these funds onto cold or hot wallets. While I know that it takes time to move funds and it can be a bit annoying, bear in mind that the original idea of crypto is that you are fully responsible for your own funds. Therefore, anyone who is in the space needs to know what self-custody means. There is certainly a learning curve associated with it, but this should not be seen as intimidating. There are huge benefits. Cryptocurrency holders have the benefit of removing themselves largely from contagion during these uncertain times while being able to transact as long as the internet works.

A wallet is a device, program, or a service which stores the public and/or private keys for blockchain transactions. There are different types of wallets. First we need to differentiate between wallets on exchanges and off-exchange wallets: If you are using centralized exchanges like Kucoin, FTX, Coinbase or Bybit, then your wallet is hidden and handled by the exchange, so you don't have to do anything. However, you basically lose a degree of control if you keep your coins on an exchange wallet. If you are using dApps (decentralised applications) on-chain like for buying NFT's on Opensea or interacting with DeFi applications (Uniswap, Sundaeswap, PancakeSwap) then you have to get a wallet that only you handle and control. In terms of off-exchange wallets, we can distinguish further between 2 wallet types: Hot wallets or software wallets are the ones that require a direct connection to the internet.

They can come in the form of a phone app, browser extension or software on your laptop or PC. On EVM (Ethereum virtual machine) chains (for example Ethereum, Binance Smart Chain, Avalanche, Fantom, etc.) the recommended wallet is Metamask. For Solana chain it is Phantom wallet and for Cardano it is Daedalus or Yoroi (plus some others).

Cold wallets (also called hardware wallets) are portable devices. They look like a USB stick. Since you interact with the assets offline, this option is more secure than hot/software wallets. The recommended hardware wallets are Ledger and Trezor. There are other good wallets as well, but I have never used them. If you decide to buy a hardware wallet you should buy it on the official websites. You can find these links below.

Ledger: click HERE

Trezor: click HERE

How do you move cryptocurrencies to a hardware wallet? This is very straightforward but involves a bit of a learning curve. I have recorded two videos recently about how to move funds off an exchange to a Trezor hardware wallet: