Transferring and Storing Cryptocurrency
Making your first ever transaction can be a little daunting. This episode will walk through the process of transferring your cryptocurrency to another person, as well as the best ways to store your crypto. This will include a run-down of the different types of wallets, along with their pros and cons.
The main talking points of the episode include:
- The changing dynamic of ownership and security.
- A walkthrough of sending some cryptocurrency.
- The different types of digital wallets.
- What happens if you lose your private key?
- Avoiding scams and staying safe.
By the end of this episode, you’ll have everything you need to keep your precious crypto safe.
Matthew Howells-Barby: Hey everyone and welcome to Decrypting Crypto Series One, Episode Seven. We’re going to be talking about transferring and storing crypto. I’m your co-host Matthew Howells-Barby, and my other co-host here is Austin Knight.
Austin Knight: Hey Matt, hey everyone. So if you all recall episode two, we talked about how you can buy crypto and we touched lightly on storing it. But we want to take a deeper dive on how you really, safely store that cryptocurrency and how you transfer it from yourself to friends or to companies when you want to purchase something. So, how does that work? First we’re going to start with the basics, which is that when you use fiat currency, you use a bank and with crypto, you’re the bank. This brings a lot of advantages but also a lot of complexities. So, we’ll cover how you send money and how that works in crypto, versus a traditional bank. We’re going to talk about how you store money and the different types of wallets that you can use there. We dove into that a little bit in episode two, but we just want to make sure that we’re perfectly clear about how that works in the context of transferring and storing crypto.
Then we’re going to talk about the scary, terrifying situation of what happens if you lost your private key, which is what allows you to access your wallets and therefore access your cryptocurrency. If you lose it, what do you do? There’s some steps that you can take. And then finally, to make sure that you never get yourself into that situation in the first place. We’re going to talk about how you stay safe, how you secure your crypto from a technological perspective and also from a personal perspective.
Matthew Howells-Barby: All right. Let’s jump into it. I liked the part that you said at the start is kind of like with fiat currency, you use a bank and crypto you become the bank, which is better? We will soon find out.
Austin Knight: Overall I think it’s better. There’s some scary things that you have to accept in the process like, “Wait, I’m the bank?” But it is ultimately better.
Matthew Howells-Barby: Oh absolutely. Right. Let’s have a little bit of a refresher here. As we said, we’ve touched on some of this stuff in episode two, we didn’t go too deep but I just want to refresh everyone here in particular you the listener’s memory, on the example of sending money in the traditional banking system versus sending money in the crypto banking system.
Austin Knight: Is it a banking system?
Matthew Howells-Barby: I guess we could call it that.
Austin Knight: In the crypto system.
Matthew Howells-Barby: Yeah. All right so, traditional. Traditional system. You store your currency in a bank account owned by the bank. You have a route number, an account number. If it’s an international account you have an international bank account number or a swift, right? You ask the bank whether that’s via a phone call, in person, online. If you’re going to go super old school, maybe you can fax them. Hey I’m not going to stop you, right. Do people still use fax?
Austin Knight: Oh, I use fax.
Matthew Howells-Barby: Could you fax my some bitcoins please?
Austin Knight: Yeah.
Matthew Howells-Barby: Bring back fax. All right so you faxed over your request to the bank, to send money to another account, right. So you’re going to need to have that other person’s routing number, their account number, I’m sure they can fax you that. And when you’ve got that, you send it over. The bank will then contact the receiving party’s bank. They’ll say, “Hey” and again, fax is a perfect application. Fax for the blockchain, I don’t want to keep ringing the fax thing here but I feel like we’ve got an ICO in us coming up soon, right?
Austin Knight: Oh boy.
Matthew Howells-Barby: Fax coin.
Austin Knight: It’s definitely not a scam.
Matthew Howells-Barby: So the bank contacts the receiving party’s bank and it sends the funds. More importantly, using double entry book keeping, right? And depending on where the receiving bank is, especially if it’s cross border, you’re going to get a bunch of fees but even just U.S. to U.S. bank, the average fee you’re going to get charged is between $15 and $35 dollars. That’s even if you send $10 dollars, that is …
Austin Knight: You’re still getting that $15 fee.
Matthew Howells-Barby: Oh worth every penny, right? It’s kind of crazy. The funds will then end up in the receiving party’s account, in a very timely fashion, two to four days on average.
Austin Knight: If you’re lucky.
Matthew Howells-Barby: If you’re lucky, yep. And the kind of fees and times, here’s like the little asterisk, right? It’s like fees and times increase if it moves overseas and also could change depending on the feeling of the bank. So that kind of changes around. Then we got the crypto bank. So you store your crypto in your wallet, owned by you. You being the bank of you. You use your private key to gain access to your wallet and you can send funds to the receiving party’s public address. Public address being the public address of their wallet, kind of like the account number of a bank. You pay a transaction fee here, per transaction. So if we look at Ether, average last year, near the end of the year in particular of ether transactions is around $0.50 cent worth of ether.
Austin Knight: So there’s way lower overhead here, which helps and it’s not a single entity controlling it, which also helps, but you still have to incentivize all of those computers around the world, all of those nodes to keep track of this public ledger, so.
Matthew Howells-Barby: Those minors. Those children that power the network. Right, so, the other thing to mention here is that’s Ether. The transaction fee is $0.50 cent, different blockchains have different transaction fees.
Austin Knight: Some of them have virtually none.
Matthew Howells-Barby: Like Dash is $0.02 cent per transaction. I think XRP is even lower, Litecoin at the time here right now, is around $0.20 cent. Now bitcoin is a bit more, we’re talking casually closer to the bank’s type fees we’re seeing. In Jan 2018, it’s sitting closer to the $10-$15 dollars mark. That’s not ideal but we’re not going to dig too deep into that because hey, that’s next episode so, that’s going to be a fun one. But once you’ve paid the transaction fee, which happens as soon as you send the funds, the funds are received by the receiving party, in the case of Ether, in usually under 10 minutes.
Austin Knight: Wow, you just went from two to four days or let’s say you’re dealing with international transfers even longer than that and you turned that into 10 minutes.
Matthew Howells-Barby: That’s pretty sweet, right?
Austin Knight: Yeah.
Matthew Howells-Barby: Yeah. If I had to say what is crypto 101 benefit? It’s showcased in the past five minutes of us talking.
Austin Knight: Yeah, absolutely.
Okay so, you’ve transferred some funds and you did it in a much cooler way than you would with a bank. Now that you have funds or that the receiving party got your funds, how are they going to store it?
Matthew Howells-Barby: Mm-hmm (affirmative).
Austin Knight: So, within in an exchange like Coinbase or Bit Tricks, or Gemini, you can actually store the funds. You can keep your funds in a Coinbase wallet for example and they even have something called the Coinbase Vault, which is a little bit outside of the exchange, a little bit more secure but ultimately this is the least secure method. It’s not that it’s necessarily fully un-secure but it’s definitely the least secure form of storing your currency. And the reason for this is not because of a flaw in the blockchain or the cryptocurrency technology per se but simply because the exchange is centralized. so your currency is centralized in Coinbase, which makes it easier to hack, instead of having- …
Matthew Howells-Barby: Kind of like a bank really.
Austin Knight: Kind of like a bank. So, here you’re dealing with about similar security as you would if you had your currency in a bank. Of course you could argue is Coinbase more secure or less secure than a bank, that’s all dependent on the exchange that you’re dealing with but they do take similar steps to keep you secure. Coinbase definitely has better engineers than a lot of banks do.
Matthew Howells-Barby: Yeah. Coinbase has pretty strong insurance as well. So if Coinbase gets hacked, as in the company Coinbase and it exposes all of your data, I believe it’s something like they have insurance up to around about a million dollars worth of assets. Now what that insurance does not cover, is if your personal account gets hacked.
Austin Knight: Right it’s only the stuff in the exchange.
Matthew Howells-Barby: Yeah, you give someone or they guess your password to your private account, and they get into your account, that’s your failure of security, right? So that doesn’t get covered.
Austin Knight: That’s different, yeah. But let’s say you want to take it a step further and you want to be more secure than an exchange or perhaps more secure than you would have been at a bank level, which is the smart and noble thing to do whenever you’re dealing with cryptocurrency. Your first option is to get an online or mobile wallet, like Jacks or Bread, we mentioned those in episode two. If you want to take it a step further than that, you can get a hardware wallet like the Trezor or Ledger. Matt and I both have the Ledger Nano S, just a matter of personal preference based on what that can store. Some of these wallets can store multiple currencies, others can only store one currency.
That’s going to be up to you to determine which wallet you want to go with. If you want to take it a step further and go as secure as possible, then you can get a paper or an offline wallet, something that you’re never going to store in digital format on your computer, it’s literally a piece of paper via MyEtherWallet. And this is super secure but again, as we had mentioned before, the more technically secure that you get with your crypto currency, the more you also open yourself up to human error.
Matthew Howells-Barby: Yeah and just one thing on MyEtherWallet. MyEtherWallet is primarily for Ether related cryptos, so anything that’s built on the Ethereum blockchain or Ether itself, which is actually a huge amount of different cryptos, most ICO’s are run that way. But you can’t store things like bitcoin in there, but if you have bitcoin, XRP, Litecoin, whatever right, you can go and just google bitcoin paper wallet and you’ll find a bunch of paper wallet solutions that you can very quickly go and figure out. Please, please, please just double check on any of these things. When I’m saying google it, I’m also implying that you gotta use some common sense and not just full into some scam. Just make sure that whatever you’re doing here, it seems to be, read up on some reviews, make sure that people have used them. If possible, take recommendations from a friend, that’s always the best. I know that’s not always possible. Hey, at worst, take recommendations from us for at least wallets where we have nothing to gain other than really honestly giving our opinion in what we thinks working.
Austin Knight: Yeah and a very common practice whenever you’re trying to find a new ICO, say, or a paper wallet is, take the name of that paper wallet, say like MyEtherWallet and then just append scam to the end of the google search. MyEtherWallet scam and just see what comes up. That’s a very simple tactic but that can give you a quick gut check as to how this technology is being perceived by the community if you don’t have the ability to really dive into it or talk to a friend.
Matthew Howells-Barby: 100 percent. So, there’s something here that I want to really cover off and this is like the crypto nightmare, right? Like it’s …
Austin Knight: So remember when we were talking about that sliding scale of text security verses opening yourself up to human error? Vulnerabilities there. What happens when you make that human error mistake?
Matthew Howells-Barby: So let’s say you’ve lost your private key. Private key is the only thing that you really have that enables you to access your wallet. You lose that, I mean, this is game over. Do not pass go and do not collect your 200 bitcoins right. This is it. So, I’ve this before and I really want to emphasize it, there is no customer support for the blockchain. There is customer support for Coinbase, and some of the other different exchanges, how responsive they are is maybe another thing but as Austin was just saying there, if you are storing these cryptos and managing, you become the bank. You need to, I was just about to say, act like a bank would but then I realized that banks don’t always do the best job.
Austin Knight: They’re not always prudent.
Matthew Howells-Barby: Act how you would want a bank to act, right. I mean, we mentioned this in one of the previous episodes where some guy threw out his laptop with seven and half thousand bitcoins on it in 2013 and wow, I mean, that’s worth well over $100 million dollars now and he’s digging up landfill to try and recover it. Don’t end up in the landfill, would be my mantra for anyone that’s going to now exposed and thinking about how do I control my own kind of destiny from a security point of you, which kind of leads into … We’ve got a few tips here, I would say, for trying to stay safe as much as possible.
Austin Knight: First, and this has become a little bit of a pattern, watch out for scams. That’s the high level thing. So you can perform that google search on a basic level. Don’t ever give out your private key. You wouldn’t give out your google password to somebody, you wouldn’t give out your banking pin to somebody. Don’t give out your private key.
Matthew Howells-Barby: I think that’s key. And actually you make a good point, it’s like you’re the pin number to your credit card, right? It’s commonly known, there’s never a thing that ever needs your pin other than the ATM or a debit card machine. What are those things called? I don’t know, money machines that dispense the coffee.
Austin Knight: That’s an automatic teller machine?
Matthew Howells-Barby: Thank you. So, other than those situations, that’s when you use your pin but you would never tell that four digit pin number to someone. This is exactly the same with your private key. If anyone is ever asking for your private key, just be like, “Hey no, that’s like my credit card pin number. If I give that, it’s game over.”
Austin Knight: Yep.
Matthew Howells-Barby: Exactly the same.
Austin Knight: There’s nothing to save you after you give that out.
Matthew Howells-Barby: That’s it, yeah. It’s completely over.
Austin Knight: Yeah. You can also store any of those wallets, other than the digital ones, unless you want to put your laptop in it, inside a safe. So, get a safe, put your wallet in there and make sure that it’s physically safe.
Matthew Howells-Barby: Yeah I think so, especially with things like the paper wallets, the hardware wallets, and that’s another thing is, some people refer to hardware wallets as “air gaped wallets” same as paper, basically it means it’s not connected to the internet and it’s stored offline, sometimes they call it cold storage. I’m very much a proponent of this. I think that these technologies will become a bit more user friendly over time and things will get a bit easier in storing crypto, wherever possible, get these out of the exchanges and get them into some of kind air gaped wallet, right. These hardware wallet like the Trezor or the Ledger and I’m sure there’s plenty of other ones as well.
Austin Knight: Yep. You’ll find the one that fits for you. A lot of them are sold on Amazon, so if you want to read reviews on Amazon and see how people are using them, that’s a great place to go. If you own a ton of bitcoin or if you own a ton of Ether, don’t store it on all in one place. So, earlier we had talked about maybe ironically, you put some of this in a safe deposit box, bringing it right back to the bank but not in control of the bank as much anymore or maybe you have two different homes or something like that, that you’re storing it in. Maybe you bury it in your backyard, whatever you want to do. Making sure that it’s not all stored on one device is going to mitigate some of that risk that you take on.
Matthew Howells-Barby: For sure. So, let’s say you did store all of your crypto on a Ledger Nano, right? So, you’ve got it all on this USB flash drive type style thing, if I owned 1,000 bitcoins, first of all, with all due respect Austin, I wouldn’t be sitting next you right now.
Austin Knight: I know. You’d be too good for me at that point. It would all be over.
Matthew Howells-Barby: I’d be sipping cocktails on a beach somewhere far away. Maybe on my private island, right? That would be the case. But if you do own a fair amount and, in all honesty, as soon as you get to anything you deem you would not want to lose, just even buy a couple of different ledgers and you could just split this up. Instead of having all 1,000 bitcoins on one single thing, that if it’s gone, it’s gone. Split it up into maybe a few different ones, maybe you bought ten different Ledger Nano’s in this case right, it would be worth it and put a hundred bitcoin on each. Now that’s if you own serious amounts but even for smaller amounts that you have, like you don’t want to even have six figures worth in U.S. dollar equivalent all sitting in one place. ‘Cause that’s just not good risk management really.
Austin Knight: Yeah. But if you do own a very, very small amount. Like say that you’re just playing around, trying to learn the ropes and maybe you’ve got $100 dollars worth of cryptocurrency, it is okay to keep it on the exchange. Don’t get overwhelmed by the complexity of wallets until you’re ready to deal with that and you’re at this scale where that feels appropriate. Speaking of exchanges.
Matthew Howells-Barby: Oh yeah.
Austin Knight: Always set up two factor authentication.
Matthew Howells-Barby: Oh man. Please, please do this people. If you don’t know what two factor authentication is, in short, it basically means you need two different ways of verifying that you are you to log in. Now, your first one usually for an exchange is your password and okay, that’s fine but if someone gets your Coinbase password, okay that might be game over for you. So, setting up two factor authentication could be, hey, they’re going to send a text message to your cellphone and then it will give you a code that you use and you’ll use that to log in. Personally, I actually don’t even like that.
Austin Knight: Yeah, neither do I.
Matthew Howells-Barby: I was actually out of the country the other day and I had my U.S. cell number set up and I went to go into Coinbase and I was like, “Huh. I want to trade some of these coins or I want to move some of the these coins around should I say.” And it was like, okay cool we’ve just sent a text message to your cellphone number and I was like, “Oh no wait. That’s my U.S. cell number and I’m in the UK.”
Austin Knight: It’s never going to come.
Matthew Howells-Barby: Yeah, it’s never going to come and I was like, “Oh god this is a real issue for me, if there was a big crisis.” So what you want to do is get Google Authenticator, it’s a free app and you can set up … Basically as long as you have wifi and it’s set to your device, it will generate a code for you that you can then use in a similar way but it doesn’t require your cellphone number.
Austin Knight: This is a smart thing to do. Since moving to Brazil, I’ve had to change my phone number three times over the course of two years. And right now, obviously I’m in the States so I used to have my Brazilian phone number tied to my Coinbase account and then I came to the states and a lot of crazy stuff was happening with the cryptocurrency and- …
Matthew Howells-Barby: Really? I hadn’t heard anything.
Austin Knight: Ah man, you just saw the loop over here, I’m telling ya. I was thinking, I think I’d like to buy some right now and of course they sent a text message to my Brazilian phone and I wasn’t able to get into Coinbase. Same situation as Matt but the difference is that phone number didn’t exist anymore because I had actually canceled it to get a world phone, which is now based out of the States. So I actually had to go through a whole identity verification process with Coinbase, which they were actually wonderful about that. It only took a few days and this was over the holidays but I was lucky enough to have enough of my identity information already documented in Coinbase to where they would verify but there are a lot of cases where they won’t. They don’t feel that it’s safe enough to do it. So you could actually get permanently locked out of your account.
Matthew Howells-Barby: That would not be good.
Austin Knight: That would not be good.
Matthew Howells-Barby: I’d even heard crazy things where scammers have been calling up T-Mobile or Verizon and impersonating people on their account- …
Austin Knight: Take over their sim card.
Matthew Howells-Barby: Yeah, taking over their sim card. Getting their number transferred over to their number and then being able to pass through the two factor authentication. It’s crazy shit, right?
Austin Knight: Yeah. But it’s economically viable. Yeah. A couple years ago, YouTube went through a bunch of hacks. Huge YouTubers went through the same thing where scammers where using social engineering to get into their sim cards and take over their YouTube accounts. Anytime that there’s an economic incentive to do something like that, you can rest assured that people will be led to do it.
Matthew Howells-Barby: Yeah. I mean, people prepare to become paranoid wrecks of an individual that scrutinize every aspect of your life and security. Your life is never going to be the same again I’m afraid. Crypto will change it. You won’t trust people, friends will leave you. But hey, you’ll be rich on Ether and Bitcoin, right, so.
Austin Knight: Which is not even real!
Matthew Howells-Barby: All right so, just to wrap things up. I think the key things here, we’ve talked a bit about how this differs from the traditional banking model. The big things that we’re really pushing is, where possible, get things out of the exchanges, get them into a wallet that you own and do everything you can to stay safe. Look, sometimes things happen and they’re out of your control but just do everything you can to secure this as much as physically possible. Remember, never give out your private key. That is like the number one rule of crypto. It’s like Fight Club right. Rule number one, do not give out your private key, rule number two, do not give out your private key. That is it. Oh yeah, and don’t talk about your private key either.
Matthew Howells-Barby: So hopefully you’ve learned a bit more. You’re storing all of that lovely crypto, feeling nice and secure. Next episode, this is going to be a big one. We’re going to be talking, we’ve hinted to this a few times in previous episodes around Ethereum, we talked about smart contracts. We’re going to be doing the deepest of dives into what the hell Ethereum is and all of the different applications that it holds for the future of the blockchain.
Austin Knight: Thanks for listening. If you love this episode and want to show your appreciation to myself and Matt, give us a review on iTunes or your favorite podcasting platform. We really appreciate that. You can also visit thecoinoffering.com to learn more about cryptocurrencies, get caught up on some news, see how your currency is performing and you can follow us on Twitter @thecoinoffering. As well as email us at firstname.lastname@example.org if you’d like to get in touch.