Why do you own Crypto? Here’s why I do
It’s an interesting question, but the common answer has something to do with investing money. I addressed this briefly in my article about moving your factoids off the exchanges, but how to store your wealth isn’t always an easy decision. Banks are the most common choice, but it comes with rules, regulations, fees, and other annoyances that come with a 3rd party holding your money. Despite those things, they are reliable when it comes to keeping your money and that is the default way to be paid, so it’s not a bad idea to have one.
When I was growing up my parents would always tell me to save my money, and put it away for when you are older. Unlike most kids my age, I listened. I starting working around ~15 years old and put a lot of my earned money into my savings account. I thought I’d have a head start if I started investing early, very early. I bought index funds and some other stocks, thinking I’d be rich in 10–20 years, but that money was untouchable. It took two weeks to move anywhere, and I could barely afford the minimum investments without accruing fees. I had to keep an eye on it to make sure I didn’t go below and get charged. To be honest, it was a bad experience. I gave my money to a 3rd party, in the hopes they could make me money, and they didn’t.
When I discovered bitcoin, I was hesitant at first, as storing my own money was something I’ve never done. I’ve always trusted a company to keep my wealth, and once I got over the fear of losing my keys, I felt pretty free. I initially bought bitcoin as an investment opportunity, treating it like I did my stocks, except I could pay my brother for that meal he just bought me. I could literally send him the money I had invested, which made me start using it as a currency. I love to purchase things with bitcoin, as it’s easy, fast, and I hold all the keys. I always worry when typing in my credit card, “what if I have a keylogger? is my wifi safe?” and more. Yes I’m paranoid, a few computer security classes will do that to you. I keep my coins on a ledger wallet, and would feel comfortable sending a transaction on the public wifi at Defcon. I’m that comfortable with it, and that’s incredible to me.
“When I discovered bitcoin, I was hesitant at first, as storing my own money was something I’ve never done.”
So bitcoin has liberated me from the fear of sending money, and given me total access to my savings, yes the price fluctuates, but I’m confident that it’s general trend is up. Am I right? Who knows, but I’m as confident in it as the US dollar. Bitcoin has become my second currency, and altcoin trading has become my way to diversify my investments. From my previous articles and my current internship, it’s pretty obvious that I have at least one altcoin in my portfolio, but I also am invested in several others that I believe have immense value. And as a developer, there isn’t enough hours in the day for me to bring all my ideas to life.
Safely Storing your Crypto
So you now know my general feeling towards bitcoin and other altcoins, but I haven’t talked about the risk of storing different currencies. Storing bitcoin has become such an industry that there are many solutions to storing your own. I personally feel keeping a hardware wallet is much more secure than keeping it on any exchange, but hardware wallets are not available for most altcoins. So the question comes, is it safer to hold your own keys, or keep them on the exchange?
It will be a personal decision, and both answers are right depending on your situation, but I’ll talk about my position. I don’t own a vault or have a permanent residence to keep my paper wallets safe, yet I still prefer to hold my own keys. Exchanges are a massive target for potential hacks, and have fallen time and time again to security flaws. I won’t go into details about my opinions on how each exchange handles their security, but I will voice a general concern for all of them. To me, not a single exchange is 100% safe, and not much can convince me of that. I understand they go to great lengths to keeping their crypto safe, however they are such a large target in a currency where stolen money cannot be recovered and rarely is an exchange insured. Things may change in the future, but for now, I’m not convinced they are perfect.
The reason why I can’t be convinced is because I am a software developer, still young and not as experienced as many in the field, but I know enough to understand it’s incredibly difficult to write perfect code. Until humans are perfect beings that make 0 mistakes, I will never 100% trust any program to function perfectly without any holes. It’s too much to ask that, and anyone who thinks the code protecting their keys is perfect is not facing reality.
“…it’s incredibly difficult to write perfect code. Until humans are perfect beings that make 0 mistakes, I will never 100% trust any program to function perfectly without any holes.”
I’ll let you know how I store my keys. I like to keep multiple backups, and usually keep three for redundancy. The major risk in storing your own crypto is losing the keys. If you lose your private key, it’s all gone. Although someone can steal your keys, if you have it encrypted locally, then it’s unlikely anyone will target you and be able to take your keys. So my concerns for being hacked is low, and I won’t really factor that in to my risk of storing my keys. I have a bitcoin hot wallet on my phone keeping ~$30, and a hardware wallet for my bitcoin, but for my altcoins I keep them stored as so:
- A paper wallet. I keep a thick cardstock paper with various keys kept in a folder along with other documents I need to keep safe (birth certificate, social security card, etc). The best way to steal my coins, is to break into my home, but just as I’m not too concerned with my encrypted file being unlocked, I’m not too concerned with someone breaking into my home. This might not work for everyone depending on where you live, and I understand it’s not a good solution for everyone. You might need to store them in a safe, or something with a physical lock on it.
- Encrypted on a flashdrive. I have a flashdrive with multiple encrypted wallets on it, and a KeePassX vault I can open on any OS or my phone. This is how I access my funds if I need to move them, the password to encrypt them is kept in my head, and a backup of that password is stored in my parents home if I ever forget it. This might also not work for some people as eventually it comes down to a password you have to keep secure, and that has the same issues as #1.
- Remotely on a server. I have a VPS I pay monthly for and have my own cloud storage I use. It’s an ubuntu server that I went through guides to locking down your linux machine, and keep another copy of the encrypted files there. You could also use dropbox or google drive to store your encrypted backup, and this is potentially better than my option. Google and dropbox are pretty reliable, and storing your backups there would prove to more reliable than my VPS —if I miss a payment, I could lose my files. The downside is that if google/dropbox gets hacked than so do your files, but if you have them encrypted I still think you are safe. A good password takes a significant amount of time to brute force, and if you are very paranoid, just change your keys every year with a new password.
*Note*: I do not take any responsibility for how you store your keys, I am just sharing the method I use.
So that’s how I store my “cold storage” keys, I put it in quotes as sometimes I access the coins once or twice a week. The public keys I keep on my computer so I can always send in more.
I have enough trust that I won’t have all three points of storage be lost at once. If I lose the paper, I can use one of the other two to recreate it and same goes for points 2 and 3. This does mean I have to keep tabs on the three locations, and I do that in my normal use. I feel more security holding my own keys, than trusting the exchanges, but I understand how you might feel an exchange would do a better job than yourself. I’ve been there.
If you still aren’t convinced in holding your own keys, that is your personal decision, but I’d recommend talking to others about their opinions. I know people who lost their money from Mt Gox, and other exchange hacks, and I can’t imagine that person trusting another exchange with their crypto. I doubt users felt unsafe keeping their bitcoin with Bitfiniex a month ago, yet we all saw what happened. What I’m trying to say is, it’s easy to trust an exchange when you haven’t lost anything yet, but as the market cap grows, people are storing more and more of their wealth in altcoins. If you are storing wealth that you cannot afford to lose, it’s time to start weighing the risks. Possibly diversifying your storage locations, I keep about a 50/50 split on exchanges and holding my own. My previous guide was not to encourage everyone to withdraw all of your money, but to give an alternative option and show people how.
A devil’s advocate reason for staying on an exchange
Keeping your keys is half the battle, and if that is preventing you from holding your own keys, then so be it. It’s a personal decision and both decisions come with risks, but I’d be lying to say thats the only thing you have to worry about when holding your own keys.
Sending bitcoin has become so easy, download an app, load your key, scan a barcode, and click send. Not every crypto currency has become this easy to use. Ethereum is now gaining support of many companies like Coinbase, making Ethereum transactions easy, but what about the others?
For the average person, cryptography isn’t exactly a common thing to have studied, and therefore don’t understand the workings of a transaction let alone a blockchain. For bitcoin, there is no need to know any of that, companies have made software to worry about that for you, but not every coin has such support. To send a transaction it usually includes downloading a blockchain, and using your terminal to create and send the transaction. For people unfamiliar with that, it is daunting to send thousands of dollars over your command line, however I feel much more comfortable building the transaction and sending it than letting a company do it. If you read my previous guide about factoids, many altcoins follow very similar steps. If that seemed to complicated, than I can understand you may be hesitant.
For unexperienced users, altcoins do not yet have the easy to use interfaces. Until more wallets are developed, users will be responsible for building their own transactions.
That my stance
I’m writing this to address comments and responses to my guide about moving your coins off the exchanges. I generally like holding my own money and being able to access it without having to ask anyone else. Though when I click withdraw on an exchange, I trust them to comply and do the withdraw in a timely fashion, I prefer to be able to make the transaction myself.
