Token custody options

If you want to buy, hold, or manage digital assets like cryptocurrency tokens, you need to have an account that provides custodial services or that offers a self-custody solution. Custodial services work much like a bank or brokerage that holds shares of stock or bonds on your behalf and manages the security of your holdings. With a self-custody solution, you have sole responsibility over your digital assets and over the management of your secret keys, without the need of a third party to act on your behalf.

The most common custody option for digital assets requires you to have at least one public and secret key pair to lock and unlock a digital wallet. Wallets give you complete control over your digital assets. However, you should be aware that there are many different kinds of wallets to choose from and that they vary in their security and ease of use.

For example, there are many desktop, mobile, web-based, and hardware wallets that you can choose from that provide different features, more or less security, and ease or difficulty of recovering your account, if you lose access. Before you decide on a specific wallet or custody solution, you should spend some time learning about the various options available and how they differ.

This guide provides a brief introduction to the concepts of hot wallets and cold storage as part of your custody strategy and the most common types of cold storage available. For additional information about wallets and other custody options, you should do your own research and be sure that you understand the ramifications of your choices thoroughly before proceeding.

The most common type of custody is often referred to as a hot wallet. A hot wallet is a software application that connects to the internet to give you easy access to your account from a computer or a smart phone. Hot wallets store your secret keys online, so you can sign transactions from anywhere you can get an internet connection. However, because the wallet is connected to the internet, your secret keys are more vulnerable to attack and the account can be difficult to recover if the secret key is compromised.

If you select a software wallet the requires an internet connection to sign transactions, you should consider taking additional security measures, such as two-factor authentication or use of biometrics to secure access to your account.

For more information about the advantages and disadvantages of hot wallets, see the following resources:

Cold storage means that you are keeping secret keys stored offline in a device that is not connected to the internet. Cold storage is a popular solution for self-custody of digital assets because it makes it more difficult for your keys to be compromised if there is a software security breach or if your cold storage solution is lost or stolen.

For more information about approaches to cold storage and best practices for securing your secret keys, see the following additional resources:

The most common types of cold storage include the following:

A hardware wallet is a physical device that holds your digital assets. Secret keys are stored in a secure part of the device that does not come into contact with the internet. The partitioned storage on the physical device reduces the risks that are associated with devices connected to the internet. Because you are relying on a physical device, however, losing the device also means losing access to your digital assets.

In most cases, you can recover from the loss of a hardware wallet because the assets stored on hardware wallets are secured using a secret seed phrase. If you copy and secure the seed phrase—for example, by storing it in the form of a paper wallets—you can initialize a new device with the seed phrase and regain access to your digital assets.

For more information, see Crypto Wallets, Explained.

An air-gapped computer is isolated from insecure networks that interact with the internet or unsecured local area networks in your home.

Converting a standard personal computer or similar device into an air-gapped computer might require you to physically remove network cards, disable certain software, or be prepared to completely wipe the machine before connecting it to the internet again.

Depending on how secure you want you air-gapped computer to be, one option is to use a bootable image that provides a minimal operating system to collect your digital assets then remove any artifacts from that process and reboot the computer normally after completing any transaction. For more information, see Extreme Security Measures for the Extra Paranoid and The Ultimate Defense: What Is an Air Gapped Computer?.

A paper wallet is a piece of printed paper that contains your important key information (in some cases, even a QR code) and is used for facilitating digital asset transactions. Paper wallets are often not recommended because they are susceptible to degradation and could be insecure or lost easily.

As a backup to a hardware wallet, however, you might want to create a paper wallet and store it in a secure locations such as a safe deposit box.

For more information, see Paper wallets.

The native cryptocurrency token for the Kadena network is KDA. To submit transactions on the Kadena public blockchain or test network, you must have an account that has funds in the form of KDA tokens. There are several wallet options that enable you to hold and transfer KDA, including the following:

It is ultimately your responsibility to research the custody solutions available to you and to keep your digital assets safe. With this in mind, you should note the following general recommendations: