Let’s talk about buying, selling and holding crypto. The first thing to know is that cryptos are very different from other things you invest in. When you buy gold, you actually get coins (or stones) from the shiny metal. You can keep these coins safe in… a vault! When you buy a house, you actually get physical “possession” in it.
Cryptography is very different. You start by generating a “wallet”. This is what a typical Bitcoin wallet looks like:
[private] => 4dbc14f358dd8460e0385a7f6bf41543bfbd18536df17663b506fb39e888e8b4
[public] => 025df5e6c5745cc3a7a710b0b3ee5b45ed283b80e667719f9775a55442dd769e71
[address] => 163oHghC4NBoJtTRdwQzZTJk14BeVt51Jg
[wif] => KyppLYGbQd2eByxJmh1hA9L3fEdwefugp58cLC74kCv8Yi4WAUXQ
If you write this on a piece of paper, it’s called a… paper wallet. Usually people store their crypto in a mobile or web wallet. That is a mobile app or web service that stores your keys and addresses.
The address is similar to your bank account or UPI ID. Anyone can send crypto to your address. If you send crypto to the “wrong” address, it’s gone forever! Also remember that the same address will not work for all cryptos, for example a Bitcoin address will not work for Dogecoin.
The private key is what you would need to “sign” transactions, i.e. to send crypto to someone else. If someone gets their hands on your private key, they can transfer all your crypto to another address. This is what happens in most crypto “hacks”.
There are many ways you can buy, sell and hold crypto
The most common is using a crypto exchange. AN crypto exchange authenticate you with your username, password and email/sms OTP (one time password). Once you are logged into your account, you can transfer fiat (rupees, dollars, etc.) to your account and use it to buy crypto. Similarly, you can sell the crypto and get the fiat in your bank account.
The problem with the centralized exchange method is that the crypto is not in your “wallet”. It’s in the wallet of the stock market. So if the crypto exchange packs up or the team decides to disappear with your crypto, there’s pretty much nothing you can do.
You should only use crypto exchanges for trading. If you are going to hold the crypto for a longer period of time, use a paper wallet, a hardware wallet or a software wallet. These are called “non-custodial” wallets because no one else has your private keys in custody, just you. In fact, there is a saying in the crypt world that goes, “Not your keys, not your coins”.
paper wallets are inconvenient to use, but are the safest option. Consider using them if you want to store a large amount of crypto for a long period of time.
Hardware wallets are a bit pricey and there is always the risk of losing or breaking them. I speak from experience!
Software wallets are free and very easy to use. But if you accidentally delete them, your crypto will be gone forever. Again, I speak from experience! So don’t forget to back up the seed phrase – some words you can write down.
An example of a seed phrase is:
history wood quote board young pigeon robust kit invite plastic regular skull
If you’re just starting out, I recommend downloading Trust Wallet, the most popular software wallet. It supports 53 blockchains and more than 160,000 cryptos and digital assets. You can buy cryptos with a credit card and even earn interest on your crypto balance.
Another cool way to trade crypto is to use “swapping” services like Uniswap, which you can use for trading Ethereum ERC-20 based tokens. These are also called decentralized crypto exchanges. See figure below:
Rohas Nagpal is the author of the Future Money Playbook and Chief Blockchain Architect at the Wrapped Asset Project. He is also an amateur boxer and a retired hacker. You can follow him on LinkedIn.