Wallet Security
Keep your cryptocurrency safe. Make sure to store it properly and securely.
Note: Since Dai is an Ethereum based asset, this section focuses on storage solutions specific to Ethereum.
What is a Digital Wallet?
A digital wallet is like a bank account for holding cryptocurrency.
Some wallets support solely Ethereum-based tokens, while others can store tokens from multiple blockchains.
Learn more about how Ethereum wallets work at Ethereum Wallets and Silent Cicero for in-depth discussions on wallets and security.
Seed Phrases, Private Keys, and Passcodes
Wallets are generated from a random seed phrase, and a secure passcode protects entry.
The seed can regenerate the wallet and restore access to the funds if the passcode is lost or forgotten. As such, keeping both the seed and the passcode private is critical.**
Keep both the seed and the passcode safe and private.
Pro Tip: Make several copies of the recovery seed and store them in different geographical locations in case one location gets compromised by something like a flood or fire.
Wallet Types
Over the years, storing cryptocurrency has gotten easier. Today, users can choose from various wallet options to fit their specific needs. There are two key categories of wallets: Custodial and Non-Custodial Wallets.
Custodial Wallets
Custodial services and exchanges store funds and private keys on their private servers.
An exchange is an example of a custodial wallet. When you purchase digital assets on a centralized exchange like Coinbase, your assets are stored in a wallet on that exchange.
Pros and Cons of Custodial Wallets
Pros:
- These companies take over the burden of proper security and can restore account access if a user loses a password.
- Gives you the ability to manage funds quickly and easily in one place.
Cons:
- Not Your Keys. Custodians have control of the funds and can freeze accounts, lose funds to a hack, misplace funds during maintenance, or otherwise restrict access.
Non-Custodial Wallets
Non-custodial wallets give users full control of their digital assets. These types of wallets are considered more secure because no other party has access to the user's funds.
With great power comes great responsibility. Users are fully responsible for generating and storing their seed phrase and no person, device, or organization can help you recover funds in the case of a lost password or seed phrase.
Non-Custodial Wallet Types
Examples of non-custodial wallets include hardware wallets, mobile wallets, desktop wallets, web wallets, smart contract wallets, and paper wallets.
1. Hardware Wallets
- These wallets consist of small physical devices similar to a flash drive that store user's private keys. They are considered the safest option to store cryptocurrency because they protect the private keys from being exposed online.
- These devices cost money, which is something to consider when selecting the right wallet for your needs.
2. Mobile Wallets
- These are applications that can be downloaded to a mobile device via AppStore and Google Play. However, it is always advised to research the developer's site to make sure you are downloading the correct app.
- This is the most mobile-friendly way to access funds but it does rely on the security of your mobile device.
Example: AlphaWallet | Balance
3. Desktop Wallets
- Similar to a mobile wallet, desktop wallets are apps that can be downloaded to your computer for MacOS, Windows, or Linux operating systems.
4. Web Wallets
- Web wallets are stored in the browser and allow users to interact with digital assets from any device. Web wallets, also known as WEB3 wallets, allow users to access and interact with DAPPs (Decentralized Applications).
Example: Metamask
5. Smart Contract Wallets
- These wallets interact with smart contracts enabling a number of unique features like; two-factor authentication, recovery feature, and withdrawal limits.
Example: Argent | Gnosis Safe
6. Paper Wallets
- In this case, users write down their public and private keys on physical pieces of paper and store them entirely offline.