There’s an old saying in cryptocurrency: “Not your keys, not your crypto.”
This adage is hotly debated in crypto circles and epitomizes the ethos of decentralization finance. The upshot is when you own cryptocurrency on Coinbase, Binance or any of the other popular exchanges you’re entrusting your crypto to a centralized third party.
Besides the philosophical implications behind this, there are many benefits to moving your funds off an exchange and into a dedicated cryptocurrency wallet.
Here are three quick ones:
- Access to DeFi: Cryptocurrency wallets give you access to decentralized finance and new ways to earn interest on your tokens. Additionally, the majority of applications built on Ethereum and Polkadot require a dedicated crypto wallet.
- Access to NFTs: Wallets enable you to purchase NFTs on exchanges like Rarible and Opensea. Today these NFTs extend to Ethereum options contracts and bonds.
- Better Security: While unlikely today, there have been a few times in the past where an exchange was exploited, losing their customers’ funds. The most notorious was the 2014 hack of bitcoin exchange Mt.Gox, which resulted in the theft of more than $660 million of users’ funds. Any assets held on exchange or online in general are considered to be in a “Hot Wallet” and those taken offline are held in a “Cold Wallet”. The most secure is always in a cold wallet.
Andreas Antonopoulos: “Your keys, your bitcoin. Not your keys, not your bitcoin.”
The Laydown on Public & Private Keys
There are two keys in cryptocurrency: Public and Private.
Similar to a bank account number, public keys are receiving addresses for cryptocurrency. It’s easy to find this address as it’s stamped onto the blockchain after each transaction and viewable on Etherscan.
Private keys are the more important of the two. A private key is similar to a password and anyone with access to this key can manipulate funds attached to that account. “Not your keys, not your crypto” refers to your private key.
How to get started: Creating a wallet
There are two types of wallets: Software wallets and Hardware wallets (Hot and Cold Storage).
The most popular software wallets include Metamask, MyEtherWallet, and Rainbow. Software wallets make it much easier to interact with apps on the Ethereum network but are a little less secure than hardware wallets.
Hardware wallets are designed with high-level cryptosecurity in mind. Like a USB flash drive you can plug in your device, enter a pin, and send and confirm transactions on the network. Trezor and Ledger Nano S are highly popular hardware wallets.
The Exact Steps Needed to Setup Your Wallet
First, you need to create a digital wallet that holds Ethereum tokens. We recommend Metamask which can be set up and created in mere minutes. It’s important to note, that in order to transact on the blockchain of your choosing (i.e. Ethereum, Binance, or Cardano), you must hold that network’s tokens.
Second, use Coinbase or Binance or Coinbase Pro (smallest fees) to purchase Ethereum. Then download a digital wallet like Rainbow or Metamask which easily allows you to transact ETH. We’d recommend depositing at least $100 to start off due to high gas fees on the Ethereum network. IMPORTANT: Always triple-check to make sure you’re sending your cryptocurrency to the correct address.
Third, just a quick reminder that as Ethereum continues to upgrade transactions cost will go down. Expect high gas fees as you interact with decentralized applications now, but don’t expect it to last forever.
And fourth, you’re going to want to head to one of the many decentralized applications built on Ethereum such as OpenSea, Super Rare or Rarible Rarible, for instance, sells NFTs and is very popular. Once on the website you’ll click the upper-right hand corner and connect your wallet. If you’re using Metamask it’ll connect your wallet in a matter of seconds after entering in your password. For Rainbow users, a QR code will pop up and you’ll have to scan it with your camera. Nice and easy.
Bottom line
For the first time, people around the world have full ownership over their finances, art, music, and applications through Ethereum and cryptocurrency wallets.
It’s miraculous.
As decentralization continues online, there will likely be more support for the usage of crypto wallets like Rainbow or Metamask.
Jack Dorsey already voiced his interest in decentralizing Twitter. And the Winklevoss twins are funding Bitcoin and DeFi developers in the hopes that they make the next cryptocurrency breakthrough.
We’ve seen the future, and the future is decentralized.
Key takeaways
- Download a crypto wallet like Rainbow or Metamask. Or consider purchasing a hardware wallet like Trezor and Ledger Nano S
- Purchase cryptocurrency on Binance or Coinbase and send it to the public key on your crypto wallet after triple-checking the address.
- Head to a decentralized application like Rarible, Uniswap or Aave
- Connect your wallet to the platform and have fun exploring the weird world of DeFi
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