It’s easy to buy cryptocurrencies like Ether (ETH), the native asset of the Ethereum blockchain, but buying ETH is just the first step toward truly owning and unlocking the asset’s potential.
ETH Exchanges like BTCC and Binance or financial apps like Cash App or Robinhood are most commonly used to buy ETH. Until they take their ETH private keys out of the hands of these platforms, they’ve only purchased an IOU for their ETH.
Since the ethos of crypto revolves around being your own bank and transacting peer-to-peer (p2p), it’s important to understand how to truly own your ETH.
Once you learn how to buy ETH, it’s time to learn how to manage it.
From IOU to ETH
We tend to take our sweet time moving our ETH off exchanges after investing in it, and we usually end up leaving it there for longer than we should.
In reality, we’ve only purchased an IOU for our ETH until we move the coins from the exchange to a wallet where we hold the private keys.
There is no movement of ETH, it is stored on the blockchain in what I can best describe as a virtual safety deposit box – it all depends on who holds the keys.
Your ETH is in the custody of the exchange through which we purchased it, and that exchange holds the keys to our virtual safe deposit box.
In addition, one should keep in mind that Cryptocurrency Trading Platforms are not insured by the Federal Deposit Insurance Corporation and that it is possible for governments to freeze crypto exchange accounts in extreme cases. Furthermore, one has to remember that cryptocurrency exchanges are always at risk of being hacked, losing your crypto, and then going under (see Mt. Gox).
The reason I share this information is not to alarm you. Instead, I share it because it’s better to be safe than sorry. The first step in staying safe is learning how to self-custody your ETH.
Keeping your ETH in your own custody
A self-custody wallet can be classified into three types: a hot wallet, a cold wallet, and a paper wallet. In contrast to hot wallets, which operate like a USB drive, cold wallets only require you to connect when you are using them for transactions, whereas hot wallets are constantly connected to the Internet. Due to the fact that paper wallets are completely disconnected from the Internet, they offer the most security against such things as hacks.
If you are planning to hold your ETH for a long-term investment, then you may want to install a mobile or desktop hot wallet such as Exodus or Atomic Wallet or, if you wish to be even more secure, a cold hardware wallet such as Ledger or Trezor.
Alternatively, if security is your top concern, record the private key to your assets in a paper wallet, which you then store in an undisclosed safety deposit box.
The digital wallet option requires you to set up a 12- or 24-word secret private key recovery phrase. This phrase gives you access to your private key, which you need to access your ETH.
Your private key and recovery phrase should never be shared with anyone, even support staff for these wallets, as anyone with your private key can access your ETH.
You have now taken your first step towards becoming a crypto pro (not to be mistaken with a “bro”; those guys aren’t so cool; you have become your own bank once you have moved your ETH off of an exchange).
You own ETH; use it
Following the transfer of your ETH into your own custody, you can use it to help govern the Ethereum blockchain, generate yield, purchase goods, and more.