It’s been a wild year for Bitcoin and cryptocurrencies in general. People whom I thought would never be interested in this stuff are all of a sudden highly interested and have purchased some. Old men who don’t understand how it works are asking me questions left, right, and center. National governments all over the world are borrowing and spending money they don’t have like their credit cards have no limits. (That article is from April 2020, by the way. We’re still borrowing and spending like crazy more than a year later.) Oh, and there’s also this virus that’s been going around that has gotten people interested in digital cash. It’s a crypto bull market.
Because of all the new people coming into the space, there’s a good chance you’re a newbie and have little to no idea what you’re doing, or how to keep your cryptomoney safe.
ʕ·ᴥ·ʔ: Thaaaaaaat’s me! But I’ve made lotsa’ money!
Uh, yeah, let’s make sure you don’t lose lotsa’ money too. I mean, you might still lose lotsa’ money in a bear market, but if you’re new and still don’t quite know what you’re doing, then at least this article will help you to not lose money in other ways.
ʕ·ᴥ·ʔ: “Bear market”? Hey, I’m a bear! That means that a bear market would be even better for me than a bull market, right? Kinda’ like how a buyer’s market is good for buyers and a seller’s market is good for sellers!
Eh, haha, no.
Anyway, I won’t go into too many nitty-gritty details about privacy and security with cryptocurrencies, but I will tell you the simplest and easiest method of keeping your digital wealth safe, and some things that you should stay up-to-date on to keep it safe on into the future.
It’s a bank, and you’re opening a bank account
The most common way people buy cryptocurrencies is by going to an centralized exchange that facilitates trades between buyers and sellers. If you’re familiar with stock exchanges like the New York Stock Exchange or other securities exchanges, cryptocurrency exchanges like Coinbase, Gemini, Kraken, and Binance are exactly like that. Because they function like securities exchanges, trades have to happen between buyers and sellers instantly, something which some cryptocurrencies like Bitcoin cannot guarantee. So, instead of relying on the cryptocurrencies’ technology to facilitate transactions, these exchanges build their own platforms to facilitate transactions, and you are merely entitled to the money you have on their platforms; you don’t actually control your money directly. It’s the difference between having cash in your wallet, and having cash in a bank account: If the bank won’t give you your money, you’re not getting it. We in the cryptocurrency community have a similar saying: “Not your keys, not your coins.”
When you put your money in an exchange, you are trusting them to give you back what is supposed to be yours when you ask for it. That doesn’t always happen. Sometimes it’s harmless, like making you wait a few days to withdraw your money. Other times, it’s a bother, like being able to withdraw only a limited amount of money without giving up your personal information. But sometimes, the issue is much worse, like the exchange being no longer able to access your money or hackers breaking into their systems.
The whole point of cryptocurrencies like Bitcoin is to get rid of the middleman, stop needing to trust a third party like a bank, and be in full control of your money. If you want that, you’ll have to learn how to make your own cryptocurrency wallets and manage your own keys.
It’s still a bank, but it’s your bank
The easiest and fastest way to do this is to install the Exodus Wallet. It’s got an Android and iOS app. If you go to their official website, they also have a desktop app for Windows, MacOS, and Linux. With this one wallet app, you can manage more than a hundred different cryptocurrencies; not just Bitcoin. It is, in my opinion, the easiest cryptocurrency wallet there is to use out there.
ʕ·ᴥ·ʔ: Cool! I’ll install it right now!
Hold on. Let’s not do that.
ʕ·ᴥ·ʔ: Why not?
Where are you gonna’ install it?
ʕ·ᴥ·ʔ: Uh, my phone?
Yeah, don’t.
ʕ·ᴥ·ʔ: Then my computer?
Nope, not there either.
ʕ ಠ ᴥಠ ʔ: Then how am I supposed to use this thing?
Simple: By installing it on a second, clean, and secure phone that you don’t normally use.
ʕ·ᴥ·ʔ: Oh. Oh wait. This sounds familiar.
Yeah, I’ve talked about using a secondary phone before. If you haven’t read that, the gist is: Use a different phone for all the important stuff, and only the important stuff. Install nothing else on it, hardly ever use it, keep it off and encrypted when you’re not using it, maybe avoid bringing it around with you when you’re sure you don’t need to use it, and keep it somewhere physically safe.
You want a different phone for installing Exodus on because your normal phone has too much going on with it everyday. You use it for web browsing, for installing apps, for emails and chats, for navigating some foreign country, etc.; all of which are security risks to your wealth if it is accessible from that phone, including your cryptocurrency holdings. If you have a sizeable sum of crypto to keep, you do not want your regular phone having access to that.
So, instead, install Exodus on your super clean, super secure, super secret phone. Treat it like your own personal bank. When you wanna’ deposit your dollar savings in a safe place, you go to a bank. When you wanna’ deposit your Bitcoin savings in a safe place, you go to your secondary phone. If you wanna’ carry some spending money around, you withdraw some dollars from your bank and put them in your leather wallet. If you wanna’ carry some spending Bitcoin around, you withdraw some Bitcoin from your secondary phone and put them into your primary phone. This way, you have full control over your money without trusting a third party like an exchange or a bank, while keeping it almost as secure as it would be if it were in a bank.
ʕ·ᴥ·ʔ: That’s cool, but I always hear people say that hardware wallets are the safest way to store cryptocurrency. So hardware wallets are better right?
Nope! No difference!
ʕ • ᴥ • ʔ: Really?!
Really. No. Difference.
Unlike with real cash like dollar bills, cryptocurrencies do not exist in physical space. As you may already know, they exist on the blockchain, and the only thing making them yours is whether or not you have the private keys that allow you to spend them. Hardware wallets do nothing but securely store your private keys, just like a secondary phone that you keep clean and secure. You don’t need to buy some expensive, specialized device from Ledger or Trezor; any decent smartphone will do. You could even use an old smartphone that has been wiped clean of all data and reset to factory settings. That will do as well.
Creating deposit insurance for your bank
So let’s say you’ve finished setting up your bank. You’ve got almost all of your crypto in an Exodus Wallet in your secondary phone, and maybe some spending money in a different Exodus Wallet on your primary phone. Now, what happens if you somehow manage to lose your secondary phone?
ʕ·ᴥ·ʔ: I’m royally screwed, hehe.
Exactly.
Sticking with the bank analogy, if your bank goes bankrupt, your government might have some deposit insurance in place to pay you back for your losses. Now, there is no such thing as deposit insurance in the world of cryptocurrencies, but you can have something even better: backups.
With Exodus Wallet and most other wallets, you have the ability to backup and restore your wallet with a seed phrase (also called a mnemonic phrase). Now, you could try to memorize that 12-, 18-, or even 24-word phrase, but here’s a better idea: Store it in your password manager. If your password manager is good enough to keep the password to your online banking account, then it’s good enough to keep the seed phrase to your cryptocurrency wallet. Just be sure to keep the password manager itself backed up in multiple locations. If you’re willing to go the offline route, then keep encrypted backups of your password manager in multiple safe locations that you can access. If you really want cloud backups, then use trustworthy zero-knowledge cloud service providers like Bitwarden or Sync.com. I mentioned both of these and explained what zero-knowledge clouds are in my last article.
With the bulk of your cryptoinvestment safely stored in an Exodus Wallet on your secondary phone, and your seed phrase safely stored in a password manager backed up to multiple locations, the only ways for you to accidentally lose all of your cryptocurrency would be to either lose your secondary phone and forget the password to your password manager, or lose your secondary phone along with your password manager and all of its backups. It can still happen, but, as long as you remember the password to your password manager (which you should; it’s the one and only password you have to remember), then your cryptocurrency is safer in your Exodus Wallet than your dollars at a big bank.
Bankruptcy proceedings
Losing your phone, even your secondary phone which you do your best to keep safe, can always happen. So, if that happens, you better know how to restore from your seed phrase.
And speaking of restoring from your seed phrase, what would happen to your crypto if you lost your secondary phone and Exodus Wallet went bankrupt? Would you still have access to your crypto?
ʕ·ᴥ·ʔ: Uh, I’d sure hope so.
Well, actually, you would.
A lot of people don’t know this, but Exodus Wallet and many other cryptocurrency wallets use several compatible cryptographic standards: BIP-32, BIP-39, BIP-44, and others. The one we’re most interested in here is BIP-39. That is currently the most popular cryptographic standard that lays out how a seed phrase should be generated, and how a cryptocurrency wallet should be restored from a seed phrase. It is also the standard that Exodus Wallet abides by. So, in the off-chance that you have all your crypto stored in an Exodus Wallet, and then you lost your phone containing that Exodus Wallet, and Exodus Wallet goes bankrupt at the same time, well guess what: YOU’RE FINE!
You are totally fine. You can just get a new phone, install some other BIP-39 wallet like Mycelium or BlueWallet or Wasabi or Samourai, and restore your wallet from the same seed phrase that was generated by Exodus. Then you’ll have access to your crypto again, with a completely different wallet. This works even for hardware wallets, like Ledger and Trezor, because they support the BIP-39 standard as well.
Still not too good to fail
Having said all that about BIP-39–
ʕ·ᴥ·ʔ: It’s great!
Indeed, it is, but it does have some flaws. Specifically: at least these two. Understanding what that document means might be a little hard for some, but the conclusion to draw is this: BIP-39 will become obsolete someday. It’s good, but not good enough that you’ll never have to think about it. Bitcoin and the cryptocurrency space in general is a constantly improving and evolving community. One day, we’ll probably have a new cryptographic standard that will replace BIP-39. When that happens, you’ll wanna’ know about it if you keep a sizeable sum of cryptocurrency, so that you’re never at risk of losing your money due to obsolescence.
And this same advice can be given regarding cryptocurrencies in general: It is a constantly evolving space, old things will eventually be discarded, and you should stay up-to-date on its developments. This is what being your own bank means: Your keys, your responsibility. If you don’t want to trust a third-party like a bank, then you have to trust yourself.
…
ᕦʕ •ᴥ•ʔᕤ: WISDOM +1
You know what else is your responsibility? Taking so long to publish an article, that now we’re all of a sudden in a bear market.
ʕ·ᴥ·ʔ: I love it, because I’m a bear!
Yes, yes, I’m sure you do, Kuma.
And since we’re in a bear market, you need to keep your crypto safe for the long haul! (Well, whatever crypto you don’t sell, that is.) This article should be enough to keep you pretty darn safe, but you’re still not too good to fail! So check out some of my other articles, and next month I’ll publish another new one too. If you wanna’ be notified of new articles, consider subscribing. You can submit your email address below, or add my RSS feed in the menu to your RSS reader. I make zero money outta’ this website and will not share your data with anyone but Kuma. (ʕ·ᴥ·ʔ: Hello!) You’ll be notified of new articles, and only new articles, once a month.