Crypto

Access Tools

The  equivalent of your banking App or online account is a crypto wallet, that you can access on your laptop or smartphone. The different varieties are listed below.

Access Credentials

The credential that proves ownership of crypto funds associated with an address is called a Private Key, which can be stored in a wallet. It is a long alphanumeric string as crypto operates with no personal details. Safely storing crypto boils down to keeping your Private Keys safe.

Account Details

Clever cryptography generates a version of your Private Key called a Public Key. The Public Key provides one way access only; someone can send you funds or view your address balance in a compressed version called a Public Address.

The public address is the equivalent of your sort code/account number. Your wallet will hold your Public Addresses which can be generated as QR codes.

So returning to our two storage options but with the understanding of what exactly is being stored:

1. Self-custody – You control your Private Keys & therefore your funds
2. Custody – You trust a 3rd party to look after your Private Keys & they give you access

Seeds – Usable Versions Of Private Keys

It is unrealistic to remember the 64 character Private Key for every address holding cryptocurrency, as it is not uncommon to have multiple addresses, in the same way you might have multiple bank accounts with different details. 

Luckily wallet designs have evolved to solve this. Hierarchical Deterministic wallets – HD Wallets for short – can derive all Private Keys from one start point known as a Seed.

A Seed is a string of between 12 and 24 unique phrases. You may also see a Seed referred to as a Recovery Phrase or Backup Phrase. 

So the fundamental difference between custodial and non-custodial wallets is whether you ultimately have access to the private keys/seed or not, giving you control over the funds.

Looking at a crypto wallet, you cannot tell whether it is custodial or non-custodial (you have full responsibility). The ‘custody’ part works in the background, but is central to security.

This is so important because there is no bank, which means no customer support. So if you take the responsibility for your funds and something goes wrong, there is no chat support or complaints process.

Conversely, allowing a service to look after your funds puts a lot of faith in their security. Just as there is no safety net for you, there isn’t a fallback for the service looking after your Seed

This is by design; cryptocurrency gives the individual power over their money, and as we know, with great power, comes great responsibility.

With the concept of custody in mind, we can now look at the options for safely storing cryptocurrency, by looking at the types of cryptocurrency wallet.