The self-care of Bitcoin, Ethereumand other cryptocurrency assets are grabbing a lot more attention ever since Sam Bankman-Fried’s FTX exchange unexpected exploded a couple of weeks ago in a whirlwind of drama.
Users of the former third largest exchange have no idea if they will ever get their money back. With this in mind, many users decide to no longer trust centralized exchanges such as FTX or Coin base with their means.
“Leaving your money on an exchange opens you up to the risk of hacks, frozen withdrawals due to business failure and insider fraud,” said Casa CEO and Co-Founder Nick Neuman. Decryptand points to FTX as a “strong example” of this.
With self-custody, users move their funds in their own wallets which only they control.
“There are similarities between private keys and car keys. When you give the only key to someone else, they can gain access to your car and drive away. If you keep your key, you’re free to do whatever you want,” said Ledger CEO Pascal Gauthier.
If having full control over your crypto sounds appealing, follow these steps to move your money from an exchange to a wallet you own.
Table of Contents
Create a wallet on a self-custody platform
A necessary caveat before we get started is that while self-storage helps users protect themselves from third parties stealing their money, it requires much tighter personal liability.
Users must write one down seed setting, roughly equivalent to a password that can be used to back up all the addresses associated with the wallet. If seed the sentence is lost, the Bitcoin or crypto associated with it is lost forever.
If you’re willing to take on that responsibility, there are many wallets you can use to store your money.
We will look at the popular desktop wallet Electrum.
Once you have downloaded Electrum wallet softwareafter some initial setup you will be prompted to create a new “seed sentence.” This is the important “password” we mentioned. Write down the 12 words. This is the most important step, because if you lose these words, there is no help desk to turn to to get your money back. It is important to keep these words safe and offline. (In other words, don’t save these words to a file on your computer or phone.)
There are plenty of other wallets to choose from, but whichever wallet you choose, the flow is pretty much the same: Download the wallet (on computer or mobile), then write down those important words that must never be lost or shared. (Important: If you do (ever shares this seed phrase, the recipient of the phrase will have full access to the contents of the associated wallet.)
Other cryptocurrencies require other wallets. MetaMaskfor example, is a popular browser and mobile wallet used for self-storage of Ethereum and other compatible tokens. Phantom is the most used wallet for Solana and Solana-based assets. And there are many more examples.
Another option with added security is to use a hardware walletfor example, Ledger or ColdCard, which store the keys in an offline environment, protecting it from potential hacks.
Move funds from the exchange
After you have chosen your wallet provider, it is now time to move your money from the exchange into your new wallet—a wallet that you (and only you) control.
First, you need to create a new address in your wallet to which you can send Bitcoin (or other crypto). In Electrum, you click the “receive” button to generate a Bitcoin “address,” a chaotic string of numbers and letters, roughly akin to an email address. In MetaMask, Phantom, and other similar browser-based wallets, the address is already created, and you must either click “Account” or “Deposit” or a similar button to copy that address to your computer’s clipboard.
On your chosen exchange, such as Coinbase, there will be some sort of “Withdraw” button on your account page for each of your holdings. To send the funds to your wallet, click the “Withdraw” button for the corresponding assets (“Bitcoin” for a Bitcoin wallet, “Ethereum” for an Ethereum wallet, and so on), paste the address from the self-deposit wallet you created and click “Submit”.
Often you will be asked by the exchange to make sure you copy the correct wallet address, or to confirm that you really want to withdraw your money, but The mechanics will be slightly different depending on the exchange you use.
Self-service rabbit hole
You’ve now sent your crypto from an exchange to your own wallet – so what’s next? “Do your own research” (DYOR) is a motto in the Bitcoin sphere because there is a lot of information to go through to become as informed as possible about cryptocurrency. Self-storage can be considered its own rabbit hole worth exploring.
There are more complex options for self-storage beyond what we described above.
For example, “multi-sig” wallet options, such as Casa, offer more flexibility. Instead of just one private key, the wallet is secured by a few at the same time. That way, if the user loses one key, his or her funds are still safe. (Even if two keys go missing, tough luck.)
Some users carve out theirs seed phrase in metal sheets for extra security. If the place where their seed the phrase is stored burning down, for example seed the sentence must still be legible.
And as Neuman points out, the user experience of self-storage is constantly improving. Casa’s user experience, for example, does not require writing down or memorizing seed expression. “Anyone can do it. We think we can continue to improve it in a way that allows everyone in the world to keep their own keys safe,” Neuman said.
The views and opinions expressed by the author are for informational purposes only and do not constitute financial, investment or other advice.
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