The cryptocurrency landscape is dynamic and characterized by frequent token releases. While some are familiar with popular cryptocurrencies like Bitcoin (BTC), Ether (ETH) and Solana (SOL), numerous tokens continually emerge in the ecosystem. Those interested in holding cryptocurrencies have two main options: a centralized exchange (CEX) wallet or a private (self-custodial) wallet to store them, and both approaches have pros and cons.
This article will explain self-custodial wallets and share basic steps to set up a beginner Trust Wallet to take control of your crypto assets.
Pros and cons of holding cryptocurrencies with centralized exchanges
A centralized exchange (CEX) holds crypto tokens on their client’s behalf. It aligns with a standard Web2 arrangement where users create an account, purchase and sell tokens on the exchange, and rely on the exchange to handle their account and its holdings carefully. CEXs are similar to having a bank or stock brokerage account, but that’s where some of the similarities end.
The exchange owns the user’s tokens, and in the case of any unfortunate event like a hack or bankruptcy, users would have no recourse to retrieve these funds. Considering the lack of protection and control over deposits and assets by users, the famous adage “not your keys, not your coins” exists to encourage direct ownership. Exchange failures are not uncommon; hence, a prudent option is to factor in this reality and avoid large exposure.
However, CEXs offer an accessible entry point for those new to cryptocurrencies and can be used to purchase tokens for transfer to other wallets. Users can create an account with one of the reputable exchanges available in the industry. Most CEXs will require Know Your Customer (KYC) checks where users need to provide identification, and upon approval, their account can be set up to buy and sell cryptocurrencies. Users must ensure that they turn on additional safety features like two-factor authentication to keep their accounts safe.
What are private self-custodial wallets?
Blockchains are inherently public, making the tokens owned by any particular wallet address visible to everyone. However, a self-custodial wallet is “private” because the user controls the access to these tokens alone.
What makes self-custodial wallets unique is that users own the seed phrase or the private key required to perform any transaction with that address. As long as users keep their private key secure, they are the only ones who can control the funds in their wallet, i.e., no third party can control or access those funds.
How do self-custodial private wallets work?
Self-custodial wallets typically begin by generating a unique seed phrase for the user’s wallet, which the user must then securely store in a safe place. This could be on a piece of paper or any other medium. However, users should avoid leaving them as plain scripts on a computer or mobile device, as anyone with access to the seed phrase will have full control over the wallet.
A self-custodial wallet can take various forms, including a browser extension wallet (MetaMask), a desktop application (Exodus), a mobile application (Trust Wallet) or a hardware wallet (Ledger). These wallets are usually categorized as hot or cold wallets, depending on their intended use and level of security.
The wallets on a user’s browser, desktop or mobile phone are generally considered hot wallets since they stay connected to the internet and are more exposed to potential malicious hacks and security threats, while cold wallets (hardware wallets) are usually offline and only connect to the internet when users need to perform a transaction or interaction. Users highly concerned with security often use cold wallets in a one-way interaction, where coins are transferred into the wallet for storage, but the wallet is never connected to any internet-based application, as a strict rule.
Evolution of crypto wallets
Some wallets are moving beyond the usual seed phrase mechanism to bring security and simplicity that could help expand adoption. Some mobile wallets offer features allowing recovery by trusted contacts, focusing on biometric security to safeguard assets.
Additionally, certain hardware wallets pair with mobile apps and utilize chip cards for asset protection, emphasizing the need to secure the chip card like a safe key. Moreover, multisignature wallets require multiple approvals for transactions, adding a layer of security against unauthorized access and potential fraud.
Key steps to getting started and setting up Trust Wallet
Trust Wallet supports more than 100 blockchains. Anyone can install a Trust Wallet on their mobile device and have it as a browser extension on their laptop. To get started, users can visit the Apple App Store or Google Play Store and download the mobile application.
Users can follow the following simple steps to create a new account:
Step 1: Install the app on a mobile device.
Step 2: Securely write down a seed phrase during the account set-up stage and keep it secure. This is crucial. If a user loses their seed phrase, they will lose access to their wallet and any funds within it.
Step 3: Follow the instructions on screen to complete the setup. Once users complete the backup and verification process, they are directed to the main wallet interface, where an initial selection of cryptocurrencies is available for funding.
Users can directly fund their Trust Wallet using a credit or debit card through the app, thanks to the integration of several providers that sell cryptocurrencies. If a user has an account with a CEX, they can also transfer cryptocurrencies from the exchange to their Trust Wallet.
Steps to fund a crypto wallet using a mobile app
To fund a crypto wallet using a mobile app, a user must:
- Choose a token they want to buy and specify the quantity.
- Select a quote from a provider. The app will usually highlight the most economical quote.
- Users need to enter their payment details (debit or credit card). Please note that some banks and cards are more user-friendly, allowing users to perform cryptocurrency transactions, while others might potentially flag, delay or block such transactions.
- In some cases, the provider would need the user to undergo a KYC check.
- Once the transaction is complete, users will see the cryptocurrency credited to their wallet.
The above steps typically constitute what is known as the “crypto on-ramp,” where users can convert their fiat currency into cryptocurrency holdings. One of the key tenets of the Web3 ethos is decentralization and self-custody. Therefore, creating a private self-custody wallet is a practical initial step and opens up users to a wider variety of social and decentralized finance opportunities in the future.
How to move crypto assets to Trust Wallet: A step-by-step process
The below sections will explain how to transfer crypto assets from Coinbase and MetaMask wallets to Trust wallet.
Steps to transfer crypto from Coinbase to Trust Wallet
First, download and install Trust Wallet, then the user can proceed to send cryptocurrencies from Coinbase to Trust Wallet by following these steps:
- Step 1: To transfer crypto assets from Coinbase to a Trust Wallet, start by pressing the “Send” button on the Coinbase app or website.
- Step 2: Select the specific cryptocurrency and the amount to transfer, then click “Next.”
- Step 3: The final step involves entering the Trust Wallet’s receiving address and confirming the transaction by following any additional prompts provided. This process enables the secure movement of digital assets between the two wallets.
Steps to transfer crypto from MetaMask to Trust Wallet
- Step 1: Users looking to transfer crypto from MetaMask to Trust Wallet should first install Trust Wallet.
- Step 2: The process involves clicking the “Send” button in the MetaMask wallet, entering the Trust Wallet address and choosing the amount to be transferred.
- Step 3: Users should then verify the transaction details before finalizing the transfer by clicking “Send.” This facilitates the secure exchange of digital assets between the two wallets.
The future of self-custodial wallets
Self-custodial wallets have significantly evolved from their early days when users needed technical skills to set them up and had to be very cautious to avoid losing their cryptocurrencies. However, seed phrases are just one aspect of the broader picture. The potential for losing a wallet due to misplaced seed phrases or private keys, coupled with the lack of straightforward methods for transferring wallet ownership to family and friends, remains a significant barrier to the widespread adoption of these wallets by everyday users.
Future self-custodial wallets would ideally not rely solely on seed phrases but a combination of biometrics and layers of authentication and approvals to make it easy to onboard more users and provide them with peace of mind and security around the ownership of their digital assets.
In terms of privacy, future regulations may require KYC procedures for individual wallet addresses to transact. Therefore, the adoption of self-custodial wallets is primarily aimed at enhancing control over a user’s crypto assets and accessing opportunities within the cryptocurrency ecosystem rather than preserving anonymity on the blockchain.