I Bought My First Crypto, Now What?
It’s done! You’ve bought your first cryptocurrency. But what comes next? Crypto assets are digital money stored on the blockchain, meaning they are nowhere physically speaking. This also means that it is your responsibility to ensure they remain truly and safely yours. This first step is about learning some cryptocurrency foundations and aspects, so that you understand why they need “special attention” in terms of security. As well as how to leverage them to achieve financial freedom.
Why Is Security So Important With Crypto?
The purpose of cryptocurrency is to provide you with freedom and control over your assets. And as the dear Peter Parker so aptly put it: “With great power comes great responsibility”. In our “About crypto” playlist, we listed the different characteristics of cryptocurrencies, including irreversibility and decentralization. Once a transaction has been made on the blockchain, there is no turning back. This means you are the only one in charge to secure your crypto assets, as well as the only responsible for the decisions you will make.
Being aware of this, the first thing to understand is that buying crypto assets doesn’t mean physically owning the coins. Because digital money is not tangible and does not exist physically. What you really own instead is called a “private key”. And this is preciselsy what you need to protect.
Understanding what the private key is all about and how cryptocurrencies work will help you grasp the rules of thumb that will help you secure your crypto assets.
Public Keys VS. Private Keys
When it comes to crypto, there is no tangibility such as with fiat currencies or commodities. It’s fully digital. To allow for a secure network, cryptocurrencies work based on a double system of private key and public key.
The public key is a public receiving address to which any user in the network can send crypto to. It would be similar to your bank account number, such as IBAN or SWIFT or your email address.
Linked to your public key, there is your private key. This one is comparable to an actual key as it unlocks the right for its owner to access and spend the associated cryptocurrencies. Your private key is yours and only yours, and should therefore remain private. Indeed, anyone that has access to the private key will possess the funds. Your private key would be similar to your bank account password. Sharing your private key would be like sharing your bank account password or credit card pin.
So, where are your coins?
They only digitally exist on the blockchain, being associated with a set of “public/private keys”.If you don’t own your “private key”, then you don’t own your crypto assets, since you can’t unlock or manage them. This gave birth to the saying: “Not your keys, Not your crypto”.
Not Your (Private) Keys, Not Your Crypto
This famous crypto motto underlines the risks associated with crypto exchanges when it comes to storing crypto assets. If you hold funds on your favorite crypto exchange, it might seem like you actually own the assets on your account. After all, you do need to log in to gain access to them, right?
But that’s not the case. Even worse, it’s the opposite. When you leave your crypto on an exchange, it’s actually the exchange that effectively owns the private keys associated with your funds. As a result, the exchange is in control. You are just relying on them to give you access to your funds when you demand it. Would you trust an entity with your house or safe keys?
Besides, what happens if the exchange has security issues? Or if you don’t want to abide by certain withdrawal or deposit policies? or fees? Moreover, in some countries, depending on the exchange, you are prone to being restricted from making transfers or constantly asked questions as to the purpose of the transfers. They can quite simply do this, since you don’t own the private keys, you do not have full ownership.
Such phenomenon isn’t limited to exchanges: it goes for any service provider that doesn’t allow you to own the private keys to the associated funds. This means putting back a middleman in a system that aims to be decentralized. The wise thing to do after buying your crypto assets is to make sure you truly own your private keys. And to safely secure them.