Self-custody basics: hot, cold and multisig

Self-custody means you hold the private keys that control your crypto, instead of trusting an exchange to hold them for you. It removes the risk of a platform failing or freezing withdrawals, but it makes you responsible for security.

Hot wallets

A hot wallet is software on a phone, computer or browser. It is free and convenient for everyday use and for connecting to decentralised apps. Because the keys live on an internet-connected device, malware, phishing and malicious signatures are the main risks. Hot wallets suit small balances you use often.

Hardware (cold) wallets

A hardware wallet keeps keys on a dedicated device that signs transactions without exposing the key to your computer. You still need to read what you are approving on the device screen, but remote theft becomes much harder. Buy hardware wallets directly from the manufacturer, never second-hand.

Multisig

A multisignature wallet requires several keys to approve a transaction, for example two out of three. Keys can be held on different devices or by different people, so losing one key, or having one stolen, does not mean losing the funds. Multisig adds setup complexity and is common for teams, treasuries and larger personal holdings.

Protecting your recovery phrase

• Write the recovery phrase on paper or metal and store it offline, in a place protected from fire and water.
• Never type it into a website, photograph it or store it in cloud notes.
• Consider whether someone you trust would be able to recover your funds in an emergency.

Key takeaways

• Match the wallet type to how much you hold and how often you use it.
• Many people combine a hot wallet for spending with a hardware wallet for savings.
• Your recovery phrase is the wallet; protect it accordingly.