“I threw away $7.6 Million of Bitcoin”
– Campbell Simpson, who bought $25 worth of Bitcoin in 2010, put it on a hard drive but threw the hard drive away by mistake.
To start investing in cryptocurrencies, the first thing you would need is to set up your digital wallet. In the cryptocurrency realm, the term used is “wallet”. The wallet can be likened to a bank account, which can be stored in different devices.
The reason you need to do this is because there are countless stories of people losing their cryptocurrencies. Safety is paramount here – you don’t want to build up a small fortune only to lose it all.
A cryptocurrency wallet is a software program that functions to store your private and public keys and interacts with various blockchains. It enables users to send and receive cryptocurrencies as well as tracking their balance.
There are many wallets out there for you to choose from, which is all dependent on your security needs as well as whether you wish to be an active trader or a more passive buy-and-hold investor (we recommend you be a mixture of the two, the so-called sweet spot).
Once you have set up your wallet, you can then proceed to purchase and exchange the digital currency of your choice on many platforms.
There are three main ways to store your coins:
1. An exchange – this is the easiest way because you are trading your money on there so that is where your money is kept. However, remember that this is an unregulated entity and this is where most of the hacks have taken place. So to date, exchanges have been the worst place to keep your money.
Make it even safer by using whatever extra security there is available. For example, Gemini asks not just for a password but asks if you want to enable ‘Two-Factor Authentication’ (2FA). Do it! It makes it even safer. Use ‘Google Authenticator’ where possible as opposed to text messaging in case someone clones your phone.
Some of the exchanges actually hold your coins in cold storage for you, so theoretically that sounds a little bit safer than just keeping it on an exchange that doesn’t offer that.
2. An online Wallet –a.k.a. Hot Wallet. This is more difficult to hack and therefore safer than an exchange. It can still be hacked, however, since it is online. It also means more work because you have to open up several wallets for each of the different coins. This is a pain but do it. Better to be safe than sorry.
There are two ways of doing this:
1. Ones that store your public key and your private key online and
2. Those that are set up online but then store your private keys on your PC or mobile.
1. Online or Cloud Wallet
Some examples of these are www.MyEtherWallet.com (which I use) and www.blockchain.info (which I have not used).
Once you used www.myetherwallet.com there is no turning back. It is extremely simple to use, once you have used it a few times of course :–)
2a. Desktop PC/Mac Wallet
Depending on how secure your desktop is or isn’t, this is accessible by hackers i.e. if your PC gets a virus then people can hack it to get your private keys.
2b. Mobile Wallet
The best-known mobile wallet is Jaxx. It syncs to your desktop and your phone so that you can back up the private key. You can download it from the App Store or Google Play. www.jaxx.io
Jaxx is great because it stores a lot of different coins all in one, like Bitcoin, Ethereum, Litecoin, Dash etc.
3. An offline Wallet a.k.a. Cold storage or hard storage – this is where you store your private key on a special USB stick and so it is off grid. Once offline, it is almost impossible to hack. However, if the cleaner throws it out, you lose it for good. And yes, this has happened with people losing $millions in hard disks that were thrown out by mistake.
The most popular ones are:
Trezor: this was the first original hard wallet.
Like most of these technologies, they are SIMPLE to use but not easy. The first time it is like climbing a mountain – but every use after that gets easier and easier.
Before long you will be an absolute expert at it, showing off to all your friends. If you didn’t die climbing the mountain the first time around, that is.
Ledger Nano S: one of the most popular.
The Ledger seems to be very popular with people. It is almost the same as the Trezor but looks cooler and is less expensive. I suppose those are two good reasons when buying something, especially since it pretty much does the same thing as the Trezor.
I went for the Trezor because it was more expensive (reassuringly expensive and all that) but now that I have been in the space for a while, if I would start again I would probably go for the Ledger Nano.
Keepkey aas a larger screen but I have not used it myself
With all of the above, you have to figure out your number that you think it is safer to put on there i.e. any coins worth more than $25,000 in value I use a cold storage wallet.
4. Paper Wallet. This is where you literally write down your private key on a piece of paper. This is, of course, much cheaper than buying one of the above.
Make sure you keep a copy because once the paper is destroyed your private key is gone and your coins will be gone.
With all the above, follow these three Rules:
1. Always back up your wallet, no matter which ones you use.
2. Keep your software up to date if using software.
3. Use whatever extra security there is available such as Two-Factor Authentication. Use Google Authenticator where possible as opposed to text messaging in case someone clones your phone.
Summary: If you are planning to trade with your money (not invest), then leave it on the exchange, but if you are planning to hold it longer term then it is worth keeping it safe in a wallet.
If you have larger investments – you need to decide what that means – it is definitely worth putting into cold storage.
Better safe than sorry!