What is a Self-Custody Wallet?
There are two ways for crypto market participants to store their digital assets: on exchanges and in self-custody wallets.
On centralized exchanges like Coinbase, a centralized entity maintains custody over your digital assets. They do this by maintaining possession of your private key(s). The downside here is there is no way for you to be assured your exchange is indeed holding your crypto 1×1 and not trading on it, as was the case with FTX.
When you store your crypto in a self-custody wallet, you alone have access to your private key, which represents your digital assets on a blockchain network like Ethereum or Bitcoin.Self-custody wallets can be either hardware wallets (USB drives) or software wallets (ios and Android mobile wallets). Hot wallets are always connected to the internet while cold wallets are offline. Additionally, self-custody wallets allow for the storage of non-fungible tokens, or NFTs.
🍒Go In-Depth: What Are Self-Custody Wallets?
What is A Private Key?
📖 Private Key Definition: A private key is a code that gives its owner complete control over their digital assets on a specific blockchain address.
In blockchains like Bitcoin and Ethereum, a private key is an extremely long string of numbers and letters (256 digits long) that represents crypto ownership. Private keys serve as the foundation for accessing cryptocurrency and signing crypto transactions.
Private keys play a vital role in generating public keys, which, in turn, generate wallet addresses. Both private and public keys are created any time a new blockchain address is created.
While public and private keys are mathematically linked together, it is important to note that a private key can never be derived from a public key.
Private and Public Key Examples
A public key can be compared to a mailbox: the encrypted address is visible to anyone, allowing them to send crypto to it. However, only the individual in possession of the private key, acting as the key to the mailbox, can unlock and access the messages (cryptocurrency) stored within.
What is A Seed Phrase?
📖 Seed Phrase Definition: A seed phrase is a series of words used to access and restore a cryptocurrency wallet with numerous private keys.
As we noted above, a private key is an extremely long string of numbers and letters that represents crypto ownership on a blockchain.
Depending on how many crypto coins you own, you may have dozens of private keys. To simplify the process of accessing your private keys, wallet providers (like tastycrypto) use seed phrases to make the process more practical.Seed phrases are also referred to as mnemonic phrases.
Seed phrases are typically 12 randomly selected words that give you access to your crypto wallet and all of the private keys within it from a single interface.
If you have your seed phrase, you do not need your private key(s). They are algorithmically linked together. A seed phrase, therefore, acts more like a ‘master key’.
Crypto wallets with seed phrases make it easy to interact with decentralized applications, or dApps, in Web3.Decentralized crypto exchanges like Uniswap are among the most popular dAps.