You’ll hear this mantra a lot in the crypto world….not your keys, not your coins. “Which of course in German means a whale’s vagina.”
JK. It means if you don’t hold bitcoin/crypto in your own hardware wallet with the secure “private keys”, then there is a risk that your coins could be stolen from the exchange (i.e. Coinbase). There’s true validity to that as when you buy crypto and leave it on an exchange like Voyager or Coinbase, if there’s a cyber “hack”, your token purchases are not insured or protected. Bye-bye Bitcoin. They owe you nothing.
Yea, unlike in traditional banking where your money is FDIC insured, that is NOT the case in crypto land currently. Interestingly, do you know why banks can insure your USD funds up to 250k? Because if it gets stolen, the Fed can just print the money! The bank isn’t taking the loss, I can tell you that.
Anyways, OG crypto investors always push for newcomers into the space to take their bitcoin and crypto OFF the exchanges into “cold storage”, aka hardware wallets, to protect their investment. What prompted this?
It mainly comes from the Mt. Gox exchange hack in 2014 where a lot of bitcoin was stolen and then the company went bankrupt. If you had your coins on the exchange then you were SOL (____ outta luck), although through hard efforts people are trying to recover them to this day. Hence, not your keys, not your coins.
I won’t pretend that this risk isn’t real, and I advise everyone new to crypto to take this seriously. On the other hand, I won’t sit here and preach on my high horse that I have all my bitcoin and crypto in cold storage, because I don’t.
There are three main reasons for this:
It’s not 2014 anymore and the crypto industry is significantly more advanced now. Many of these exchanges we use today didn’t exist back then and security is now the primary focus. I’d have to believe that if I bought bitcoin in 2014 and trusted an exchange in Japan called Mt. Gox I would have had my bitcoin in cold storage the second I bought it. Just sayin’. Coinbase and many other exchanges are multi-billion dollar companies now with Super Bowl commercials. Different time folks.
It’s not user-friendly yet, frustratingly. Buying the device, installing the software, updating it, remembering passwords, safely storing the cold storage device and seed phrase (no joke), etc. If you mess parts of this process up, your investments are toast. Not what the average Joe wants to hear. I’ll be the first to admit it’s not simple for someone new in crypto to understand and do cold storage. It’s like the dial-up era of the internet for crypto right now - it’s not so easy your kid can do it yet, but it will get there soon. I have faith.
You can earn extra interest by keeping it on the exchange. However, if bitcoin is going up by 100% a year on average and you get an extra 3-7% leaving it on the exchange, is that really a big deal? Probably not, but it’s still something extra. We’re just so conditioned to the USD earning nothing that 3-7% makes us salivate! Just keep that in mind. Also, make no mistake the exchange is lending out your bitcoin, and if the counterparty goes bankrupt and can’t pay it back (low probability but not zero)….your coins aren’t insured or guaranteed like in a traditional USD bank. Again, there is risk here so understand your risk tolerance. To each their own.
Ultimately I think diversification for me is the way to go. Some on the exchanges earning interest and protected by them (which I trust), and some in cold storage that is my responsibility to protect. I feel good about that. Eggs in multiple baskets is how I roll. I do own 2 cold storage devices (Trezor and Ledger) and wanted to briefly discuss how to use them if you intend to and how they work. As your investments in bitcoin and crypto gain in value (hopefully!) you may feel more pressured to get your coins off the exchanges and I think it’s a good idea to PRACTICE NOW.
That’s what crypto is all about - you have to “do” stuff and get your hands dirty. You have to interact with these things and learn the language and try stuff out. You do it when stakes are low and if you mess up, who cares? Maybe you lose 50 bucks or less, you’ll live. To begin…
What are the options to protect my bitcoin/crypto investments?
Good article to help.
Basically, you have 4 options:
Leave on the exchange (they protect your crypto - concerns discussed above)
Move to a “hot” wallet or a “software” wallet (ex - Coinbase wallet). These wallets are online and easily accessible via computer or mobile device. Coins are off the exchange but still vulnerable to cyber threats given their online nature. Good for small sums of money/tokens, not large quantities. Similar to carrying cash in your wallet - how much cash do you carry? Hopefully not $10k around town.
Trust a third party, such as the company Swan that I use. They store crypto for you and are responsible for it. It is in cold storage but you are trusting them. I think soon most banks will offer this and people will pay for this service.
Cold storage or hardware wallets under your control.
What the heck is a hardware wallet?
There are many. I’ll speak to the ones I use. I think these devices are novice friendly and solid products.
Aka a “cold storage” device, this device (Trezor, Ledger, etc.) looks like a USB drive.
Think of it essentially as your bank account. It’s a cryptocurrency wallet which safely stores the “private keys” used for authorizing transactions on the blockchain.
It’s important to note that your hardware wallet doesn’t actually “store” any crypto tokens like you are used to with your USB drive.
The hardware wallet stores the private keys which allow you to access cryptocurrency tokens that are rightfully yours and are encoded/stored and verified on the blockchain. Weird right? Again, there are no tokens IN the hardware wallet.
Good article to help.
Private keys are critical to the safety of your investments. The private keys are encrypted in the hardware device and are impossible for anyone to steal unless they have your “seed phrase” (more on this below). There are also “public keys”. This is like your bank routing number or email address so people know where to send you tokens (okay to share this). Your private key in your hardware wallet unlocks them on the blockchain.
What the hell is a seed phrase/recovery phrase?
Great article to help.
A seed phrase is what is generated by the hardware wallet when you set it up for the first time. It’s a random combination of 12 or 24 words that generates the private key in your hardware wallet which is essential for blockchain transactions. Humans can’t remember long strings of numbers but we can recall words. The words are representations of numbers which are the private keys. Thus, it is critical you NEVER SHARE YOUR SEED PHRASE. PROTECT IT!!! If you ever lose your hardware wallet you can recover your tokens with a new hardware wallet if you have the seed phrase. Again, there are no tokens actually IN the wallet, they’re on the blockchain - you need the private key to access them/spend them which is represented by the seed phrase you’re given.
Even if you lose your hardware device (unlike a USB), your funds/tokens aren’t really in jeopardy if your seed phrase and pin code to the wallet are safe. However, if you lose your seed phrase it’s game over. NO ONE can reset it for you or help you recover it.
So practically speaking, how the hell do I do this?
Buy a hardware wallet (Trezor or Ledger are solid options, simple to use)
Buy it from the actual company website, not on Amazon or another third-party site. Scammers can ship you a fake this way.
Follow the instructions to set it up - not that hard.
You will first decide your own pin code to access the device (usually 4-6 numbers). This isn’t the seed phrase, it just gets you access to the hardware wallet. This should be something easily memorizable to you.
Most importantly - the device will tell you your seed phrase (12 or 24 words) and confirm you know it. Write it down on PAPER with a PEN. DO NOT STORE IT ON YOUR COMPUTER OR YOUR PHONE OR TAKE A PIC OF IT OR STORE IT ANYWHERE ONLINE….EVER! NEVER ENTER IT ONLINE OR SHARE IT. Everything can be hacked, and if your seed phrase is online your private keys are exposed and your crypto can vanish. This is the part people don’t like…sorry, but those are the rules right now.
Store your seed phrase on paper someplace safe. Make a back up too. Securely storing your seed phrase is everything, if you couldn’t tell.
DO NOT SHARE YOUR SEED PHRASE, EVER, UNDER ANY CIRCUMSTANCE. Just did that for emphasis. Got it? That’s how people lose their crypto. Some hacker tricks them into giving up their seed phrase.
Play around and USE THE BITCOIN BLOCKCHAIN!!!!
I bought some bitcoin on Gemini and Cash App and sent it to my hardware wallet. It’s not hard. You just determine how much you want to send to your wallet (I suggest working with $50 dollars). Here’s a step by step guide. You’re actually USING the bitcoin blockchain when you do this and when the coins transfer - it’s like magic. Congratulate yourself! You abilities are in the top 1% of all crypto users now.
At the end of the day as stated before, I keep some of my crypto on exchanges for earning interest, I keep some with Swan (trusted third party), and store some in my hardware wallet.
I also use Casa for added security. This is a bit advanced but offers multi-signature security for added protection. I highly recommend them. True peace of mind.
And that’s about it. Not your keys, not your coins. What’s your comfort level? What’s your risk tolerance? You decide. As you go further down the rabbit hole you’ll end up with a hardware wallet, I’ll bet on it! Take the plunge! It’s really not that bad.
To finish up, as promised we’ll be curating crypto news from the past few weeks to keep you abreast of what’s going on in this fast moving space. We can’t keep up with everything, but worthy headlines we’ll list and add some commentary.
My big takeaways/TLDR:
What’s going on in Canada is a massive billboard for why everyone needs bitcoin. Pay attention. You don’t think your funds could be censored and your accounts frozen living the privileged life we do- until they are. Nothing and no one can stop bitcoin. It’s open and censorship resistant. It’s freedom money, and everyone needs some.
Don’t look at crypto prices as much as adoption right now. Just like stocks - look at the company, not the stock price. If the price is down but business is good, that’s a solid buy opportunity. Bitcoin and crypto are being adopted everywhere (globally) by everyone. Just be patient, it’s early.
Blackrock and crypto. This is big. All the major financial institutions are getting involved - that’s what you want to see. Fidelity, Wells Fargo, JP Morgan, Citibank, etc. Blackrock is the big daddy. For further context, see the chart below for big institutions mentioning or investing in bitcoin. Again, this is what you want to see.
The government MUST PRINT and inflate away the debt. Bond investors and institutions are waking up to this - they are looking to protect their money in something that can’t be debased - hello, bitcoin.
Oh Canada!! Wow. I’ll leave my opinions out of this but talk about a massive endorsement for bitcoin. I didn’t think a G7 country could freeze your assets and bank accounts and censor you without due process. Yikes! All due to peaceful protesting (now funded by bitcoin because they censored GoFundMe donations). Similar to Cyprus back in 2013, there’s a bit of a bank run going on as people try to pull out their money so it can’t be frozen. Craziness. Buy some bitcoin.
The bitcoin network as the world’s first open monetary network is growing rapidly. Recall there is bitcoin the asset and bitcoin the network. Cash App and Twitter and others are tapping into the open monetary network that bitcoin offers. It’s an open system, not a closed system like PayPal. Open systems, like the internet, always win because ANYONE can plug into them and it creates/enhances network effects (Metcalfe’s law). You don’t have to spend your bitcoin, but you can use the bitcoin network rails to transfer and spend currencies globally, instantly, 24/7/365 at almost zero cost. The magnitude of this cannot be overstated. This is being built on the Lightning Network (scaling layer of bitcoin) and I will discuss this in a newsletter soon.
Two Arrested for Alleged Conspiracy to Launder $4.5 Billion in Stolen Cryptocurrency
Cool article. Basically, it’s a rebuttal to everyone who says bitcoin and crypto are great for criminals. Sure, people will use it for nefarious reasons. But unlike when they use the USD there is a trail of evidence that’s hard to hide from.
If you didn’t read the last post I wrote, give it a read. This is just further evidence that the green energy revolution and electrical grid savior will be facilitated by bitcoin mining. You are privy to understanding it before everyone else does - take advantage of it (#bitcoin).
Thanks for reading
Until next time
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