You will be able to explain what a crypto wallet stores and how hot and hardware wallets differ.
Farah tells Darren her bitcoin is "in her wallet", and she means an app on her phone. Darren's bitcoin is "in his exchange account". A colleague's is "on a hardware wallet in a drawer". All three think of their coins as sitting somewhere, like cash in a purse. None of them is quite right, and the difference between their three setups is the most practical decision in this module.
Lesson 1.1, Bitcoin is a shared ledger that nobody runs, explained that bitcoin exists only as entries on the blockchain, recorded against addresses. The coins are never stored on a phone or a USB device. They stay on the ledger, copied across thousands of computers.
What you own is the ability to move them. That comes from the private key, the secret number that signs payments from an address. Whoever has the key can move the coins. Whoever loses it cannot, and nobody can help them.
So a wallet is really a key manager. It stores your private keys, shows you the balances that the ledger records against your addresses, and signs transactions when you approve them. If your phone is smashed tomorrow, Farah's coins are still on the ledger. The only question is whether she can get her keys back, which is what lesson 4.2, Your seed phrase is the whole account, is about.
Wallets differ mainly in where the keys live.
A hot wallet is software on a device connected to the internet: a phone app, a browser extension or a desktop program. It is free or cheap, and convenient for frequent use. The weakness is the connection. A phone or computer that runs other apps, opens links and downloads files can be attacked by malware, and malware that reaches the keys can move the coins.
A hardware wallet is a small dedicated device that keeps the keys inside it and never hands them to the computer it is plugged into. When you send coins, your computer or phone prepares the transaction, the device signs it internally after you confirm on its own screen, and only the signed result comes out. Even if your laptop is infected, the keys stay on the device. It costs money to buy, adds a step to every transaction, and can itself be lost, damaged or bought from a dishonest seller. Buy one only from the maker or an authorised reseller, never second-hand.
Neither type is right for everyone: someone with a small amount they trade often might accept a hot wallet's risks, while someone holding a larger amount for years has more reason to use a hardware wallet. This course does not recommend any brand of either.
Darren's setup is the third kind. When you keep crypto on an exchange, the exchange controls the private keys. It keeps customers' coins in its own wallets and records in its own database how much belongs to each customer. What you see in your account is that record.
In other words, you do not hold bitcoin directly. You hold a claim on the exchange for a quantity of bitcoin, and you are relying on it to honour that claim when you ask to withdraw. At a MAS-licensed exchange, that claim comes with the protections in lesson 3.2, The protections MAS requires for retail customers, such as the rule that your tokens are held on trust for you. At an unlicensed one, it may come with very little.
Exchange custody has real advantages. You cannot lose your coins by losing a piece of paper. If you forget your password, the exchange can verify who you are and restore access. Your family can contact a company if you die. Those are not small things, and many people are better off with them.
There is a saying in crypto: "not your keys, not your coins". It means that if someone else holds the keys, your coins are only as safe as that someone. The 2022 collapses you will study in module 5 gave the saying a lot of supporters, because customers of failed platforms found they held claims on a company and had no coins they could move.
The saying is half the picture. Self-custody removes the risk that an exchange fails, freezes withdrawals or is hacked. In exchange it hands you every risk the exchange was carrying for you: losing the keys, having them stolen, sending to the wrong address with nobody to call, and leaving your family unable to find anything if something happens to you. Lesson 4.3, Mistakes that self-custody does not forgive, covers those in detail.
So the real decision is which set of risks you would rather carry, and for which holdings. Someone with S$300 of crypto that they trade now and then may sensibly leave it on a licensed exchange. Someone holding a larger sum for many years, and confident they can keep a seed phrase safe, may sensibly move it. Many people do both, which is what lesson 4.4, Write your custody and inheritance plan, will help you set out.
Before you make that choice, you need an honest picture of where things sit now. Go through every crypto holding you have, on any exchange, app or device, and note for each one who controls the keys.
List where every crypto asset you hold sits today and whether you or someone else controls the keys.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).