Sugarcane Podcast

Stay in control of your crypto | Hot, Cold, Social Recovery Wallets| Ep. 07

August 22, 2023 Sugarcane Episode 7
Sugarcane Podcast
Stay in control of your crypto | Hot, Cold, Social Recovery Wallets| Ep. 07
Show Notes Transcript Chapter Markers

Need a crystal-clear understanding of the crypto wallets and exchanges?
From the evolution of wallets to the cutting-edge concept of social recovery, this episode is a must-listen for crypto enthusiasts and newcomers alike. Discover the intricacies of hot and cold wallets, the importance of self-sovereignty, and the innovative ways the crypto space is evolving.

🔐 Understanding Crypto Wallets: Definitions, functions, and the difference between hot and cold wallets.

💼 Exchanges and Ownership: How exchanges like Coinbase, Kraken, and Binance handle your crypto.

🤝 Social Recovery: An innovative solution to losing access to your wallet, involving a network of trusted friends or entities.

🛡️ Security Considerations: The importance of keeping your seed phrase safe and the risks associated with different types of wallets.

🔄 The Evolution of Wallets: A nostalgic look back at how wallets have evolved from downloading entire blockchains to user-friendly interfaces.

Links: 🔗 Website - Podcast - YouTube - Twitter - Discord - TikTok

Disclaimer: 🚨 The information provided across all of Sugarcane's communication channels is for informational and entertainment purposes only. It should not be construed as financial or investment advice. Consult with a financial professional before making any investment decisions.

Rudy:

Welcome everyone to the shirking podcast. I'm Rudy.

Sheldon:

Hey, I'm Sheldon, the founder CEO of shirking.

Rudy:

And we're here for another awesome week of tasty tidbits so the tastiest. So today we're going to talk about wallets and exchanges, things that we use every day Well, maybe not every day, but enough to feel like every day, because every day in crypto feels like a year. But we're going to go into the deep dives of like 100 years.

Rudy:

And exactly it's such a freaking long ages you quickly love that meme or that guy's like white hair on his computer, just like um, I'm only 25 years old and I love crypto. It's just like hilarious.

Rudy:

Like the bag guys totally shot, but it's so fun and we were loving it and that's why we're here. And for anyone who's new to the industry or new to crypto or kind of just only ballin exchanges but never moved to a different type of wallet, this will be a great episode for you because we will go into, kind of you know, what a wallet really is, so shall let me know what is a wallet in terms of crypto and also how the wallet works on an exchange.

Sheldon:

So you know, while it's like that leather piece of thing you put in your back pocket, put your money into, so while it's specifically crypto is the idea that, since the crypto space is, it's fully self custodial, you own your own assets, like all the money and tokens that you have are stored with you locally. A wallet is kind of the place where that's stored and the kind of way that works is that you have private keys, which is a set of like hash, like really just like a hexadecimal number that's stored on your computer or your phone and then that's able to generate a new wallet for you in your browser. So, if you're familiar with MetaMask, that's a really common wallet people use. Coinbase also has their own wallet and it's just a place for you to store your wallets.

Rudy:

So store your assets. It's kind of the idea of a wallet.

Rudy:

For an exchange on Coinbase. If I have a, you know you make an account, you have a wallet. That's kind of what they do Give you one, they generate one for you and you own access to it to a certain extent. Yep, and when I have a MetaMask, that's also a different wallet. And if I have a hardware wallet like a ledger or a trezor, or many other ones are coming out now, that's also a wallet. But I hear there is a term starting around hot, cold and what do those mean?

Sheldon:

Yeah, a hot wallet is something that's typically connected to the internet, so like if you're thinking about your computer and you have in your browser there's the MetaMask little Fox icon that you have there. That's what's deemed a hot wallet, just because you're on a device that's always connected to the internet. And it's typically hot because, like it has an implication that's more unsafe. That's because if you were to download a police police of malicious hardware or misalumicious software, they can get access to the actual keys on your device just because it's on the internet and they can send it back to themselves. That's the implication of what it means by hot.

Sheldon:

On the other end of things, there's something called a cold wallet, which is something that's typically not connected to the actual internet and they usually like a small physical device somewhere, like in the shape of USB. So like ledger typically has a small USB style device that you can plug into your computer and then sign things on the actual physical device, and it's kind of just a scenario. Those are now not connected to the internet, they actually are physical hardware that actually the private keys live on the physical device in a special chip and they sign keys on the physical device, and that's typically how that works from a hot versus cold distinction.

Rudy:

That's what's the point of even having a hardware wallet. I mean, yeah, it's great, that's, I guess, more secure, but what's the risk of having it on an exchange, or even any exchange of that?

Sheldon:

Yeah. So it's kind of like we talked just about like hard versus cold wallets, it's hot versus cold wallets and typically, even with an exchange itself, you technically actually don't have a wallet on an exchange Like, if you're to sign up for Coinbase or Crackin or Binance any of the exchanges out there you actually don't have a crypto wallet. It's kind of like the company, the organization Binance, coinbase, crackin they actually have a bank account for themselves. They have assets on chain for you and you have almost like a bank account. You have some type of like ownership of that. You have some like rights over the assets there. But at the end of the day, the organization, the company they hold and control the assets and typically they're not supposed to actually touch them or move them.

Sheldon:

But there's been a lot of like, especially with like last year with FTX. There's a lot of like people found out that, like Sam Beckron Fried, who's like moving around assets of customers without them actually knowing. It's just the concern there. We're like if you now have your assets sitting on exchange, it's possible that the company itself can move the assets without you knowing about it. That's why people are trying to shift the kind of conversation to now move everyone towards having their own custody, self-custody accounts.

Rudy:

That makes sense because, in terms of blockchain, like we've talked about before, your keys are what allows you to move your crypto. So then, what you're saying is those exchanges like Coinbase, crackin and Binance like they own our crypto because they own the keys to our wallets. They're the ones who can actually move our crypto, and in a hardware wallet, or even a MetaMask hot wallet type, we own the keys. Only we can move our crypto. And that's where the popular phrase comes in not your keys, not your crypto, right?

Sheldon:

Yeah, yeah, it's funny. There used to be a guy back in like it was like 2017 to 2018. He's a big Bitcoiner, but he actually got actually me into the space. His name is Andreas Antonopoulos. It's a lot of the OGs about him. Just because he was huge at the time, he had a lot of like presentations and pitches that he gave about crypto. I'm talking about not your keys, not your crypto. So that's where I feel like I got it from. It's also a real thing, like if you don't actually own your keys, you actually, then you're not your crypto. Yeah.

Rudy:

It's that simple and even today I mean, people think they own their money in their Bank of America or whatever traditional finance bank, but it's still owned by the company, by the big bank. It's not owned by you until you withdraw it into cash. And I actually just saw in the news recently how Australia is going into digital only, preventing their use yeah, yeah.

Rudy:

Isn't that so Preventing their citizens from withdrawing more than like, $500 in cash? So they're forced into digital economy, which I mean? We know we're going towards that route, but it's kind of scary where you're not allowed to withdraw a certain amount of cash and again, that's very common in a lot of countries where they limit the cash you're allowed to withdraw because they're afraid of economic turmoil or just people using cash for other reasons. But it's your money, right, you should be able to use it how you want to, but you're not allowed to. Yeah, because the government said so. So it's just weird. And if you want to go digital, I would say good crypto 900%, like also under kind of the country point.

Sheldon:

I think it was like last year, canada of all places. There was a big thing with the truckers and the. Basically the Canadian government just stopped people from poor truckers meaning access to their money and so they essentially just debanked them. Just for having a political stance, there's a crazy movement Like definitely at the end they kind of returned on that. They basically gave them their money back, but like from the fact that, like a company or a country, you can just say you no longer have access to the financial system, you now are stuck. You can't even like pay for bills, pay for groceries, like you're just kind of stuck in the sense that's totally.

Rudy:

It's totally just the ever moving your identity of self sovereignty. You cannot be in possession of your own possessions. Which is weird to think about and that's like something to think about is the security considerations of wallets and exchanges. So we went over how exchanges? Have you know, technical, total control over your crypto and hardware wallets or have you have your own control over your own hardware wallets no one else can access or create transactions for you? And then to put into a recent light that, what ledger has announced about social recovery for their ledger wallets, can you go a little bit more into what social recovery means and the pros and cons of it?

Sheldon:

yeah. So I guess the the big reason for it is that, like right now I have met a mask on my computer and I have a C phrase which is basically what creates the private keys again stored with me and I read it down or whatever. But the problem is that, like if, let's say, my house burns down or like if somebody like kind of breaks my computer, whatever, now I have lost access to the actual wallet and for that reason now I kind of like have lost access to my money, right so, even even though I'm in control of it now there's a bit of responsibility there the problem is that, like, if you're gonna, if you lose a keys or something happens to your computer, you don't have the access to the metamask. You now have lost your funds. The idea behind social recovery is that now you have a serious circle of friends. Let's say you really are my friend, I hope you're my friend.

Sheldon:

Basically now can like almost like give you a best friend forever you can give like shards of your wallet, in a sense, to other people that you know they can't by themselves get access to your funds, but they can act as like a. If you collect the shards or the pieces that they have of the access to the account, you can then put a couple pieces together from a series of your friends. Put it together now access to your wallet again.

Rudy:

The idea is that again you have this network, you trust that they essentially won't come together and try to access your account without you being there, but you you a sense, can, can still collect the pieces if something were to happen to your computer or you lost the private keys that you had written down yeah, that makes sense because in other instances too, you can actually hire a company that will act as your co-signer for your funds and if you ever do lose your seed phrase and you need access to your wallet, you can give them a traditional sense of you know, kyc, give them your ID, your address, proof of address, and then they would allow you to access your funds again, which is good and bad.

Rudy:

I mean, you don't want anyone to spoof your identity and just pretend they are you and take your crypto away from you. But it's also good because you know losing your seed phrase is a serious risk. It's not that hard to lose pieces of paper and if you don't take the proper steps to save it properly into the safe or like maybe even in a bank safe, wherever you dig it up behind your house I don't know so many creative ways people have come up with it recently. That's some type of way to just keep your keep your seed phrase safe, but also the risk of losing it is real and everyone should take that into consideration.

Sheldon:

Yeah, it's also done in efforts like make, bring it mainstream right, because, like it'd be hard if you were to convince someone who's not in crypto that like hold this piece of paper the rest of your life and never lose it, because or else you lose your money. That's a huge responsibility that people just wouldn't want to take on. So, like, if you now have an at a way to like have whether it's like a couple of friends or an entity that you trust that you can verify yourself with an ID and like passport or something that can at least recover your account for you they can access the account, but they can recover it for you gives you a sense of safety.

Rudy:

So, yeah, yeah, it's just the world of wallets is pretty intense because now, especially when I go into any like crypto website that's offering to connect to a wallet, there's dozens of wallet options now and it's kind of becoming overwhelming. I can't name them all, I don't want to try. It's just like in your sense, like how do you choose the wall that you prefer? Like is there any mythology that you follow to try out and use a wallet?

Sheldon:

So to be quite frank, I got into the space and started using MetaMask and, even though the experience is really bad, I still stick with it, just because, like I know it and it's been around and it's trustworthy. And then, when the sugar cane comes out with a new wallet or new account, I'm switching over to that. So it's funny because, yeah, I'm like building technology that I actually want for myself and now I'm just gonna actually use that when it comes out.

Rudy:

Yeah, it's supposed to make everything much easier for all of us, especially on DeFi world and all of crypto. So it takes a lot of different aspects of making easy to use, making it safe and you still having your sense of ownership without having to worry about locking your keys somewhere safe. It's just solving a lot of problems and that's like. The fun part about crypto, too is just the innovative ways of making things easier, because back in the day, your wallet was also your, like your Bitcoin blockchain account, so you'd have to download the entire blockchain on this program on your computer that also double up as your wallet. That's what you would use. Same for Ethereum. That was the standard. You'd have to download a client on your laptop. No one downloads clients anymore. No one downloads blockchains anymore. It's all saved for node operators. Now it's just how easy and quick can I get a wallet up and running? Yeah, it's funny.

Sheldon:

There's that meme where it's like the grandmother and the mom is like okay, yeah, we'll take you back home to take you back inside grandma. We're like, yeah, back in the day we used to download clients. He's like, okay, rudy, we'll take you back inside now.

Rudy:

No one appreciates the advancements we've come through.

Sheldon:

It's gone so far, it's just funny what last year was saying like oh, I got into crypto since 2017.

Rudy:

I'm like 2017 is a good year to get in. It's really easy to understand what's going on. Yeah.

Sheldon:

Makes a change now.

Rudy:

Makes a change a lot, yeah, but yeah, it's just a world right and I think for everyone always do your research on what wallets you choose. Again, keep small funds and exchanges. Do not keep your life savings in there. Maybe that's some small word of advice. Keep it on some type of hardware wallet and don't actively use the hardware wallet, kind of keep that locked away. Keep small funds to use on the side, kind of just like your normal wallet in your back pocket that we talked about. You keep some cash in there. You don't keep your life savings worth of cash in there. Same idea, and if you have trusted friends or family that you want to help back up their information or back up your own social recovery but, as always, we are here to inform you. If you want to have any questions, you can just send our Discord. Yeah and yeah, sure Brave for next week's episode.

Sheldon:

Yeah, with the tastiest tidbits.

Rudy:

As always, see everyone, see you soon.

Understanding Wallets and Exchanges in Crypto
Social Recovery for Wallets Explained