Whether you're a newbie coming into crypto
for the first time and don't know where
to start
or a seasoned veteran who is looking to
increase your security are choosing a
crypto wallet can be a really
challenging decisions you'll hear people
talking about custodial wallets versus
non-custodial Hardware wallets, 
software wallets, exchanges and
everyone is keen to sell you their
product or approach and often isn't
upfront about what some of the
shortcomings and challenges and
disadvantages can be so basically what
I'm going to do in this video is just
run through how to choose a crypto
wallet and the way I'm going to do that
is to actually spend a bit of time
talking about you know what is actually
the anatomy of a crypto wallet what are
all the pieces that fit together to make
it work and then spend a bit of time
looking at how these pieces come
together in different ways on different
types of crypto wallets and what some
examples of those wallets are and if you
haven't already done so hit subscribe
and that way you can stay in the loop
for content i make to help you find your way
in the crazy and often hostile
environment that is cryptocurrency so
the first building block that's
important to understand in terms of how
your crypto wallet works is private
keys the unique cryptographic secrets so
there's no duplicates on any crypto
network and they're also secret because
whoever has these private keys can send
transactions and spend currency that is
associated with those keys there is no
sense of ownership or verified
ownership or anything like that in
crypto currency it all comes down to who
has the private keys and that's why you
hear the saying not your keys not your
coins now we'll talk about that more in
how that applies to different types of
crypto wallets later so the second
building block that all your crypto
wallets will have is some sort of wallet
interface what this looks like can vary
dramatically between platforms but
generally speaking for the purposes of
this video we'll talk about the wallet
interface as the software that you use
to be able to view the different
balances that you would have four
different crypto currencies and also the
software you could use to create
transactions they're not necessarily the
software that will be signing the
transaction that we'll talk about that
more later you know this might be
something that's on your PC it might be
something on your smartphone it might be
something in a webpage the next I'll
talk about is nodes so if you hang
around the cryptocurrency space very
long you'll hear people talking about
things like peer-to-peer decentralized
and stuff like that and what people mean
by this is essentially the nodes that is
a bunch of specialized servers running
special software that essentially stores
and shares are all of the past
transactions
that Network for things like Bitcoin
they'll be using a blockchain for that
and you know different crypto networks
will do that in slightly different ways
but the principle is the same for all of
them they are what enables your wallet
interface to know what the balance is
for certain address every single time
you open a crypto wallet and see a
balance of any kind there's a node
somewhere behind the scenes there's
querying the blockchain and telling your
wallet interface what that balance is
the other important building block to
understanding your wallet is the
consensus network now this is the
peer-to-peer network of nodes and
basically what these consensus networks
do is they will distribute valid
transactions across the network and
reject invalid ones they'll also be a
way in which the consensus network
collectively chooses to incorporate
valid transactions into the permanent
record and in Bitcoin that process is
called mining that allows them to be
stored and verified by any node as part
of the blockchain and again the way that
transactions are getting included into
this permanent record changes a little
bit from network to network but the
general principle is still the same the
sense in which no one is in charge of
these networks no one can force node
operators to run a particular version of
software but at the same time if someone
tries to run a node that wants to
enforce a different set of rules or
maybe cheat in some way then it will
simply be rejected by the rest of the
network
so to understand how these building
blocks come together in different types
of cryptocurrency wallets what I'm going
to look at is a typical exchange or
custodial wallet look at a light wallet
a hardware wallet as well as just
running a full node and using that as
your wallet so first we'll look at how
all these building blocks come together
in a typical exchange and that's
something like coinbase binance kraken crypto.com so how this picture works
is I've highlighted the green stuff as
things that you control and the yellow
stuff as things that you're trusting
someone else to run so in this example
basically you can see that the web
browser is yours but that could also be
an app or something like that and the
exchange then are responsible for
holding all of the private keys and they
are responsible for running all of the
nodes that communicate with all the
different decentralized consensus
networks and the exchange will also run
some servers that give you things like a
pretty website a trading platform a
wallet interface
and they will also be responsible for
user authentication so on an exchange
you don't have to worry about any of
those things you just get even a
username and password that you used
interact with all of the services the
exchange has the advantage of using
exchange like this that they are really
easy to use you just need to create an
account and you're ready to go
exchange is also the main way that
people convert say dollars into crypto
or withdraw crypto back to dollars the
other way exchange is also the place
where you can trade back and forth
between multiple different crypto
currencies in a really seamless sort of
way and increasingly exchanges are
startingto offer incentives for keeping
your crypto on that exchange and there
are a number of exchanges now they're
starting to offer like staking programs
and things like that and to offer all
sorts of incentives to leave large
amounts of your crypto with them the
single biggest disadvantages with
exchanges and custodial wallets is 100%
trust is required there is no recovery
whatsoever if something goes wrong if
the exchange just disappears tomorrow
and takes all your funds with it if they
decide to lock your account or any of
these sorts of things then you have no
ability to recover your funds at all and
this disadvantage coupled with the ease
of use is why custodial wallets and fake
exchanges are an absolute favorite for
scammers and we just have to look at
things like plus token cloud token
wallet or even stakedwallet seems to
one that's just popped up recently
they're all classic examples of scams
that essentially package together
what looks like an exchange what looks
like a custodial wallet and we'll offer
these really crazy high incentives and
rewards to users but then disappear
overnight take everyone's money and run
but all of that said you know who is
this kind of wallet for well basically
using your exchange or a custodial
wallet is for newbies it's a people who
have no idea and are only just starting
to come to the crypto space perhaps
living their first purchase of crypto
ever and have no idea how to securely
store it or anything like that keeping
it on exchange can actually be a good
first step the other cons people who
will want to keep money on exchanges are
traders you know people who are wanting
to actively try and day trade and all
these kinds of things while these days
there are sort of instant exchanges
available where you just send the crypto
there they exchange it send it back
things like changelly shapeshift
and whatever their fees do tend to be a
lot higher than things like binance and
coinbase all that sort of stuff so
people who are trying to you know make
money off trading and do lots of trades
will be far better served leaving those
buttons on an exchange the other
category of people who might want to
leave their funds entrusted someone else
are actually corporate entities who
might be required to do so just because
of the legislative environment that they
are operating it and this is a big part
of why we're increasingly seeing these
kinds of corporate custody services
being offered within the space
the next major type of wallet would be
what I'm calling a typical light wallet
some examples of light wallets are
things like electrum my ether wallet
coin Amy jacks Exodus those kinds of
things and we can see here that in a
light wallet you know you control your
software it might be browser-based it
might be an app it might be something
else but you control the private keys
they don't live on the exchange they
don't live with the wallet provider you
are responsible for them the wallet
provider we're the ones who run the
nodes and have the full copy of the
blockchain and basically what they will
do is their software will only send the
bits of that that are needed to your
wallet and just like in exchange a
typical light wallet can connect to
multiple different crypto networks all
at the same time but present these to
you in a single unified interface
meaning you can just have one wallet
that you use to interact with all of
these different networks so big
advantage of these light wallets is they
have an instantaneous start up you know
I can just download something like
Coinomi and I can create a new wallet and I can
use it straight away I don't need to
wait for any block chains to sync at all
and just start using it right away the
other big advantage with these light
wallets is you're holding your own keys
in that if I have my bip39 seed it
actually doesn't matter if coin no me or
any other service just disappears I can
import that seed into another wallet and
keep using it over there the other
reason why light bolts are so popular is
that they can run on low power devices
you know just like an exchange you can
interact with these things just through
a webpage it was something like myetherwallet
your device doesn't have to deal
with the entire block chain consensus
network so it doesn't actually need a
powerful CPU a lot of bandwidth there
any stuff like that the disadvantage
with a light wallet especially if you're
running it was a software while it is
that it is a hot wallet in that the
private keys are still stored in the
software so things like bugs and
for our malware mean that you could
experience a loss of funds the other
disadvantage with these light wallets is
you're sending all the information about
your addresses and the IP and things
like that you're using to access the
service to the wallet vendor and most of
all it vendors say they don't log and
sell this stuff but the reality is they
could and the other disadvantage with
these light wallets is the sense in
which you are trusting the wallet vendor
to be truthful about the state of the
consensus network and for example that
might mean you're trusting that they are
reporting an accurate balance and this
doesn't just have to be about a wallet
vendor like maliciously are telling you
the wrong thing it could simply be the
node software that is running on their
servers is lagging behind the blockchain
for whatever reason or is crashed or
something like that
which means that your light wallet may
not be showing you what is currently the
real balance as far as the consensus
network is concerned so if you're in a
situation where you're receiving like a
substantial amount of money you might
not want to simply trust the balance
that's being displayed in your light
wallet before you are happy that you've
been paid so who is this for like
wallets are probably gonna be the best
match for what most users need as long
as they are only storing smaller amounts
of crypto if you're someone who has a
larger amount of crypto then you can
move on to a hardware wallet
you know examples of this would be like
a legend nano a keep key a treasure or a
cold card and you'll see that a hardware
wallet is essentially like a special
kind of light wallet in that it shares
basically everything in common with a
light wallet except the private keys
aren't simply stored in the same piece
of software that you are using as your
wallet interface the private keys live
in a separate device that has been
deliberately made to be very simple
trying to have a very basic set of
functionality very low end hardware and
the private ears never leave the
hardware wallet if we just look at the
example of how this works with a ledger
you have your private keys that will
live on your ledger nano and then your
wallet interface is basically ledger
live so ledger live is a software that
you will use to be able to see the
balances of all the different currencies
ledger live gets those balances from
basically querying a whole bunch of
servers in a ledger ledger running full
nodes and bit of software for every
single cryptocurrency that you can see
life and if you want to then set a
transaction ledger live will create sort
of the unsigned that is like a draft
transaction for you it will then ask you
to connect to your ledger nano where it
will send that unsigned transaction to
the ledger you will then be shown the
details of that transaction on the
Ledger's screen and if you're happy that
all of those details are correct you can
confirm that transaction on the Hardware
wallet and then only the signed
transaction is sent back to ledger live
the private keys themselves never leave
this device however wallets when they're
working this way are great in that they have
all of the advantages of a light wallet
and the keys are stored offline and are
safe from malware so it doesn't matter
if your PC your network and even the
wallet software you're using our all
malicious and infected with viruses you
can verify the transaction details on
the screen itself and only approve that
which is correct because the wallet
software can't tamper with a signed
transaction in any way otherwise the
network will reject it some of the
disadvantages of hardware wallets are
that when you use them in this way you
are sharing information about all the
addresses that belong to your wallet
with the hardware wallet vendor and like
with a light wallet you're then trusting
the how well a vendor to give you the
correct balances for all the different
cryptos that you have the other
disadvantage with harbor wallets is that
there is still possible vendor lock-in
you know there are some vendors BCvault
is one of them who don't use things like
bip39 passphrases make it really
difficult to move your crypto from one
wall to another whereas mainstream
wallets like a ledger or a trezor
use something called bip39 which means
you can just import your seed phrase
from a ledger into a trezor and it'll
just keep working as though nothing has
happened again I think hardware wallets
are a great option for the majority of
users and I think anyone who has larger
crypto holdings and that people ask me
all the time about that and I would say if you
have more than a thousand dollars worth
of crypto it's really time to start
looking at getting a hardware wallet if
you're not sure which one to buy I've
actually put together so like a detail
of each comparison of lots of different
wallets and if you'd like to help me out
at the same time the links on that
comparison website as well as some of
the links in the description our
affiliate links which means I get a few
bucks for everyone
who buys a hardware wallet using those
links there also some special cases that
I might just mention that is if you have
a decent hardware wallet you can
actually use it with the party wallet
software if you're an advanced user you
can actually use these hardware wallets
in a way that they never ever share
anything about your balances or addresses
or anything like that with the hardware
wallet vendor likewise you don't have to
trust that their software isn't doing
malicious things like sharing your
private keys back to the vendor keeping
logs about you or anything else like
that
the other thing you can do if your
enthusiasts is bringing together the
benefits of running a full node with the
benefits of running a light wallet in
that you can actually run your own full
node and your own electrum server and
then use your own electrum software
interface with your hardware wallet so
you can run all the different components
of this on your own hardware and still
have the convenience and security of
using a light wallet or using something
like mycelium on your phone while still
keeping all your keys offline in a
hardware wallet the opposite of storing
all your crypto on an exchange or in a
custodial wallet is to run a full node
wallet and this is something like you
know Bitcoin core and just about every
crypto currency will have you know an
official core wallet we have to download
the whole blockchain and the thing with
using these wallets is one piece of
software controls everything Bitcoin
core as a piece of software is your
interface to your wallet it's what you
use to craft transactions to send them
to see your balance it stores your
private keys and it also keeps a copy of
the blockchain locally and communicates
directly with the rest of the consensus
network the big advantage of this kind
of software setup is your fully
independent your controlling your own
private keys you're not trusting anyone
else to do that you're also keeping your
own copy of consensus so you're not
trusting anyone else to tell you what
the balance of your crypto while it is
it's also most private type of wallet in
that you're not sharing with anybody
else which addresses belong to you the
other advantage with running full node
software is you're participating in the
network consensus in that there will be
time for different crypto currencies
where there are sort of contentious hard
Forks and there's a sense in which by
choosing which set of consensus rules
that you want your know to enforce that
you're essentially voting for what you
want the consent
network rules to be for the whole
network is the end of the day no one can
force you to run a specific version of
your node software the only question in
that situation is whether enough are the
node operators agree with what your
definition of the consensus rules are
for your node to still work properly
there are however some big disadvantage
from running your own node software and
the biggest one is that you need to
download all transactions before the
wallet software is really usable so you
might and you might also need to store a
full copy of that as well with Bitcoin
this means that you mean having to
download about 300 gigs worth of content
before you can really use that will any
meaningful way and while you can run a
pruned no that won't store the entire
copy of the blockchain you'll still need
to download all of it at least once the
other big disadvantage of using one of
these full mode software wallets as your
wallet is that it is what is called a
hot wallet so all your private keys and
everything are all stored in that one
piece of software that is running on
your internet-connected computer and
that can make these a great target for
hackers malware and that kind of thing
though it's important to say it doesn't
have to be that way and there is work
being done a particularly Bitcoin core
with something called HWI that
allows Hardware wallets to be used
directly with these core nodes and will
eventually find its way into all the
other sorts of altcoins eventually as
well the other big disadvantage of
running a full node is depending on the
crypto network that you're trying to be
part of you may need a fairly high
powered PC and a lot of bandwidth to be
able to even keep up with the rest of
the network in that different networks
with different block sizes block times
and different levels of complexity will
have very different requirements of what
the node needs and so who is this sort
of wallet for well basically this is for
developers so people who are quite happy
to interact their wallet by the command
line and to do sort of non-standard
kinds of things there's also for
merchants if you're a business who's
processing lots and lots of inbound
transactions and want to make sure that
you're not being deceived in terms of
what your balance is are you know
running your own node can be an
important part of that and the other
people that fall nodes are for is
enthusiasts and in their I would lump in anyone who's like really concerned with
privacy anyone who's really concerned
with security and are prepared to put in
the extra work to make that happen but
generally for most users a full node is
probably not the software you're going
to want to use
the other thing people often ask me
about is paper wallets and paper wallets
really are very similar to this
situation of using a hardware wallet
with the electrum in the sense that if
you have a paper wallet especially if
you have like 39 or electrum seed based
off line paper wallet that you're
essentially duplicating the
functionality of a hardware wallet in a
very manual but free way so the biggest
catch with using paper wallets and doing
offline signing at things like this is
if especially if you're a newbie there's
a lot of things that you are then
responsible for not stuffing up whereas
one of the advantages of having a
hardware wallet is that it kind of has a
lot of the best practice and secure
environment things like that sort of
baked into the device and the software
that comes with it because these days if
you're really wanting to do the sort of
paper wallet off blind never touch to
the internet sort of thing your best bet
is probably just to use something like a
cold card so given all of that there's
some important things you need to
consider when you're choosing a wallet
firstly you need to ask yourself what
features are important to you are you
someone who's very very concerned with
things like privacy or you someone maybe
who is more concerned with being able to
reset a password if you forget it you
know how much will you be storing you're
only storing a smaller and a crypto
you're going to be storing tens of
thousands of dollars how you answer that
question is going to change
what sort of wallet might be best for
you that's the most important question
here is what are you prepared to be
responsible for this may mean learning a
lot about security about how to do
backups about how different types of
wallets and how to do all of these
things one of the biggest differences
between choosing to hold your own
private keys run your own know doing all
these things you are choosing that you
want to be responsible for say, the
security of your keys for your privacy
for knowing that your balances rather
than trusting someone else to do that
but you might also decide that you don't
know enough to be able to take
responsibility for those things that you
need to learn something more before
you're able to do that and this is a big
part of why I really don't think it's
helpful for every single newbie just to
jump straight into using the most
complicated security scheme they can
possibly think up the last question to
consider is how might this change in the
future you know if you are in crypto and
go away for two or three years and come
back and find that everything is worth
ten times more than what it was you know
you need to ask yourself is the wallet
that you are storing the
crypto on still suitable you know why you
might have been happy to store say $500
just on an exchange if that's not worth
$5,000 or $50,000 are you still happy to
trust that exchange to store that if
you're just a newbie starting out I
think probably the best progression to
follow is something like this you know
start out buying your Bitcoin on an
exchange and storing it there just start
with something small just so you can
understand and get your head around this
whole thing with cryptocurrency and from
there you know once you've learnt a bit
about non-custodial wallets you can move
to a light wallet so you might move a
noncustodial light wallet like mycelium
in this example if say you found
yourself then in a situation where you
wanted to have more than $1000 with
crypto you might decide it's time to
move to a hardware wallet so you might
buy yourself a ledger nano and move your
Bitcoin onto there if you decide that as
a business you want to start receiving
payments in Bitcoin or something like
that or maybe you're expecting to
receive a large payment in crypto and
you don't want to trust your wallet
provider to tell you that the balance is
correct and things like that so you
might decide to run your own node even
if you're only using your node as a way
to get a trusted balance and transaction
history for a particular set of
addresses the next step you might do
with an increasing amount of funds is to
move some of it into something that is
totally offline so to create a totally
cold wallet that is offline and is never
connected to a computer or any other
Internet connected device even through a
hardware wallet and you might choose to
use a cold card or you might go down the
route of creating like an offline
signing setup for something like
electrum the next step after that is
moving on to something like multi-sig
and this is something where you might
find yourself storing an amount of funds
such that you don't want any single
wallet or seed or anything like that to
be enough for someone to rob you and you
want to instead make it so that someone
needs to sign a transaction with say 2
out of 3
however wallets that you have it all
have different seeds they're all backed
up and stored in different ways and that
kind of thing and it's important to say
that multisig is definitely very
complicated and it's something you can
DIY with something like electrum or it's
something you can pay for a service like
Casa who specialized in that but with a
multi-sig wallet you could actually have
a mix of hot keys cold keys are well
our wallets and these could be
distributed in different ways
geographically given to different people
all those kinds of things but the key
thing with the multi-sig wallet is once
you go down that path there is no one
set of private keys that can be used to
access and send your crypto so there you
go that was fairly long in detail but I
hope that really helps you to understand
some of the real complexity that can
happen here with crypto wallets helps
you to understand the different building
blocks that every wallet has and the way
that these come together in different
ways for different types of wallets to
give you a different mix of convenience
of security of recoverability and all of
these kinds of things and help you to
better make a decision around what sort
of crypto wallet suits your needs the
best thanks for watching I hope that was
helpful hit like if you think that other
people would find this video useful and
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