Mnemonic Phrases, also known as seed phrases or recovery phrases, are a sequence of 12 or 24 random words that provide the data needed to recover a lost or broken crypto wallet. By having this phrase, you can access all your cryptocurrencies within the wallet even if you lose or delete it. It's critical to keep your phrase words secure because anyone with possession of your seed phrase also has access and can authorize moving or selling your cryptocurrency. We highly recommend writing your seed phrase down on a physical piece of paper and storing it in a secure location that no one else can gain access to.
The seed phrase is the master key to your crypto funds in a wallet, and you are responsible for its safety. Seed phrases cannot be recovered. If you lose your phrase, you will not be able to access this crypto wallet again.
Crypto wallets are also chain-specific. SwapDEX is built with Substrate Technology, so you can use your existing substrate seed phrase with our network, or you can use your SwapDEX seed phrase with other Substrate-based chains. We also have an EVM (Ethereum Virtual Machine). If you want to use that, you will need a seed phrase. If you use our web app instead of our native mobile app or desktop apps, you will need to have Metamask and Polkadot.js extensions with wallets set up. It is recommended to use our native apps.
A crypto wallet is software or hardware that enables users to store and use their cryptocurrency. Cryptocurrency has no tangible currency (no paper money) to place within a physical wallet or purse. Cryptocurrency exists on blockchains.
A crypto wallet provides visibility into how much cryptocurrency the user owns. A crypto wallet also enables users to send and receive cryptocurrency transactions and to connect to decentralized applications. For many users, a crypto wallet is the primary mechanism for managing cryptocurrency balances.
With SwapDEX, because we are a decentralized exchange, you will be using your wallet to connect with our chain to gain access to our decentralized exchanges and our marketplace through one of our apps. Unlike centralized exchanges, your crypto will not leave your wallet. Your crypto will always be in your possession. That's what makes SwapDEX so special.
There are two main types of crypto wallets: hot wallets and cold wallets. The primary difference between them is their internet connectivity.
- Hot wallets (web wallets, desktop/mobile wallets) are connected to the internet, making them more user-friendly but less secure. They are suitable for regular transactions and trading.
- Cold wallets (paper wallets, hardware wallets) are stored offline, providing improved security by reducing the risk of online attacks. They are better suited for long-term holdings.
Hot wallets are more likely to be used by traders for regular transactions, and cold wallets are more suitable for long-term holdings. Hot wallets are simple to set up, and the funds are easy to access, making them convenient for trading. Cold wallets are hack-resistant, making cold storage suitable for holding crypto for longer periods of time. As a protection method, it's a good idea to only store a small percentage in hot wallets and larger amounts in cold storage.
Crypto wallet types are either custodial or noncustodial. The fundamental difference between custodial and noncustodial wallets is control.
Custodial wallets are crypto wallets in which the custody is managed by a third party, typically a centralized cryptocurrency exchange. Custodial wallets are suitable for users who don't want to fuss too much with security and who are not concerned with trusting a third party to hold their crypto. However, it's generally not advised to keep large amounts of cryptocurrency in a custodial wallet due to potential risks like hacks or even the exchange going bankrupt.
Noncustodial wallets are crypto wallets where the custody is held by the individual who has the private keys for their crypto assets and is responsible for securing them. Noncustodial wallets don't require a user to trust a third party for account security, but they do require a substantial amount of self-trust. Remember, if a private key is lost or compromised, a user's funds can be drained or otherwise rendered irretrievable.
Both custodial and noncustodial wallets have numerous benefits and potential disadvantages, depending on the type of wallet being used. However, there is a risk associated with both custodial and noncustodial types of wallets, with the greatest risk being the potential for theft, fraud, or cyber attacks.