How to safely store any crypto coin
When you just start trading or investing in crypto’s, it might look very technical and complicated. It’s easy to create an account on many different trading platforms but are your assets protected from loss? How do you keep your crypto safe and are you actually in control of your coins?
The main aspect of bitcoin is decentralization. Meaning no one controls anything. The consensus of the whole market (users, miners, developers) have to agree to any changes to the blockchain. If not, it will simply not happen. Because there is no owner of bitcoin, no one can take away your bitcoin. Not even the government. No one can access your bitcoins except you. That makes bitcoin very popular because it’s the complete opposite of our current monetary money system. Bitcoin is open and uncontrolled while the money system is closed and completely controlled.
This is important because you have the keys to the bank. Where in the money system you can open an account at any bank and they “guard” your money, with bitcoin and other crypto’s you have to create your own bank. Nobody will help you with this. No one will take care of coins you lost for whatever reason. And once you lose the keys to your banks you’ll never get access again. So it is critically important to know how to store your coins.
1. Making your first bitcoin bank account
Today, there are many providers of cryptocurrency wallets. One problem that existed in the past was creating many local wallets for many coins. You can’t store ethereum in a bitcoin wallet. So if you owned bitcoin and ethereum, you needed two wallets. Imagine you have forty cryptocurrencies, you need forty wallets. That becomes unmanageable quite quickly. Because every wallet needs updates, some wallets simply disappear because nobody is using them and some wallets require you to download the complete blockchain to your computer.
Today, there are many wallets that have the option to store multiple cryptocurrencies. One example is Exodus. Exodus is a great way to store your bitcoins locally. You can also store multiple other coins in your exodus wallet. Exodus is lightweight and does not require downloading the complete blockchain.
You can store multiple coins without the need of downloading the complete blockchain. But there are some critical things you should be aware about. This is not only related to exodus but for every wallet out there:
- Your 12 word key phrase
- Your private keys
2. Key phrase and private keys
Exodus is protected with a password and 12 word key phrase. The 12 word key phrase consists of 12 random words. If you lose your wallet for whatever reason, you can download a new version of exodus and restore your wallet with the key phrase. So whatever you do, store the key phrase carefully!
Although you might think you have everything under control when you have the 12 word key phrase, you still have nothing. Because if exodus simply does not exist anymore for whatever reason, good luck filling in your 12 word key phrase. The only true way to have complete control over your wallet is by owning the private keys. You can make an export of the private keys within exodus. The private keys are the keys to your vault. If you lose your private keys, you lose your coins. And there is no way to get them back once you have lost them. Simply remember:
3. Bitcoin on exchanges
So how does that work if you have bitcoin stored on exchanges? Do you get the private keys of the wallets that are used to store your coin at exchange x? No, you never get private keys from wallets that are stored on exchanges. Does that mean you don’t own the coins in your exchange account? That is correct, you don’t own your coins when you don’t have the private keys. If the exchange goes down, bankrupt or gets hacked, your coins are gone and you won’t get them back. Although sometimes you have a small chance of getting back your coins when an exchange gets hacked. But once the exchange goes down, you lose everything stored on that exchange. And there is no way to fix this.
From an insurance and security standpoint this is actually a big problem. There is no way to take control over the crypto’s stored on any exchange. But if you want to trade you have to store your coins at the exchange. Let's assume you are trading 20 coins. It’s very time consuming and it costs money each time you send a coin from your local wallet to an exchange. Imagine you have to send coins to exchanges and back to your wallet again each time you want to trade. Not all coins will arrive in a matter of minutes. Sometimes it takes hours or even days. And in this time frame you might miss the opportunity of the trade. For this reason, most traders simply store their coins on the exchange. They know they are at risk of losing their coins because they don’t own the private keys. But trading is simply impossible if you have to send back and forth coins all the time.
Should you store bitcoins or any coin at an exchange? The simple answer is no, you should never store your coins at any exchange. Unless you are activly trading.
How you think about this?