Beginners Guide 3
Moving Crypto from an Exchange into Your Own Private Crypto Wallet.
Once you’ve bought and are holding some crypto on an exchange like CoinBase, Crypto.com, Kraken, FTX or Newton, it’s important to understand the implications of keeping it there.
Sure, it’s convenient (it’s already there for one thing) and you don’t technically need to do anything else. Your exchange will let you send and receive crypto.
Just understand that by keeping crypto on a centralized crypto exchange you are also giving up control of it (ownership). You’ll have to trust your exchange as a custodian who will manage and store all “your” crypto in their wallets on your behalf.
That’s the deal.
Now you might not have any issues. Most people don’t. You probably are using a larger exchanges that’s been in business for several years and has many loyal and satisfied customers. However, there are also tens of thousands of people who trusted Celsius, QuadricaCX and Mt. Goxx.
This Guide is all about understanding and managing risk.
What could possibly go wrong?
Well, lets consider a few things:
- Your exchange could get hacked. (Binance, Mt Goxx, Etc)
- It also could be asked by a government to freeze accounts because it doesn’t like where a donation went. (Canada)
- It even could go bankrupt. (Voyager, Celsius)
Instead of the familiar login, you might get a 404 page. (QuadricaCX)
In any of these cases you won’t have much say in what happens to your holdings. Trust me you don’t want to be in any of these situations.
Not your Keys — Not your Coins.
– Everyone says this
Guide 3 will go over how storage and ownership works, what you need to consider, and of course the best possible recommendations.
First of all, how does anyone know for sure if they own the crypto in their accounts?
It’s just all code right…
As we mentioned in a previous post, there is no crypto stored in a crypto wallet. The exchange where you bought it doesn’t have any either. There’s none anywhere on your phone or laptop or USB drive. Instead it’s all there on its respective blockchain and none of it can ever leave that blockchain.
Ownership is a different concept when it comes to digital currencies. Since no one can actually remove any crypto from its respective blockchain, ownership comes down to permissions.
If you or I owned a Bitcoin, it simply means that we’d have the authorization to move it from our private Bitcoin wallet over to any other Bitcoin wallet (on the blockchain) and thus transfer those rights over to someone else.
Ownership Means Holding the “Private Keys”
Allow me to explain…
Private Keys are kind of like passwords that authorize or “sign” transactions and allow people to send their cryptos.
Send is exactly the same thing as spend. So having ownership of crypto means holding the Private Keys because because they are required for signing transactions (authorizing).
This is the whole idea behind ownership of a cryptocurrency or digital asset in a nutshell.
Private Wallets are needed to hold Private Keys
This how you (and only you) can access and manage the crypto stored in your wallet.
A Private or “Self -custody” crypto wallet stores your Private Keys, not the actual crypto. You may recall from earlier that we said a cryptocurrency never leaves its blockchain — only the permissions and authorization to spend it can be moved from one person to another.
So by storing your Private Keys, a Self-custody Wallet provides you have direct access to different blockchains which allows you to send and receive coins directly from any other wallet. This is known as Peer-to-peer (P2P) and it’s a key feature blockchain technology.
There are many advantages to holding your own Private Keys, but the main one is that — once you’ve set everything up correctly – you’ll have maximum security and full control.
Greater Security also/always means Less Convenience
What’s the difference between Custodial Wallets and Private Wallets?
Custodial Exchanges like the one you likely used earlier (to buy crypto with fiat) store crypto on behalf of their customers. Like a bank.
The wallet you’ll have there is usually called a spot wallet or an exchange wallet. This is what exchanges do very well – they let people exchange one crypto for another and/or let them buy –– sell crypto for fiat.
Many of the largest and most popular exchanges like Binance, FTX, Crypto.com, Gemini and Shakepay are custodial.
It’s a very important and useful service.
But again – a Custodial Exchange has full control of all the crypto in their customers’ accounts. What the customers have in essence is “a claim of ownership” for certain amounts of cryptocurrencies. Whenever they want, customers can redeem their claim for the crypto.
Ok fair enough.
The issue is, that in the unlikely worst case scenario, an exchange can freeze your account, get hacked, or skip town. There are all kinds of things that could go wrong. The founder could just fake his own death one day and go off to India or Thailand with a new identity and all of the crypto. The point is that if something bad happens, your crypto and your personal information are exposed to it. You have no real control or recourse.
The Key Takeaway is this:
As long as a central exchange has custody of your crypto, you have to trust them with your assets.
In other words:
“Not your keys, not your coins.”
Therefore, it is not advisable, in our opinion, to leave ALL of your holdings on a custodial exchange. The risks will almost always outweigh potential rewards and it’s not necessary.
Private or “Self-custody” crypto wallets allow you to maintain complete control of your crypto assets.
This is why we’re here:
Set Self-custody of Your Crypto with a Private Wallet.
You should already have an account set up with an exchange if you went through our previous 101 Guide: Buy Your First BTC. Now you’ll set up a crypto wallet with a few very important features.
Self-custody (private) crypto wallets offer this:
- You hold your Private Keys obviously (the wallet or app never has access to them)
- You can recover your wallet and funds with a Recovery Seed Phrase (in case you lose your device or drop it in the lake)
- Support offered for most major cryptocurrencies
- Offers the ability to exchange cryptos directly within the wallet
- Allow you to earn interest and stake certain coins or tokens
Our Top Pick:
We’re not the only ones who’ve got it at the top of the list; Exodus is popular for all the reasons listed above and probably a few more by now.
It’s been around since 2015 and has gathered a ton of positive user reviews. Exodus is available as a mobile and/or desktop application and both versions are excellent. The Exodus wallet is frequently updated with improvements and new features and it’s probably the easiest to use and best looking crypto wallet out there.
Exodus is our most recommended crypto wallet – perfect for people new to crypto while knowing that they won’t outgrow it either.
It’s non-custodial, secure, easy to set up and use and it’s free.
Exodus lets you do everything that you’re likely to ever need. For most people this wallet is the one they can use for both day to day and for long term HODLing.
Exodus is not a full featured trading platform like Kraken or Binance, but it still allow you to trade over 150 cryptos quickly and easily without ever losing control or custody.
They also offer an in-wallet app that partners with the FTX Exchange. This offers more ways to exchange cryptos by linking Exodus to your FTX account.
Key Features of Exodus:
You know what’s going on.
Exodus is Free
They make money by charging transaction fees when you move or trade cryptos. It’s pretty reasonable although not the lowest.
Quick Setup and Easy to Use
Exodus is one of the best looking and easiest to use crypto wallets. It is fast and painless to download and install. They’ve gone out of their way to make using it easy and minimal.
Because Exodus is non-custodial, there’s no KYC or verification. It’s all completely up to you to manage your funds and report any taxable events.
It’s also up to you to make absolutely sure that you have the Recovery Seed written down and stored safely.
Desktop and Mobile Versions
The mobile version has a great onboarding process. The first time you open Exodus, the app explains the concepts of sending and receiving crypto and what all the key buttons do.
The desktop app mirrors the mobile app or vice versa so both wallets and crypto balances are just copies of each other. If you prefer to use your laptop (maybe it doesn’t leave the house) or you prefer having a larger screen in front of you, this is a solid option. Both are great and you don’t need to pick one or the other – we use both.
Exchange Cryptos Directly in Your Wallet
Exodus supports over 100+ cryptocurrencies and allows you to exchange between them.
This is important because it allows you to start building your crypto portfolio and diversify. You can trade BTC and ETH for over 100 other cryptocurrencies. Like SOL or ADA or Theta…
Stake and Earn Interest
No problem. You can stake coins like ADA and SOL and earn around 5 – 6.6% APY. This reward gets paid back to you directly in the form of whichever token you have staked. And as the value of the token appreciates you haven’t risked anything by moving them onto a centralized exchange. Not every coin can be staked in Exodus.
Cold Storage with Trezor
Exodus handles multi-factor authentication as a partnership with Trezor, one of the best cold storage hardware wallets available today. You may not need to store ALL your crypto in cold storage, but if you happen to hold a large amount, this is something you should definitely consider.
Now, the next thing you’ll need to do is download and set up either the Exodus wallet or another private wallet of your choice,