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A Beginners Guide to Cryptocurrency Investing — Part 2: I’m My Own Bank

Utrum Foundation’s Educational Series for Cryptocurrency Investors, Traders, and Enthusiasts

Welcome to Your Own Bank

The most important thing to remember about investing in cryptocurrency is that YOU are your own bank. What that means is, security begins and ends with you.

So there are some rules you need to follow, which we’ll go over later, that will help protect you and help you be a smarter, more secure “bank” of yourself and your crypto holdings.

The overall process of cryptocurrency investing, as I see it, can be broken into three main segments (not counting cashing out) which are:

  • First time prep
  • Buying in
  • Storing/Managing your holdings

First Time/One Time Prep — BEFORE YOU BUY

Before you do your first buy-in of cryptocurrency, it’s important to cover a few of the steps to take for securing your personal data and identity, what equipment to obtain and set up and just in general setting up your environment for investing.

One of the joys of cryptocurrency investing is being “your own bank.” This is also one of the greatest risks. But it’s also extremely valuable and important to be your own bank if you’re serious about investing in cryptocurrency…because as the saying goes, if you don’t hold the keys you don’t hold the coins.

In other words, never trust anyone or any other company to hold your cryptocurrency for you…including Coinbase. Coinbase holds the private keys to your cryptocurrency and therefore they effectively “own” your crypto if you keep it there.

Before discussing personal security steps and personal data management, it’s important to quickly discuss how cryptocurrency is stored and kept secure…and how you own it, how is it assigned to you?

The Public Address

The “crypto” part of cryptocurrency is that there are two sides to this coin (pun intended). A public and a private. If you know a little about blockchain, you know it’s a public ledger. This ledger tracks transactions and is able to be seen by anyone.

For example, you can visit any explorer for any blockchain right now and see transactions sent and received by individuals. You can click on a sender or receiver and see their current wallet balance for any given address.

The sender and receiver are public addresses on the blockchain….on the ledger. That complex looking string of numbers and letters for each (sender or receiver) is what’s called a wallet address.

So a wallet is nothing more than a unique line of code that identifies a ledger entry on the blockchain. It’s not a special account somewhere or something you need to install on your system or something you can just dream up…although you can create a wallet address using software that is designed to understand the algorithms used within Bitcoin, Komodo, Utrum, etc so they create unique and valid blockchain addresses…and you can use something you dreamed up (like a passphrase or seed of words) to help such software create that code…ultimately the wallet address is generated using calculations that are according to standards based on the cryptocurrency itself. Part of this process also ensures the uniqueness of each address, so no two addresses are the same.

So a wallet is also referred to as an Address, or Public Address, or even can be called your Public Key…as it’s something that can be seen by the public on the blockchain and can receive payments by others from their wallets…and doesn’t necessarily put you at risk in sharing it.

The Private Address

The other side of the coin is your private key or private address. It’s a similar looking line of code that is not public or seen on the blockchain but is required to send cryptocurrency out of your public address. Anyone who has a private address can send or access funds (cryptocurrency) held at the associated public address, which is your “wallet”.

So your private key is the part of this pairing which grants you (or anyone who knows the private key) total access. If you don’t exclusively own and know your private key, you don’t truly own the coins contained within that wallet.


There are companies where you can store some more “mainstream” cryptocurrency, like Bitcoin, Litecoin, or Ethereum..that allow you to send your coins from your wallet, but they (for all intents and purposes) own the private keys…just allowing you to authenticate your transactions in a more familiar way (like a password you know well or using your fingerprint on the phone app). These are not bad companies, just not companies you’d want to use as wallets for the serious investor…more like pass through companies for easy movement of funds in a short term amount of time.

Having Bitcoin, Komodo, Utrum, or other cryptocurrency in your wallet is sort of similar to holding cash when it acted like a promissory note… in that the public ledger shows you own that much BTC or other token and you can then access it without any issue, using your private key. Again, the blockchain (acting as this public ledger) is not able to be edited or deleted and lives on thousands of computers (nodes) being replicated based on verification against each other around the world. So this means there’s a very small delay in transactions, as each transaction must be verified by a minimum number of nodes before being entered and accepted onto the ledger.

Later I’ll discuss the various wallets out there in more depth, but let me introduce you to the topic.

Even though a wallet is simply an address on the public blockchain, there are different “types” of wallets…which is more accurately described as different ways of interacting with the blockchain and your specific private and public key combinations.

Some you do all the management of keys, keeping careful record of each key combination for your wallets. Others help you manage the complicated pairings.

An example of this form of wallet would be a device called a Hardware Wallet. Best practice is to keep your long-term investments in a “cold storage” wallet, such as a paper wallet…where everything is literally printed on paper. And use a Hardware Wallet as your “hot storage”, to do everyday transactions, etc. Another example of a hot wallet would be a Coinbase account…which is privately insured and allows for quick access to funds and to buying more currency…and any USD balance is FDIC insured.

Although a hardware wallet is one of the ways you interact with your specific public key on the blockchain and related private key…your cryptocurrency still “lives” on the blockchain, not the physical USB device called a hardware wallet. One of the benefits of a hardware wallet for “hot storage” use, is that you are not revealing your private key when you use the device. Part of the drawback, however, is it is not as flexible in the multitude and freedom of tokens you can send/receive to that wallet address…they need to be supported in the firmware by the manufacturer to ensure no errors or lost tokens.

Still, the hardware wallet is just a way of interacting, very securely and easily, with the public blockchain and your private key without exposing your private key. Since the hardware wallet uses a specific public address on the blockchain that is unique to you, for ease of conversation it’s perfectly acceptable to say you are storing crypto “on a hardware wallet”…I just want to make sure you understand your currency is not physically stored on that device but rather your private key is what the hardware wallet stores securely for you, allowing you to “sign transactions” with the hardward device.

The importance of a paper wallet is not only “cold storage” but to provide a backup if you had a hardware wallet that somehow got destroyed, lost or stolen. Using the seed phrase or private key written or printed on paper, you could unlock your wallet and access your cryptocurrency. Most hardware wallets, such as the Ledger Nano, provide a seed phrase associated with the wallet, so you can always recover your funds in the case of something happening to the hardware wallet.

Hardware Wallet

All this brings us to the important One Time step of preparing yourself to deal with wallets and transactions on the blockchain in terms of buying in and investing. If you’re serious and not very technical, it’s probably best to purchase a hardware wallet for any “every day” transactions where you’ll have semi large amounts of cryptocurrency sitting for short periods of time.

For your long term holdings, you’ll want to send those coins to a paper wallet, which I’ll discuss in a later post. And exchanges where you buy cryptocurrency in the first place who provide wallets (like Coinbase) should only be used for transactions with fiat (your local currency) when you are buying coin, selling coin (cashing out) or doing small transactions here and there.

A hardware wallet could be tampered with by a reseller and hacked in such a way that all transactions you make are stolen, so it’s important to buy from the source/creator of the hardware wallet. The manufacturers have guides that show how to tell if a device has been tampered with, but no need to worry too much if you are buying direct.

I’ll get into greater detail on these one time steps in the next few posts, but here is a quick outline of the steps you’d take before investing.

Remember: you’re essentially going to be your own bank so you really want to treat your investment accordingly to its value and potential value. Even Coinbase insurance won’t cover you if you aren’t careful and somehow lose your public and/or private keys where your cryptocurrency coins are stored.

Now, here’s a quick overview:

  1. Create new social/public/email accounts for all cryptocurrency related tasks, conversations, etc. that do not include any personally identifiable info (like your name, common names you use, personal cell or personal email, address, etc).
  2. Come up with a security plan (including practices and behaviors) for your wallet. This is especially important for your paper wallet, you need to have security measures in place for keeping the paper wallet safe and secure…consider a safety deposit box, creative in-home safe, take into account fire, flood, etc. Also consider secure behaviors to get into with your hardware wallet…like not using it on untrusted computers, consider not using it on your “every day” computer (we’ll discuss this later when we talk about creating a paper wallet), not carrying it with you in a way it can easily get lost or stolen, etc.
  3. The first rule of fight club…yeah you know where I’m going with this one. Don’t talk about your new exciting journey of crypto investing until you fully understand the risks and what is and isn’t okay to share. Especially, never share how much you have regardless of amount. For example, you don’t want people knowing you have $500,000 in a paper wallet somewhere. Never share how much crypto currency you have EVER, even if you have a reddit or similar account you think is untraceable back to you. One would hope reddit would never get hit with a DDoS to the degree of allowing a security leak into user account records and associated email accounts…but if something like this happened and your history showed you bragging up your moneys, and you used “[email protected]” as your email because that’s your name…it makes the job of a potential threat/hacker much easier in going after your half million. If someone nefarious knows who you are and how much you hold…and it’s enough to seem worth it to them, even committing your private key to memory won’t protect you against a motivated thief with a hammer, a gun, or leverage against you using the threat of harm to your family, etc.
  4. Get your hardware setup (I’ll cover this later) before you begin buying, if possible. If not and you’ve already started investing, just do some house cleaning. If you’ve already created a wallet and broke a bunch of the security rules in this guide, just create a new one the right way and move your investment to the new more secure wallet.
  5. Set your goals, long and short term, and write down your rules that you’ll follow for investing. You’ll want to really stick to those and if you deviate, make sure it’s a smart and logical reason, not just a justifying of emotion based on movement in the market. I edit my own personal investment rules every so often, little tweaks, that serve my larger goals. And that’s the importance of writing your goals and beliefs out. Be clear on why and what you are embarking on, then create guidelines and rules to help you achieve those.

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