Joining Bitcoin in 2021 — Testing The Waters & Managing Funds

Thank you for landing here and welcome to Chapter 2 for Joining Bitcoin in 2021 series! In the previous article we explored how to kick start your crypto education focusing on the Bitcoin network first. Here are some of my recommendations from this point onwards. Once you’ve been able to look at some the workshops and consume some of the recommended content presented on Chapter 1, you should start exploring and experimenting with the following.

Testing The Crypto Waters

Get your feet wet: create an exchange-account-and-hosted-wallet

For example, you may create a Coinbase account. After trying several options, this is one of the exchange and hosted wallet service that I’ve kept and that I’m currently using. There are probably more than 300+ exchanges out-there offering hot wallets services. But Coinbase presents a simple and easy user interface and, from the experience I’ve had with them, it holds a decent customer service. Although such benefits don’t come without a premium.

Carefully follow its KYC and AML process and start experimenting small crypto purchases with one of your plastic cards (credit or debit will work). Purchase, for instance 100 USD. You can of course go further. It very much depends on your risk averseness. Although early on this type of adventure it’s better to start small. Baby steps.

What ever you decide to do, whether 100USD or something else, make sure you explore purchasing 50% on BTC (bitcoin on Bitcoin) and the remaining 50% on ETH (ether on Ethereum). For example: if you decide to make your first 100USD purchase on crypto: try putting 50USD on BTC + 50USD on ETH.

At this point, you could start testing sending or communicating ‘value’ to a friend, family or another fool. You could also make a purchase as well. But don’t worry if this isn’t the moment were you want to do this. Because we’ll also explore these concepts of “send/receive” crypto further along these writings.

Later, on the next related article, I’ll explain why these tokens (BTC & ETH). Specifically under the “my personal opinion” section where I’ll try to explain some of my thoughts and vision for this.

Take the time to ‘connect’ one of your bank accounts

in order to (a) feed your Coinbase or exchange-hosted-wallet account. As well as to (b) have the ability to wire from Coinbase or the exchange-hosted-wallet account you’d have chosen to one of your bank accounts if it were necessary. Although, the latter (option b) isn’t the most immediate goal in my opinion and I will explain why.

This step simply makes it easier to work with higher sums. As an individual using this type of service, there will likely be a transfer daily limit amount though.

If you are feeling more comfortable at this point, it is a good moment to explore wiring into your Coinbase or exchange-hosted-wallet account say 2x 100 USD, or whatever you are feeling cosy with, and that is below your daily limit. Let’s say for the sake of an example that you decide to put 2x 150 USD: respectively 150USD on BTC and 150USD on ETH. Great. Let’s move on.

A Hosted Wallet means you do not own your funds’ Private Keys

It is very important to point out that up to this point you do not manage yourself your “private keys” for your crypto-assets. These so called “private keys” are actually hosted on Coinbase or on which ever exchange-hosted-wallet chosen which technically makes the exchange the true owner of the crypto you’ve purchased. At this point in time, what you have is a “custodial account” with for example Coinbase in which they have custody of your private keys. Which is fine to start. But in the next section let’s uncover how to move to the next level for managing your crypto funds.

Really Managing Your Crypto Funds

Create anon custodial walletso that it is you and only you who’ll manage your own “private keys”. A great wallet to start your journey here is BRD. Again, there is an incredible amount of options out there. This is simply one I use, after researching and exploring several ones, because of its extreme simplicity.

Very quickly you’ll notice that the onboarding process is completely different. There is NO KYC. But it does present a very important step: generating what is called a “mnemonic phrase”. What’s this? It is the management and recovery system for your private keys [and thus your funds] on your new “non custodial” wallet. It must be written (backed up that is) on paper or on anything physical (like metal, ie: army keys). The very process will guide you into storing your 12 word “password”.

It is now a good moment to experience transferring your funds from your Coinbase type of hosted wallet to your new BRD type of non custodial wallet. The concept is the following: if I consider an enough big amount of crypto funds is on my “exchange wallet” then, I’ll move these funds into my “software on premise mobile wallet”, where it is me (and only me) who controls the private keys.

And that’s a good evolution in the way you can manage your crypto funds. Software mobile wallets are a great step in the journey. They are secure as they also leverage say your latest phone security features like fingerprints, or facial recognition. But there is a higher level of security if you’re looking to seriously join the crypto space as an investor / contributor. Let’s take a quick look at it below.

Let’s imagine you decide to keep on seriously investing on crypto and that between your Coinbase and BRD wallets you’re now holding the equivalent of 1000+ USD or more. Then, it is a good moment to decide if you want to move to the next level of crypto fund management which is “Cold Storage” or “Hardware Wallets” such a Trezor. There are more than 30 options out there. Trezor is the one that works well for me but you can certainly find other options too.

This is a more advanced step. It takes bit more depth in understanding the technology. But it is certainly more than possible to learn it and achieve it. Very similar to the steps described above for “non custodial wallet”, you’ll generate a “mnemonic phrase” for your new Trezor or hardware wallet. Extremely important to save it and back it up properly as described above.

What’s a hardware wallet? A hardware wallet is a piece of dedicated hardware specifically engineered to manage your private keys and to be extremely secured. A good practice is to use it to hold your biggest chunk of crypto fortune.

An example in two sentences and three steps: [1] buy on an exchange, use your hosted wallet there to transfer your funds to [2] your mobile software wallet. [3] Once those amounts are ‘serious’ for you and that for instance you’re certain you won’t be needing them, transfer to your hardware wallet.

Further and beyond

Please let me know if you’d like a further deep dive on managing crypto funds. Next Frontier in Privacy and Security, Running a Bitcoin node, Verify all transactions. Beautiful illustration below:

for example: https://getumbrel.com/

In a nutshell

In this article we’ve introduced how to test the crypto waters by purchasing small amounts of BTC and ETH on an exchange such as Coinbase and leveraging a “hosted wallet” on that very service. From there, we quickly explored the importance of using “non custodial wallets” and presented two alternatives. A “mobile software” wallet like BRD and, “hardware wallet” like Trezor. Finally we eluted to a good crypto fund management practice in which we suggested to move your funds your “exchange / hosted / hot wallet”, where you do not have control of your private keys, into your “non custodial wallet” where you do.

See you in the next [or previous] chapters!

Thank you!

Twitter: @lecharleslozano

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lecharles

Product Management + Solution Engineer @Salesforce. Jugaad Innovation Aficionado. Web Application Development. Cryptocurrencies & Open Blockchains Apasionado.