Whether you are a newcomer to the world of crypto or already a battle-hardened trader, your top priority should always be the safety of your funds. In real life, though, you need to trade some part of your crypto stash now and then. And you certainly don’t want to buy high and sell low, which means you may need to trade some security for efficiency.
Then it all comes down to understanding your options and making the right tradeoffs.
What Is a Crypto Wallet?
From a purely functional point of view, a wallet is a readily accessible place where you store money or something that can work as money, for example, a bank card. You can use your pocket as one or some specialized device instead, but the idea remains the same, and it is to let you quickly access your funds when you most need them.
Cryptocurrency wallets strive to be that place by allowing you to store, send and receive cryptos. They can be universal, supporting a bunch of coins (for example, Exodus). or single-crypto, supporting only one coin (for example, MyMonero):
As all cryptocurrencies are ultimately stored on the blockchain, you receive them as soon as the incoming transaction gets confirmed or even just hits the network (opinions vary). You don’t need to do anything other than enjoy a warm and cozy feeling that everything works out in your favor on its own.
This is not the case with sending cryptocurrency, which requires you to do some stuff like signing the transaction – and that may take time, effort and even nerve. So depending on how fast you can send your coins, all cryptocurrency wallets can be divided into two broad categories, which are hot and cold wallets.
Hot Wallets
Hot wallets allow you to send crypto right away (hence the name). For that, they need to be connected to the Internet at all times, but it comes with a tradeoff – it makes them vulnerable to online attacks and hacks.
These wallets, in turn, can be further subdivided into custodial and noncustodial.
Custodial means that you delegate the custody of your coins to a third party. In this case, the private keys to your wallet belong to someone else. Custodial wallets are pretty much like regular bank accounts. To send crypto, you only need to know the address of the recipient – it is as simple as it can get.
On their plus side, you don’t need to learn the gory details of organizing and safeguarding the storage of your cryptos – the service provider does that for you.
Besides, they typically support a huge array of cryptos, and allow you to make currency conversions, serving as a one-stop shop for your crypto needs. An example of this kind is a centralized cryptocurrency exchange (for example, Binance) or a p2p marketplace (like Bitpapa), which can be used for trading as well as storing crypto.
They are online wallets that you access via a website or mobile app.
On the minus side, here you expose yourself to all kinds of nasty behavior on the part of the service, whether intentional or accidental, starting with account freezes and all the way down to inside jobs and online hacks, which most certainly will end in a loss of funds.
As the crypto wisdom says, not your keys, not your coins.
With a noncustodial wallet, on the other hand, you are the sole owner of the keys, and no one can take your crypto from you (unless you do something stupid or neglect basic security rules). These are software wallets that you install on your computer either as a standalone application (for example, Electrum) or as an addon to a web browser (such as MetaMask).
Noncustodial wallets have certain shortcomings too, apart from yourself bearing full responsibility for the safety of your coins. Most importantly, they don’t allow you to trade crypto, with the exception of decentralized exchange of tokens where applicable.
Cold Wallets
Cold wallets are noncustodial by nature, and they prioritize security over convenience. As a result, it requires extra effort to send coins with them. These wallets are not expected to be connected to the Internet at all times (or most of the time, for that matter).
In fact, some of these wallets can’t be connected to the Internet at all.
Case in point, arguably the most secure cold wallet is a paper one. You commit your keys to a list of paper (or any other lasting medium) and store it at some secure physical location. You can even split the key and store the parts of it at different locations in order to protect yourself from someone peeking behind your back.
Alternatively, you can create a mnemonic phrase based on the private key and then reconstruct it from memory whenever required. This would be a mnemonic wallet.
It should be obvious that these wallets always remain “disconnected” and therefore they cannot be hacked, even though they suffer from their own cauldron of issues. Besides being extremely inconvenient and awkward when it comes to sending coins (or just storing multiple cryptos), you can forget your mnemonic phrase, while your paper can get destroyed.
Hardware cold wallets are a reasonable tradeoff between the security of paper wallets and the convenience of software wallets. They allow you to split the processes of signing and sending transactions into two independent stages.
At the first step, you create and sign the transaction using the device itself. Signing transactions is the most risky part, and by doing it offline you can be sure that the transaction won’t be tampered with by malicious actors.
At the second step, you connect the wallet to your computer and send the signed transaction using the software of the device. The wallet is seen by the system as a simple memory stick, so it can’t be hacked from the outside.
Most of these devices look similar to common USB gadgets, like this Ledger Nano X model:
Hardware wallets provide better convenience (compared to paper wallets) while not compromising the keys security. Further, modern models can be used for storing a wide range of cryptocurrencies and thus are a viable alternative to other types of cold storage.
Hardware wallets are the best choice for long-term storage.
Bitpapa Wallet
While noncustodial wallets, both hot and cold, do their job of storing crypto pretty well on average, they are not very suitable for trading crypto. So if you are looking to buy and sell cryptocurrencies on a regular basis, you inevitably face the dilemma of either going for the highest security possible or being able to react instantly to price action.
Peer-to-peer marketplaces are the right way to accommodate these seemingly irreconcilable alternatives.
These marketplaces do not participate in fiat transactions – their users are paying each other directly. It means, by and large, that you can’t lose your money due to the fault of the marketplace, while the latter protects both the buyer and the seller by offering escrow services.
Basically, it is a win-win setup for both parties to the trade, as well as your money.
And the good news is that Bitpapa, a global p2p marketplace, is now available to Nigerian users as well. It offers you a free cryptocurrency wallet for such coins as Bitcoin, Ethereum, Toncoin, Monero and USDT. You can buy and sell these cryptos for Naira using a wide array of payment methods:
To achieve the highest level of security, Bitpapa uses cold storage internally, which allows traders to store some of their coins in the marketplace wallet and never miss a trading opportunity whenever it presents itself.
In this way, Bitpapa’s users are not giving up much security and not risking their hard-earned money at all (if we discard inherent risks of fiat currencies as such). At the same time, they are able to benefit from trading a part of their crypto holdings as efficiently as it can get. This is a working trading strategy in and of itself, anyway.
You can leverage it too.
Balance of Safety
Cold wallets are best in terms of security, with noncustodial software wallets coming next. But they are focused on storing crypto and not very well-suited for active trading, especially when you want to make your trades as quickly as possible. In this case, you need to have some coins on the exchange balance, thereby exposing yourself to the risks of custodial storage.
All things considered, p2p marketplaces offer the best balance of safety and efficiency for this setup.
FAQ
Q: What Is the Safest Cryptocurrency Wallet?
A: Cold wallets (for example, Ledger Nano X) are the safest for storing crypto long-term.
Q: On Which Platform Can I Buy Cryptocurrency in Nigeria?
A: Peer-to-peer marketplaces, for example, Bitpapa, are the platforms of choice to buy cryptocurrency in Nigeria.
Q: How to Keep My Crypto Wallet Safe?
A: If you are using a noncustodial wallet, keep your computer protected and your antivirus updated at all times. If you are using a custodial wallet, make sure your password is strong enough, and never share it with anyone.
Q: Which Crypto Wallet Has the Lowest Fees?
A: Using crypto wallets usually doesn’t incur any fees other than network commissions.
Q: How to Buy Bitcoin with Crypto Wallet?
A: To be able to buy Bitcoin with a crypto wallet, you need to use a custodial wallet offered by a centralized exchange or a p2p marketplace such as Bitpapa.
