How Do I Keep My Funds Safe?
In cryptocurrencies, we use the term “wallet” to refer to the storage of cryptocurrencies. There are hot wallets and cold wallets, both of which serve different purposes.
Putting your funds in hot storage, usually on an exchange, can be risky, especially if the exchange ends up getting hacked and having its funds stolen. However, leaving it on the exchange means that you can access and trade these funds more quickly when the market shifts. In general, you should consider keeping only the funds that you are actively trading in your exchange wallet.
The rest of your cryptocurrencies should be stored in cold storage. There are many options for non-custodial cold wallets, including hardware wallets, such as Ledger or Trezor, or USB and paper wallets, which other people do not have access to. Consider keeping any seed phrases/words and private keys in a safe place which only you can access.
Custodial wallets, in contrast, means that you let a company such as Coinbase keep your private keys for you, hence leaving the security of your assets in their hands. These solutions are very easy to use – and you don’t run the risk of ever losing access to your funds as they can retrieve your login details for you, just like a regular bank – but again, you need to trust that they will not be hacked.
There are also multi-signature wallets that require more than one person to authorize any withdrawals. This can be important for shared wallets (let’s say with family or for a company) and should be something that you include in your repertoire of wallets if the need arises.