BEGINNERS GUIDE TO
ETHER & TOKENS
follow me on twitter @EthAdvisor
About The Author
Thank you for reading my beginners guide to ether investing. Before I get into things, just a quick blurb about me. I’m a tech buff and have been a web developer for nearly my entire adult life. I’ve always had a knack for figuring things out and solving problems and then explaining complicated technology in a way that anyone can get.
When I first came across Ethereum I wasn’t an investor at all. But I was a geek of sorts and got into it on a very basic level, mainly just dabbling with Coinbase. It wasn’t until recently, within the past year, that having a savings and investment strategy in my life became really important. So with investing on my radar and my casual introduction to cryptocurrency through Ethereum and other tokens, I came up with a strategy to start doing daily buys...dollar cost averaging as it’s called.
When rumor of the EEA came along I just happened to be in the right place at the right time and since I already really loved Ethereum and believed in the technology, having done more research and engrossed myself more in the community, I put my dollar cost averaging on hold and went all in. As you probably know, the market took off and I’m so grateful to be a part of this exciting journey and to have learned so much since I got in seriously...both as a developer interested in the technology and “real world practical use”, and as an investor interested in strong long term investment plans.
I created this guide for two reasons. First of all, I’m really passionate about Ether and my investing/developing journey in cryptocurrency as a whole. Secondly, I wanted to begin helping others doing something I love and talking about something I love. I saw a major gap in the community when it came to helping noobs get in and get in safely, securely, and with enough knowledge to not lose their investment or gains.
So I came up with the idea of my site (ethadvisor.com) to become free to anyone place to help others interested in getting involved and talk about cryptocurrency, specifically Ether, and created this basic guide as a starting point to launch this new venture of mine in a way that can hopefully also help you out. I truly would like for EthAdvisor to grow and become something I can do daily!
A Couple Notes About The Guide & Some Resources
This guide is very comprehensive, so before you delve into the steps contained, my recommendation is to read through the guide once first, to just glean a broad perspective and then go back and do the steps you need to do/want to do.
I’ll continue to provide revisions and updates to this guide and will communicate on my twitter and over at ethadvisor.com regarding those and all future guides and helpful stuff to be released over the next few months.
I’m creating a sort of “road map” page to outline the stuff to look forward to and will announce on twitter when it’s live so you can check it out.
But as a heads up, here’s the basic roadmap (without dates) for this particular guide:
- Release first edition (revision 1, this copy)
- Revision 2 - Add images/screenshots for step-by-step sections
- Revision 3 - Video 1 of video tutorials, to be released one by one in revisions until all step-by-steps have video tutorials to go along with them.
I’ll assign dates to each revision release as I better figure out what I’m capable of!
Some resources I highly recommend utilizing in tandem with this guide are as follows, with the purpose each can serve in helping you as you begin or continue your ETH and Cryptocurrency investing and trading journey:
Subreddits to join
(with a new account...see the section in this guide on security)
EthTrader - https://www.reddit.com/r/ethtrader/
Ethereum - https://www.reddit.com/r/ethereum/
Golem Project - https://www.reddit.com/r/GolemProject/
Trustworthy sites to use
in researching ETH and Eth-related token transactions and addresses (even your own)
https://etherscan.io/ - Search a TX ID, an ETH address, Contract Address and more...sort of a lookingglass into the Ethereum blockchain if you will (you’ll learn how to use this site for basic useful tasks in this guide)
https://myetherwallet.com/ - Can be used to generate a new wallet, access your wallet, offline and online transactions, and obtain the source code for offline wallet gen,transactions,etc. (you’ll learn what all this means in this guide)
More to come…
As I mentioned, I’ll be continuing to add more useful education to the original copy of this guide, available for free over at https://www.ethadvisor.com and will upload updated/revised copies to the https://www.reddit.com/r/ethtrader/ subreddit as well.
If you have suggestions or requests for clarification or more training on any particular part of this guide or related to this, please message me on reddit and let me know. And again, thanks for any feedback and welcome to the ethereum investors community!
Overview : Becoming an ETH Investor
Before I get into the step-by-step, I want to give an overview of this guide and the investing process from a real bird's-eye view.
Whether you have experience with investing or not, my hope is this guide will help you get started with investing in ETH, the token for Ethereum. If you’re interested in learning more about Ethereum and why you would want to become an investor or trader in it’s digital currency, I suggest visiting the subreddits /r/ethereum and /r/ethtrader to learn more.
But before you get all crazy and begin asking questions or talking about your trading over there (or anywhere) read through the first part of this guide on Security, to make sure you don’t set yourself up to be hacked, coerced or victimized in any way...which would totally ruin your experience!
Whether you are wanting to begin trading in ETH, or a related Token, or just investing and holding, this guide will give you a good place to start and the basics to having a portfolio that is well guarded and that you understand how to use (deposit to, withdraw from, trade out of, etc) securely.
I split this guide into two sections, the first section for those who are new to investing in general. The second is the main guide for everyone and focuses on the technical “how to” steps to investing in ether safely and securely.
SECTION ONE : INVESTING NOOBS
Establishing Your Basis for Investing
Before you jump in, it’s important to establish your knowledge, your beliefs and your principles/rules for investing in ETH or whatever Token you’re investing in. Educating yourself on a project is what makes it possible for you to hold strong beliefs about it. Beliefs are why you want to invest and need to be held and embraced, not just adopted. Principles and Rules are your established methods for engaging in your investment behavior, the triggers that you obey, the logic you follow for actions taken.
The first and most important task to take on before investing in Ethereum or any cryptocurrency, is educating yourself on the project driving that coin. Ether is not just a token/cryptocurrency, it’s a technology first. Take time to research and understand what you’re getting into.
Admittedly there’s a lot of high-level tech language in the documentation for Ethereum and many projects out there, so it may be more challenging than you’d hoped to really grasp what the project is about. So take your time to dig if a white paper is too complex, and reach out on the forums...most projects have a subreddit or a slack or both or their own forum. This is one of the best ways to research.
Another great educational tool for projects is just using common sense when looking at the bird's eye view of their business plan, media coverage, hype vs reality, developers involved and the team behind the project. And if a project has investors behind it, learn about those investors and their habits, successes and failures, etc.
In short, do your “due diligence”, don’t just go off the market numbers and a gut feeling. Thorough research will lead to you buying in mentally before you buy in financially, which leads to the next principle...Belief.
Establishing your beliefs is important for when you hit dips and have the emotional urge to sell, without substantiated reasons that are also in alignment or taking your beliefs into consideration.
For example, I have an overarching belief in backing technology that has a strong developer base. I also believe in backing technology that has this strong base AND a strong support system or backing system...for example if large or reputable companies are investing or involving as well. But first is my belief in the developer base. Then for ETH specifically I have a belief in the design of the technology of Ethereum and how it’s poised to support that developer base, expand it, include large backers, etc. In a simpler phrase, it has a combination of potential and proven success. There are reasons I believe in a strong developer base as well, so the belief can be sort of rooted in other beliefs.
The point is, being clear on your beliefs as to why you want to invest in ETH or the token you’ve chosen. Without this, you’ll flip and flop until you’re financially bled dry.
Your Principles and Rules
These are the rules you set up for yourself. The boundaries that contain your actions and decisions. While most of these you’ll form yourself, from your own experience or the advice of other investors you trust, I’ll offer a few of my own to give you an idea of how to form these and what they look like. Along with your beliefs, these will help guide you in your journey so emotional times are not likely to rattle your investment...especially for those of you who (like me) are investing to hold long term, rather than trading.
Here are a few of my principles and rules:
The Play Money Principle
This is a common one, only invest “play money”, the money I can lose without any ill effect on my life. My income, for the most part, is not play money. But I have a small percentage I categorize as play money or “throw away money”. This is critical to keeping your emotions out of your investment.
What Goes Up Principle
This is one of my own, that simple means if I see the price going up, that does not mean it will certainly go down OR keep going up. My decision to buy more or sell, need to be based on more than the movement in price. This is a tough one, human nature sees it going up and is afraid it will lose out if it doesn’t buy...then it buys...then the price drops and human nature freaks the fuck out and sells. So what ends up happening is totally counter-intuitive...buying high and selling low, straight out. If your money is play money this impulse isn’t as strong. But if you have a strong greed quotient, the impulse could overpower you, so establishing a principle can help mitigate that sort of erratic and harmful behavior.
Dollar Averaging The Lulls
When I first began investing in cryptocurrency I followed a Dollar Averaging model. The premise is pretty straight forward: have a budget that is broken down into days, buy only your budgeted amount every day regardless of the fluctuations. Your “dollar average” will work out in the mix of lows and highs. But I modified this to include “The Lulls”, meaning I use this principle as my base methodology for investing in cryptocurrency during long periods of steady price fluctuation. When it comes to learning of an opportunity that poises the value for a significant climb, I changed my methodology to an “all in” and went ahead and used up my entire current budget for that month or pay period, or whatever, and bought all in. This is not something you do recklessly, but based on research and logical news, events, etc. So while still a risk, it’s a measured and educated risk, the same as the investment in general.
Bemoan vs Buy
When you do have an event or series of events that creates a bull market and you are all in and the price hits an ATH (All Time High) and then maybe sits there for a day...then dips, Don’t Freak Out! If you have any more Play Money available, buy the dips and keep holding. But again, this is one I use because I’m a long time holder...meaning I’ll hold for as long as the technology is healthy and growing, expanding, etc...even if that means 10 years, I’ll hold. The only trigger for me to sell would be reaching an investment goal tied to a sell.
Set Investment Goals
That brings us to this principle. You really MUST set goals for your investment activities. These could be your sell points (like when your investment has hit a mark, etc) or other goals unrelated to selling, like diversifying, etc. Goals may be long term, for example my primary goal for investing in ETH and other cryptocurrencies is to build a retirement fund. So my goals are more long term, which impact my holding vs selling actions directly.
SECTION TWO : SETTING UP
Just a quick overview of ETH, Ethereum-based Tokens and the entire process I’ll be discussing for investing in cryptocurrency
In the remaining chapters of this guide, I’ll be going through a lot of step-by-steps and how-to’s on the basics of cryptocurrency investing, securing your investment, accessing it, etc. So here I’ll do a quick overview of the entire process of getting setup and started in investing in cryptocurrency.
For this overview and most of this guide I’ll be using ETH (Ethereum token) as the currency of choice. I’ll also cover acquiring and investing in Ethereum based tokens (these are often called altcoins and are digital currency based on their respective projects built within the Ethereum blockchain.)
ETH vs Ethereum-based Tokens
Ethereum can be thought of like a large database of code which is duplicated between many computers around the world. It’s not a server somewhere. It’s not central to any server or server farm. It is a decentralized codebase that exists across a network of connected “nodes”, which are anything from a simple Linux PC to perhaps a server here or there, but all running the same code, verified between all the members.
The “blockchain” is the ledger of all transactions of any kind (not only financial) taking place between all these computers and verified before being written. This ledger, the record of all the blocks of code being verified between all these computers, cannot be overwritten or edited. Once a block is verified and written to the public ledger...the blockchain...it is permanent. This ledger is public in that all these verified entries are publicly accessible by anyone who wants to access it.
Ethereum provides a “platform” for building applications called dApps (shorthand for Decentralized Applications, meaning they are applications that are not central to any server, just like Ethereum and the blockchain itself). Ethereum has features that allow for dapps to utilize things like Smart Contracts and many other features. But all of that can be better explained elsewhere.
The reason I want to really quick point out what the Ethereum blockchain technology is, is to explain how cryptocurrency within Ethereum works. Much like dApps can be built on the Ethereum blockchain by developers or teams or projects...as a developer you can also create your own token. Ethereum has the ETH coin/token tied to it and it’s what fuels all the transactions and what this guide is focused on discussing investing in...it’s a cryptocurrency. But a team of developers may want their own cryptocurrency tied to the dApp they are developing on Ethereum. This is entirely built into the capabilities and features of Ethereum. The token a team or project “mint” has it’s own value determined by its own market, success of it’s dApp or project, etc. So the token can be entirely independent of the ETH token.
For example, there’s a great project I invest in called Golem, which is a decentralized application that leverages a network of computers of participants/those who install the dApp, to process 3D rendering projects in small bites across the network of computers...making a “supercomputer” out of that network to quickly render large projects faster than the 3D designer could have with his/her own computer. This project has a strong development team, reputable backers and supporters, and a strong future and roadmap for their project...AND a token tied to their dApp called GNT or just a Golem token. It carries it’s own value. At the time of this guide being written it’s about $0.20/token...and ETH is about $85/token...so you can see how tokens carry their own value and are their own cryptocurrency.
However, although an Ethereum based token like GNT has it’s own token and truly should be referred to as a Golem based token as such...it is also called an ERC20 Token, which is important because for the non-technical investor this means you can store this token in an ETH wallet. And that’s really simply how the GNT token is still tied to Ethereum besides the project being created within the Ethereum blockchain...is that your ETH wallet can store ETH and any ERC20 tokens as well.
We’ll cover wallets in a moment. For now, it’s just important to understand the various types of coin you may want to consider investing in and knowing the very basics to learn about a coin/token so you aren’t accidentally buying a token and sending it to a wallet that won’t store it..and losing money.
So to review:
- Ethereum is the “platform” upon which dApps are developed and it has it’s own token (or coin, the terms are interchangeable) called the ETH or Eth or Ether.
- ETH has it’s own unique value and is directly tied to Ethereum.
- A dApp (Decentralized Application) built on Ethereum can have a unique token/coin minted by the project developer team (meaning number of coins total is defined, etc) and is tied uniquely to that project.
- If the token is ERC20 (most new tokens are as I understand it) it can be stored in the same wallet you store ETH in...or in an ETH wallet that you’ve dedicated for use with all your ERC20 Tokens….or you can have a separate wallet for each token and a separate wallet for your straight ETH.
When a development team comes up with a super cool idea for a new app and decide on the unique name for their new token to be tied to their super cool dApp, they will usually launch the coin through a sale known as an ICO in which they sell a set amount of their newly minted coins to early adopters, backers, investors. It’s a great way to get into a project you see a lot of opportunity for at a low entry point and set price before market fluctuation kicks in.
The project launching the new token will have minted a specific amount of coin and have set aside a number for the sale and other purposes. They will release a whitepaper that you as a potential investor can study and determine your perception of the opportunity.
Doing your due diligence is crucial as I’m sure you already are aware, but a lot of people are just excited to buy a coin cheap. It’s more important to study the whitepaper critically, learn about the developer team, the backers, the project and roadmap, related projects, etc.
In this guide I won’t be going into participating in ICOs, but there is a lot of support on the /r/ethtrader subreddit.
The Investment Process
Now that we’ve covered some basics on what ETH is, the difference between ETH and other Ethereum based tokens, etc., let’s talk about the overall investment process that I’ll be walking you through in the next section.
The overall process as I see it is broken into three main segments, not counting selling or cashing out, these are:
- First time/one time preparation
- Buying In
- Storing/Managing ETH and Ethereum based Tokens
First Time/One Time Prep - BEFORE YOU BEGIN
Before you do your first buy-in of ETH or an Altcoin (Ethereum based token), I’ll show you the steps to take for securing your personal data and identity, 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” very truly. This is also one of the risks. But it’s 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.
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 “crypto” part of cryptocurrency is that there are two sides to this coin. A public and a private. We briefly touched on the blockchain and if you remember it’s a public ledger. This ledger tracks transactions and is able to be seen by anyone. For example, you can visit etherscan.io right now and see transactions sent and received by individuals. You can click on a sender or receiver and see their current ETH or Token (the altcoins, ERC20 tokens) value and in parenthesis the USD value currently.
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 Ethereum so they create unique and valid blockchain addresses...and you can use something you dreamed up to help such software create that code...ultimately the wallet address is generated using calculations that are according to standards based on Ethereum 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.
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 coin out of your public address. In other words, if you have both keys, you can send or access funds (cryptocoin) held at your public address, which is your “wallet”, and you can send them anywhere to anyone with an address that can receive that type of coin.
So your private key is part of a pairing of both keys and both keys mean total access. So if you don’t own both keys, you don’t own your coins.
There are companies where you can store ETH that allow you to send your ETH 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.
So having ETH or an ERC20 Token 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 ETH or other token and you can then access it without 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 verifications 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 FDIC insured and allows for quick access to funds and to buying more currency.
Although a hardware wallet is one of the ways you interact with your specific public key on the blockchain and related private key...your ETH or other token 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 ETH “on a hardware wallet”...I just want to make sure you understand it’s not physically stored on that device but rather the public key that device interacts with on the public blockchain, which is a public key only unique to you and tied to your private key. This way you also understand that if you had a hardware wallet that somehow got destroyed, lost or stolen, you could still access the funds in that address using the 24 word passphrase you copied down on paper when you purchased the wallet and activated it. So that 24 word passphrase acts as the decryption mechanism to unlock your private key, giving you access to the wallet in the case of something happening to the device. This is the case with the Ledger Nano S device, which I recommend if you choose to do a hardware wallet.
Quick Note on Terminology : So you’ll see me refer to “stored on your hardware wallet” or similar language and know that I’m really referring to the wallet address (also known as the public key or public address and visible on the public blockchain). Also, just the term “stored” or to “store” in a wallet, you should see now really is referring to the ledger record of how much coin is promised to that public address.
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 ETH or other tokens sitting for short periods of time. For your long term holdings, you’ll want to send those coins to a paper wallet. 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.
I’ll leave links to the exchanges and hardware wallet providers I’d recommend as most trustworthy. We’ll discuss creating a paper wallet later, as it’s something you will do yourself. A hardware wallet could be tampered with by a reseller and hacked in such a way that all transactions you make (buying ETH or another token to store on the hardware wallet). 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 section, 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. FDIC Insurance won’t cover you if you aren’t careful and somehow lose your public and/or private keys where your ETH or other token are stored.
Now, here’s a quick overview:
- 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)
- 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 safe 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.
- 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. 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 “FredArmison@yahoo.com” 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.
- Get your hardware setup (see next section) 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.
- 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.
Security & Prep : Steps Before You Begin
How to establish securing yourself and your personal data before you begin investing.
Intro and Basics
Before you begin investing in any cryptocurrency, you need to take some measures and set up some practices that will ultimately protect you and your holdings or trades. For starters, if you are new to the world of cryptocurrency, you need to understand a few basic premises:
- ANONYMITY in your social and untrusted interactions is paramount to securing your holdings and activity.
- CAUTION in your actions is key to safe and successful transactions.
- PARANOIA is underrated when it comes to dealing in cryptocurrency.
Contrary to the way most people deal with their finances in our modern society, where we essentially blindly trust strangers pretty regularly, in the crypto world that sort of behavior will be a quick route to your demise. Being a little, or moderately, paranoid is an acceptable state of perspective in all your crypto dealings. Every action should be taken with the assumption that if there’s a potential “leak” of your private key or of your funds at all, it will be exploited.
Remember, if you send cryptocurrency to the wrong address, or to an untrusted person, or use your private key or other sensitive login information on a computer that’s not trusted and secured, you risk losing money forever. There are not takesy backsies in cryptocurrency. Even if you sent cryptocurrency to a wallet no one owns by accident, it will just sit and rot there, never to be claimed.
So being a little paranoid goes a long way. The reason I use that word specifically, is, as one example, I’ve noted a lot of gullibility on the subreddit ethtrader. Someone posts a link to a “new exchange” or one I saw recently was a site claiming to allow you to cash out your ETH for PayPal. Of course, if one had sent ETH to that “exchange” it would have just lined the pockets of a scam artist. But people fall for that sort of thing, especially people who aren’t very keen on the community of cryptocurrency, to know what exchanges for example, are trustworthy, etc.
Caution is really similar, and the premise here is to always exercise caution with your actions. This premise differs from Paranoia in that I’m referring more to your actions in carrying out a certain trading or investing task. For example, let’s say you setup a new ETH wallet using myetherwallet. You have your new public address (wallet address) and are ready to dump your stash of $10,000 in ETH from Coinbase, for cold storage. So you paste your new public wallet address in Coinbase and send. An hour goes by and no ETH in your new address, but your Coinbase account is empty and says the transaction completed.
That would probably be one of the worst moments of your life and could be avoided by practicing some caution in EVERY step. For example, after you create your new wallet you’d make a very small (like $1) transfer using coinbase or wherever your ETH is coming from. After that transaction shows up in your new wallet, you’d do a slightly larger one, like $100. All good? Send the loot.
And every step of even sending those test transactions, would include you verifying the public address in the send field, every time, against your printed wallet or wherever/however you have that public key recorded. This way you can make sure you’re not inadvertently pasting the wrong address.
(if this all is sounding over your head, don’t worry, after the step-by-steps it will make more sense)
Those are just two examples of practicing caution, you really want to move cautiously with every action you take involving your investments, to ensure that you are truly accomplishing what you intend to do and not making a fumble that can cost you big time.
Anonymity is the premise on which you want to base securing or protecting your personal data, and in turn, your investments.
Security measures and steps to getting setup
Okay, let’s talk about the actual steps to take to make sure you are operating within these premises and really keeping your soon-to-be investments secure. This list of steps to securing yourself and your personal data is not necessarily the most complete list. I’d love to hear any feedback if you have suggestions on how to make it more complete.
Step 1 - Alternative Public Identity (Being Anonymous)
As I’ve discussed before, an important step to getting started is very simply not being public about your cryptocurrency dealings. Don’t brag online, facebook, etc about what you’re doing or how much you’re investing...or gaining.
Really anywhere you discuss cryptocurrency in terms of investing, should be very nonspecific and not tied to your known identity.
Create a throwaway email, reddit and any other personal account where you want to discuss crypto-investing...make sure that those accounts are not traceable to your personal identity by the public. For example, don’t use a reddit username that includes your name or anything personally identifiable to you.
Also, be cautious when using your social accounts that if you discuss personal things, even referring to the fact that you’re married or male or female or tall, short, etc etc...those personal discussions or ties to personal things about yourself should NEVER be carried out using your same social media account used for crypto investment discussion, etc.
The same goes for commenting on posts in Reddit or other social media platforms that have a history other users can view and are also susceptible to being hacked or attacked by DDoS attack and your personal email leaked. There have literally been people I’ve spoken to who have had this very thing happen and been blackmaled in giving cryptocoins.
That’s one example of why it can hurt you, but there are many ways in which allowing your personal information mix and mingle publicly with your crypto-investing, and especially if you’re revealing how much you hold (which you should NEVER do regardless)...can harm you and even lead to major loss.
So to avoid all of that, I recommend you create the following new accounts that are not tied to your personal identity at all, and use them exclusively for any crypto-investing activity or communication:
- Email address (gmail is acceptable if you don’t tie any personal data to it)
- Google voice number tied to new email or to a new gmail account
- New social media account for any site you intend to use to discuss this stuff, some examples being: Reddit, Facebook, Twitter (if you want to follow cryptocurrency tweets and like them, get involved in polls, commenting, etc), ethereum.org discussions, etc.
For added peace of mind, if you’ve ever made anyone aware you’re looking to invest in cryptocurrency, anyone, then when you create these anonymous accounts, do so from a computer that is connected through a secure private and anonymous VPN...and from a computer you’ve never used to identify yourself and that has never been in anyone’s possession but yours.
Sounds super paranoid, but this is potentially millions of dollars we are talking about gaining down the road...so it never hurts to be extra cautious.
Step 2 - Separate New Secure Accounts
Similar to Step 1, you will create another new set of accounts that are linked to each other...with a major difference. These will be tied to your actual identity (use your real name within the account settings of each) and will be used when setting up exchange accounts or other investment accounts where you need to verify your identity.
These accounts need to be new and separate from your normal personal accounts to add a layer of security to your investment dealings, in case by some small chance your normal personal email were already hacked or someone else had access and you just didn’t know or forgot, maybe you told someone who blabbed that you are thinking of investing in ETH and they know your cell number or leaked info out and your cell number got in the wrong hands...a simple call to your carrier could put a new SIM card in the wrong hands with access to your cell text messages...so even Two Factor Authentication could be hacked!
Sounds paranoid, but I know people who this has happened to.
So what you’ll create is a new email account using Gmail (create the account from a computer you trust) and then create a Google Voice number once you login to that new Gmail/Google account.
Next, enable Two Factor Authentication for this Gmail/Google account by visiting https://myaccount.google.com/security while logged into the new google account. Use your new Google Voice number as the phone for 2FA. This phone will be forwarding to a known number, your cell or home, so you may not see the text message...to receive text messages on this number simply visit https://hangouts.google.com while logged into that google account and you’ll have access to the texts. You can also download the Hangouts app on your smartphone to receive these messages.
You now have a new email and phone, with 2FA enabled, setup using your own identity and that you can use for setting up exchange accounts later on.
You can also setup 2FA using the Google authenticator app or Authy, follow the instructions online if you want your new email to use one of these apps to perform the 2FA rather than a text message. It’s not a bad idea if you want to be extra secure.
Step 3 - Hardware to use (recommended)
In the Step-by-Step sections later on it would be most advantageous to use the following combination of hardware in dealing with your cryptoinvestments:
- A smartphone like an iPhone or Android, preferably never used for discussing investments, accessing investment sites, etc..just as secure as you can manage. In most cases it’s not necessary to have a dedicated device, but if you can do it, do it. There’s really no such thing as too careful when dealing with large sums of money on the blockchain and being your own bank!
- An old laptop that can boot from a DVD or USB thumbdrive and has a couple USB ports. It doesn’t need to be able to go online and can also be your everyday laptop, just needs to be able to boot up from a DVD preferrably.
- A basic USB printer, name brand, non-wifi and not public (your own printer).
Step 4 - Hardware Wallet
(optional if you don’t want to deal with paper wallets right away but want a secure way to store)
Here are a couple good starter hardware wallets. Although I don’t really cover how to deal with hardware wallets (yet) in this guide, it’s somewhat easier to do in many ways than some of the step-by-steps I do cover, so it’s a foot in the door before you learn how to do paper wallets.
Wallets & Transactions
Intro to wallets and transactions
As I discussed earlier in this guide, a wallet is really just a public address, a line of code, on the public blockchain which you own a private key paired with it...so you can actually access and control that address (send tokens from it for example).
There are a lot of different kinds of wallets, or ways of accessing this public/private key pairing, an often mentioned type of wallet is a hardware wallet, another is using mist, and another is using myetherwallet or similar to generate the wallet. And there are also methodologies of dealing with a very basic wallet or key pair.
In this section I won’t be talking so much about hardware vs mist vs myetherwallet, etc...rather this section is about the methodologies and approach you use for any wallet. Once I have a chance to play with a hardware wallet and really delve into mist, I’ll do a section or separate guide covering the types of wallets...until then let’s just focus on methodology for handling any wallet.
So for simplicity let’s say you have setup a new wallet on the blockchain using myetherwallet, pretty straight forward, you have a public address which is what most people call the “wallet” and you have the private key which you can use to “unlock” that public address and access any tokens it holds.
Now, there are different ways you might approach that wallet, I’ll cover just a few: Cold Storage, Hot, Throw Away/Temp, Token Only, ETH Only, Domain/ENS Only.
Cold Storage & Paper Wallets
The idea of cold storage is not new to cryptocurrency. The basic idea is a way of storing something to preserve it. When it comes to value, like cryptocurrency, you want to preserve the value and security of that wallet. Making a wallet “cold” in cryptocurrency is your most important wallet and means essentially, the private key has never been exposed online and has never been recorded or entered on any device which has ever or ever will be, online or on a network.
This is also where we hear about Paper Wallets a lot. Just as the name implies, it’s a public and private key pair that is literally printed or written on paper...as opposed to online. To accomplish this, you’d have to even create the wallet offline...but you can’t just write down a bunch of numbers and letters and it will work as a wallet on the blockchain. The blockchain code has “rules” that it follows, so only a particular set and arrangement of letters and numbers will be a valid address. And it needs to be a unique address as well.
Because Ethereum is based on parameters and programmatic rules, and the code is open source, a knowledgeable developer can create a means by which they or someone else, can “generate” a valid and unique public address with associated private key. And this is exactly what MyEtherWallet has done. The developer team behind the project are well known and trusted in the cryptocurrency space, or cryptoverse if you will, and their tools are developed on donation alone and continually updated, bug-fixed, etc.
I’ll cover this in more detail later, but here’s a quick overview of how this works, so you can understand Cold Storage and Paper Wallets.
Their tool allows you to print a paper wallet, that is formatted nicely, which will contain your newly generated Public and Private Keys. You can print this and then send ETH or Tokens to the Public address from any online computer. Because the address generated is valid according to the algorithms and rules of Ethereum blockchain, those tokens will be recorded as valid deposits into that public address on the blockchain...the transactions will be permanently recorded on the public ledger.
And because you have the private key to unlock that public address, you can access those tokens later and send them elsewhere if/when you want. You can even perform a send from that wallet from that same Offline computer, so your private key is still never exposed to the web! But I’ll cover that later.
So let’s say you follow this process and get your ETH into the paper wallet which was generated from an offline computer and the private key has never been exposed to any computer that has ever been or will ever be online. That is the beginning of a Cold Storage Wallet and if you printed it, a Paper Wallet as well.
The idea of it being your Cold Storage wallet is more about how you treat it and work with it (keeping the private key always offline)...and how you preserve the private and public key pair going forward, whether you’ve printed or written it down. For example, leaving that printed wallet in a vulnerable place like a desk drawer, makes your cold storage less effective. Putting it in a safe deposit box at the bank is a little better. Having multiple copies at multiple banks and a digital copy on the offline computer in a strong safe, etc etc..amps up the effectiveness of your cold storage.
Hot Storage Wallet
You may give it a different name like “everyday wallet” etc, the idea is that this is a wallet you dedicate to fast, in/out, transactions or a very low “working” or “daily” balance. It’s like the wallet you might use for moving funds around or dabbling in exchanges, or even tying to a Visa Shift card for actual daily real-world transactions.
A good example of what might be used as a Hot Wallet would be your CoinBase account. It’s FDIC insured so great for small amounts, and although you technically don’t have the private key for your public key wallet, you do have the backing of a reputable and established, insured and licensed company. They even offer cold storage, they call it Vault, but I recommend following this guide and just doing it yourself. To reiterate, if you don’t hold the keys, you don’t hold the coins.
Shift is a Visa based debit card that can be synced to your Coinbase account and allows you to use up to $1,000 a day of your cryptocurrency in everyday Credit Card transactions...so another useful way to treat a hot wallet.
And of course, Coinbase is where you can buy more coin from your credit card or bank, which makes it a starting point to getting coins and then transferring them to your Cold Storage or other Ether wallets.
Because you can really have as many wallets as you’d like and create them on the fly very easily, another example of a hot wallet would be one you set up just before performing a transaction that you won’t likely repeat and with a party you don’t want to expose your main wallet address to. Although this is not super necessary and transactions can be followed on the public blockchain anyway, it’s just a layer of protection if you feel you need or want it for peace of mind.
Throw Away/Temp Wallet
Similar to creating a new wallet for a new transaction you’re feeling like adding an extra layer of protection to, is the idea of a throw away wallet. This, in my perspective, is a wallet you might generate, move funds into for whatever reason, move them out and then never use the wallet again. The most obvious reason for this would be if you generated and used the wallet and private key on a computer you don’t trust or know. So you unlocked the wallet using your private key on the untrusted computer or system...or maybe the system got a virus after you used that wallet...time to burn the wallet and just move on.
Token Only or ETH Only Wallet
Any Ethereum wallet can store ERC20 tokens and technically you could store your ETH and all your ERC20 tokens on the same wallet. But you might want to have a bit more organization for whatever reason and separate your tokens and your Ether. In this case you might generate a wallet just for tokens, or for one particular token.
Then you can also follow the guidelines for making it cold storage, hot storage, etc. You might even have a token address that is sort of your “hot” wallet for all tokens and then a separate Cold storage wallet for each token you intend to hold.
There’s nothing you really need to do when generating that wallet for it to be “tagged” for a particular token. Again, any ERC20 token can be sent to a valid ethereum public address. So it would be more your job of tagging them yourself….like if you did paper wallets for each, after you print the paper wallet just write what token it’s for, etc.
And finally, you can also dedicate an Ether address to only be used for your Eth. Again, nothing needed to do online or when generating the wallet offline or online, just your own personal tracking of each. Just make sure if you are tracking them in a spreadsheet or note taking app, that you are not recording the private key of each public address...remember that your private key should never see an online computer unless it’s a throw away wallet.
Domain/ENS Only Wallet
Just like dedicating a wallet to ETH or Tokens or a particular token, with the new release of the Ethereum Naming Service or ENS, you may want to dedicate an ether address for use only in participating in ENS domain auctions and buys. Again, just your own organization and consistently using just that address for domain auction activity to accomplish this.
For most major exchanges you’ll have no control over what ethereum or other cryptocurrency address they assign your account. You’ll login and go to deposit for a particular coin and be shown the address to send that coin to in order to “load up” your exchange account in that currency for trading.
But decentralized exchanges are not too far from being a big part of trading crypto coin, and one well known dApp version already exists on the Ethereum blockchain which is accessed through the portal https://etherdelta.github.io/. To trade using this decentralized application, you use the site to create a new account, but the account is really just a newly generated ether wallet address and private key pairing. It’s pretty cool and allows you to place trades, orders, sells, etc using the smart contract on the blockchain, so you’re not exposing any personal data to an exchange company and you’re not worrying if that company will just disappear with your coin, or get hacked, ddos attacked, etc.
To trade using this method of decentralized exchange (built in a smart contract) does require you using your private key to “login”, which is really just unlocking your public address so you can send cryptocoin to the smart contract for orders, etc.
So this is a trade wallet, essentially, and should be treated similarly to any exchange, even though it’s not susceptible to the same security risks you face with a big exchange like Poloniex, etc, it’s still susceptible to risks that exist on the computer or device you’re using to enter your private key.
Bottom line with all exchanges, centralized or decentralized, don’t leave cryptocurrency in those wallets for longer than necessary to do your trading. Move it out as soon as your trade is performed.
Another good use of your coinbase account would be moving ETH in and out of the exchange you use and then moving any big wins or amounts to your cold storage addresses.
In Ethereum and any blockchain, a transaction is not always a financial transaction. But this guide is mostly dedicated to helping you learn cryptoinvesting, so that’s generally what I mean by the term.
However I think it’s important to note that a transaction can mean many things in terms of blockchain technology. In the case of a smart contract, it can be the data you are sending to the smart contract for it to process and the data it sends back, regardless of tokens involved. In the case of winning an ENS domain auction for example, the smart contract performs a transaction when the winner reveals their bid, which is also a transaction. Or when the domain ownership is assigned.
But for simplicity and again, to focus on investing, I’ll just briefly cover the transactions of cryptocurrency that you’ll most likely engage in as an investor. There are three main transactions you’ll do. They are Buy/Exchange, Sell/Cash out, and Send.
This is pretty self-explanatory, you can straight up buy cryptocurrency using fiat (local currency, like USD) through particular exchanges. Coinbase and Gemini are two of the most trusted for US based customers and I think they cover a few other countries as well.
These exchanges, as most, have fees associated with the different actions. For example, Coinbase charges a percentage fee for all buys of coin, using either ACH with your bank or a credit card. The fee can vary and currently if your ACH buy is over $200 it’s only 1.49%. The ACH buy takes longer to complete, for your coins to show up in your Coinbase wallet, but the coin market price at the point of placing the ACH buy is locked in. So if the current price of ETH is $88 and you do a bank buy (ACH) in Coinbase at that price, you pay the total price at approx $88/coin + the fee, let’s say the buy was over $200 so the fee was just 1.49% ...and in 3 to 7 days when the purchase clears and the coins show up, and the current price is $100/coin, you still only paid $88/coin plus the transaction fee.
Each exchange has their own fee structure so just understand it before you do buys or exchanges/trades. Usually trade or exchange fees are much smaller than buy fees. So if I’m doing an exchange of ETH to Golem (GNT), the fee may only be 0.1% depending on the exchange where I’m doing the trade.
The reason you may not always use one exchange could be many factors including, that exchange may not support the token you want to buy yet and another exchange does...so you’d want to send ETH to the other exchange and perform a trade there for the token you want. Another reason may be DDoS attack or recent related issue with the exchange of your choice., making other exchanges a better option until your normal exchange sorts things out.
The process of buying a token that is not major, like Ether, usually involves two overall steps (which we’ll cover in detail in the step-by-step section later on) but again this depends on what exchange carries the token. This is more accurately known as an exchange or trade. So an exchange is a buy, just with an extra step. The two overall steps are: 1 - Buy Eth, Bitcoin or Litecoin at the exchange that allows you to buy with fiat (like Coinbase); then 2 - exchange the purchased Eth/Bitcoin/Litecoin for the token at an exchange that supports that token.
For example, https://liqui.io/ is an exchange where you can buy Golem Tokens, an Ethereum based ERC20 token. To buy Golem you’d first buy Ether at Coinbase using your bank or Credit Card, then send that ether to your Liqui Ether Deposit address (which is assigned to you after you setup a free account). Then once the Ether is in your Liqui account, you can do a buy order on the exchange for GNT (the short term for the Golem token). This GNT is placed in your GNT address in your Liqui account as soon as the trade is complete. You’d then send that GNT out to the ethereum wallet you’ve generated for storing your GNT as we discussed in the last portion on wallets.
A buy of a major currency like Ether, Bitcoin, or Litecoin is much simpler of course...you just buy straight on Coinbase or Gemini or the exchange for your country, from your bank/CC and it arrives in your Coinbase or other exchange’s wallet for that currency. Then you just send it to your storage wallet you created.
So to summarize, you can either buy directly from your bank/CC the coin that your exchange supports or if they don’t support it yet, you buy one they do and do an exchange for the token at an exchange that does support that token, then store it in a wallet you created for storage.
Setting Buy Points Made Easy with Coinbase
Speaking of Coinbase, they own an exchange called GDAX, and because they own both the means to getting your fiat currency into the cryptosphere AND an exchange to exchange that currency for tokens, Ether, Bitcoin, etc...you can setup buy orders in GDAX that tie to your coinbase wallet. This is useful if you want to deposit a large sum of fiat into Coinbase USD Wallet (which is just like a regular bank, FDIC insured and all), and then make buys of coin...whether ETH or another...based on market fluctuation without having to wait for an ACH to clear.
So you are essentially just transferring your “play money”, the funds you’ll use to invest in cryptocurrency, into a “bank account” (Coinbase USD Wallet) that is directly tied to an exchange (GDAX) for buy orders and more.
If you have the means to go ahead and deposit a lump sum of play money into your Coinbase USD Wallet, this is a great way to do dollar averaging or buy orders or whatever it is you’d like to do in interacting with the exchange.
Sending is a very straightforward and simple transaction. You can send a coin to any other like-coin address. What I mean by that is, you can send Ether to an Ether address, from your wallet to another persons or another wallet of yours which is also an Ether wallet. You can send an ERC20 Token (like Golem) from your Ether wallet where you’re storing it, to another Ether wallet of another person or another one you own. The exception, and this is extremely important: You CANNOT send an ERC20 token to your Coinbase or any exchange Ether address! If the exchange allows you to trade in that particular ERC20 token, they will have an address assigned to your account specifically for use in depositing that token. But if you send $1,000 in Golem to your Coinbase Ethereum wallet, you’ll never see it again.
So the rule is, only send a coin to the wallet it explicitly can accept and if sending to an exchange, only send to that exact coins wallet address in your account for that exchange.
Some smaller exchanges are cool about mistakes like this, for example the app/site ShapeShift has excellent support and even provides a place to put a return wallet address, in case there’s an error and they’ll return your coin.
But larger exchanges like Coinbase, who have poor support, just wave goodbye if you mess up and send the wrong coin to the wrong address.
Sending is where you want to be extremely cautious, double check and triple check, do a very small test send first, make sure it works, then send a bit more, make sure that works, and then send the large amount.
That should be your standing rule...always test send twice, before the big send.
Just as you only send Eth to an Eth address, you only send Bitcoin to a Bitcoin address, etc. So the same rule applies for all coins and tokens.
When it’s time to cash out of a coin, for whatever reason you’ve established when you started investing, the same caution should be practiced as when you send between wallets. Essentially there are some exchanges where you can cash out, or sell, your cryptocurrency. And usually, like buying, they have only some you can sell.
This is likely to change in the near future for exchanges like Coinbase, who are moving toward including more tokens for buy/sell. But until then, if you are cashing out of a token that is not supported for buying/selling, you will first exchange it for one that is.
This involves sending the token out of your wallet to an exchange that supports it, to the token specific wallet address that exchange provides your account. Then you perform a trade for the supported coin, like ETH. Next you’d send that ETH from the exchange to Coinbase or whatever exchange allows you to sell and withdraw fiat. It may be your exchange where you can sell/withdraw fiat from is the same that allows the trade, which makes things easier. But if not, you’d simply send from the trading exchange to the “cashing out” exchange like Coinbase.
From there, you’d simple choose the Sell option and how much of the ETH or Bitcoin or whatever major coin you exchanged into for the sell...and choose your method of payment. Coinbase supports selling into your bank account (an ACH transfer), Paypal, and a Coinbase USD wallet.
The USD Wallet of coinbase really only makes sense to sell into if you wanted to lock in that USD price and then plan on buying back into cryptocurrency with those same funds. But keep in mind, anytime you sell your cryptocoin for fiat, for USA citizens, it counts as a taxable event of capital gains tax, which can be hefty if the currency has gone up significantly and you’re performing that event within the first year.
My advice on cashing out is speak to a tax attorney before you do this and are surprised by a massive tax bill.
A sell may have a fee associated with it and the sell price may be slightly lower than the market average or current. Each exchange has info on their particular fees for each type of sell.
Another way in which you can “sell” is using a Shift Visa or similar debit card that ties to your exchange. Coinbase integrates with Shift Visa debit card, allowing you to pay as you normally would with a bank debit, using the Eth, Bitcoin, or Litecoin in your Coinbase wallets.
Although this still counts as a taxable event if you’ve realized gains in that coin, there are no fees for these transactions and it’s a good way to access your funds while they are still in coin form, meaning if you need access for some emergency or related situation, you can do so without locking in the price of the market in the case of a bull market.
For example, you may go to buy a coffee for $2 and if the market is bullish you may only pay $1 for your coffee. But the risk is also true, if the market dips hard, you may pay $50 for that coffee. So if you use a Shift card or similar, do so when the market is stable or bullish and check the Coinbase market price before you swipe!
Other Common Transactions - Locking Up Coin
Besides these three basic transactions of cryptocurrency, in Ethereum there’s also the capability of “locking up” an amount of coin or token for different reasons. A good example of this is an ENS auction. You essentially lock up some ETH when you participate in bidding on a particular name, until the auction ends.
Another example is decentralized exchanges where you might want to place a buy order at a specific price that is lower than the going market price...you can “lock up” some ether into the smart contract using the gui and setting an expiration. So your ETH would be locked in that contract until either someone sells at your buy price or the expiration passes.
And of course you can lock up your ETH or tokens through the bigger exchanges in a similar process.
Some networks, like Steem, allow you to lock up your STEEM tokens for 2 years to give you voting power and influence in the social network. In fact, you can also “burn” tokens or ETH which remove them permanently from the network. For example in STEEM, you can burn your tokens by promoting a post you make in the social network, the idea being to raise the value by decreasing the supply.
Exchanges & Where To Buy ETH
Where to buy ETH and other tokens or perform trades
This is a very brief section of the most common and trusted exchanges I recommend you create an account with before you begin investing. Remember to use best secure practices when doing this, using the email and phone you’ve setup specifically for your investment accounts. This is NOT the anonymous email and phone and is NOT your personal everyday use email and phone. This is the new secure email and phone information you created in the Security and Prep section of this guide.
If you skipped that section, I recommend reading it before you take any action or set up any accounts. You are essentially becoming your own bank for your investments, so taking precaution and securing your personal data is crucial to your success and peace of mind.
As a quick reminder however, you should have three basic “identities” going forward: 1 - Your current personal identity, phone number you use commonly, email you use everyday, etc. 2 - Your anonymous new identity, which includes a never-used and unique username that can’t be traced to your name or you in any way by anyone that you’ll use for any public facing accounts (like reddit etc.), a new email with the same rules...can’t be traced to you by looking at the email address and nothing personally identifying is ever emailed to or from it, and a new anonymous google voice phone number in a different area code than you live or are familiar with. And for fun, a pseudonym you can use for any social/public facing accounts where you’ll want to discuss cryptocoin, etc. 3 - Lastly, your crypto-investing identity which is not anonymous, but exclusive to your investment accounts and NOT public facing. This is a secure version of your actual identity that can be used to setup exchange accounts, bank accounts, etc, legally and with your real personal data but that are never used for anything else, or visible to anyone besides those trusted companies you’re dealing with.
You’ll use this 3rd version of your actual identity to setup accounts ONLY at trusted companies! I repeat it because the separation of these three identities is crucial to you staying secure and your funds being secure.
The next important thing to touch on before you go set up these accounts, is the process to expect. Every country has their own regulations on financial institutions, so I can’t speak to the requirements of each, but for USA accounts the basic idea for any financially tied account is that the company is required to verify your identity and legal citizenship/residency.
This is a law known as KYC (Know Your Customer) and is to help banks and financial institutions protect against fraud and money-laundering. This might involve uploading an image of you holding your legal ID/Drivers License, will require your social security number, valid address, etc. Much like setting up a bank account.
There’s also an approval process that varies from company to company, depending on their resources and ability to perform verifications.
So getting setup to buy cryptocurrency may take a week, not counting the time it will take to connect a bank account, verify it and then perform an ACH deposit. This is also why Coinbase locking in your buy price on ACH is so handy, you don’t have to wait for an ACH to clear before you buy Ether...once your bank account is attached to your verified Coinbase account, you can just initiate a buy from your bank and although it takes time for the coins to show in your wallet balance, the price is locked in.
Now that you have a basic understanding of the timeframe, etc involved, here are the accounts I’d recommend as trusted and legitimate for USA based investors...for non-US I’ll be researching and adding to this list as I learn more.
Exchanges for Buying/Selling Eth
Coinbase - https://www.coinbase.com
Gemini - https://gemini.com/
Kraken - https://www.kraken.com/
Exchanges for Trading/Exchanging
Gdax (Coinbase owned and tied to your coinbase login/account) - https://www.gdax.com/
Liqui - https://www.liqui.io
Poloniex - https://www.poloniex.com
After you setup each of these accounts, using your same secure Gmail email, setup Authy on your smartphone and enable Two Factor Authentication with each of these accounts, adding it to your Authy app.
Your gmail should also have Two Factor Authentication enabled and using the Secure Google Voice number you setup for use exclusively with trusted/secure accounts. Make sure to backup your Authy to a secure or offline computer before moving forward. When you setup the app it explains how.
Once every account is secured with 2FA (Two Factor Authentication), it’s time to complete your verification with the exchanges that require it. You’ll need to verify your identity with Coinbase, Gemini, Kraken and Poloniex. The further you verify yourself, the higher your limits are with Poloniex and Kraken.
SECTION THREE : STEP-BY-STEP
Okay, so how do you actually invest in cryptocurrency?! In this section I’ll provide you with the step-by-step guides for actually getting involved as a cryptocurrency investor.
I’ll be focusing on Ether (the Ethereum token) and Ether related ERC20 tokens only. Investing in Bitcoin or non-ethereum based tokens, technologies that have their own blockchain or are based on the bitcoin blockchain, is something not covered in this guide...but the principles are essentially the same and the process is similar. However, you cannot store bitcoin in an ethereum wallet and vise versa (eth in bitcoin wallet)...with the exception of some hardware wallets which allow multi-currency.
Because Coinbase is one of the easiest exchanges to use in buying and selling your cryptocurrency...and because they are FDIC insured, I’ll be using them for all these buy or sell step by steps.
But if you are in a country from which you cannot use Coinbase, the process should be fairly similar in buying or selling….selling referring to actually cashing out of crypto and into fiat.
Steps : Buying ETH
To buy your first ETH, first do all the prep work in this guide. Then follow these steps.
From your computer
Follow these steps to buy using the Coinbase website from your computer.
Setup your Coinbase account and follow the verification steps (very easy) presented to you when you create the account.
Within your new Coinbase account add your payment methods for a Credit Card and a bank. The bank will take a few days to verify in most cases. To add a payment method from your computer/web, login and go to Settings and Payment, then click “Add Payment Method”
Ensure your Coinbase account has 2FA enabled (Two Factor Authentication), this is done from the Security section of your profile settings: https://www.coinbase.com/settings/security_settings
Follow the instructions to enable 2FA and use the phone number you have dedicated to your secure online accounts! Then enable Authy 2FA by downloading and configuring the AUTHY app using your new secure GMail account you setup earlier.
My recommendation is to enable all the security features on your Coinbase account, which will end up meaning you’ll be using Authy and you’ll receive email confirmations that you’ll need to verify before using a new device to access your account...just another measure to ensure no one else can access without having access to both your Authy AND your email..which would be quite hard to do without physically stealing all your stuff and holding you hostage for passwords.
Step 4 (optional)
Download the Coinbase App which you can then use from your smart phone and enable touch support (if you have fingerprint reader on your device) which allows you to verify things using your finger/thumb print. You can also manage all your devices that have access to your account online in the same security settings screen. Again, the more layers of security you can setup between access and your money, the better off you’ll be! So long as you don’t lose or forget it all! So be sure to have a backup plan in place in case you do :)
Now you’re ready to buy using a Credit Card. You can use ACH if you prefer, but for the first buy I’d go ahead and just do a small buy with Credit Card so you can learn the process and get an ETH in your account to play with.
Within Coinbase on your computer it’s pretty easy, just login and click the “Buy/Sell” tab at the top of the page. Then choose Buy, which should already be chosen. In the Buy box you’ll choose Ethereum. Then under “Payment Method” you’ll choose the credit card you added.
Once you’ve selected the Credit Card you added as your Payment Method, you’ll want to choose the Amount. In the ETH box (should be the one on the right if you’re on the website) enter 1. The USD amount will populate automatically when you hit the TAB key on your keyboard.
Finally, click the “Buy Ethereum Instantly” button, which also will show the US Dollar amount you’re buying.
From Coinbase Mobile App
The mobile app is much easier to perform buys from. It will also come in handy in the upcoming steps, so I recommend getting it setup.
Login to the mobile app using your fingerprint or password. The first time you’ll be required to use the Authy code and click the link sent to your secure email, to approve the device.
You’ll arrive at the Dashboard with BTC selected. Touch ETH and then at the bottom, touch BUY.
The next screen is the Buy screen, with the fields Payment, USD, ETH, Deposit to, and Fees. Choose the Credit Card by touching Payment...or if the card isn’t added yet, you can do so after touching Payment by touching “Add payment method” at the bottom of the screen.
Once you’ve selected the payment method, in the ETH field, enter 1. The USD field will auto-populate with the current market price to buy 1 ETH and you’ll see the Fees shown in the Fees field.
Verify it is set to Deposit to your ETH Wallet.
Touch the button at the bottom that reads “Buy Ehtereum Instantly - $xxx.xx” and shows the total you’ll pay.
You’ll be presented with a confirmation screen called “Confirm Instant Buy” that shows how much you’ll be charged and to which card and how much ETH will be deposited. Touch “CONFIRM INSTANT BUY” to continue.
If you’ve enabled the security features on your Coinbase account it will ask for either your PIN or your fingerprint to confirm. If you wait too long, you’ll get an error and have to initiate a new buy, so do the entire thing in a fluid motion.
When buying ETH, the only caution I exercise is making sure I’m using the account (Card or bank) I intend to, making sure I’m actually buying ETH, and making sure it’s the amount I intend. Other than that, it will go into your Coinbase wallet so that part is fine and there’s not much need for worry.
If the transaction went through, you’ll be returned to the Dashboard or your Wallet, in the app. You can then refresh the app and look at your ETH wallet to see the new balance.
So now you should have 1 ETH in your Coinbase ETH wallet! Congrats and welcome to Cryptocurrency investing!
Next, I’ll show you how to securely store your ETH, so when you do the big buy-ins you can rest assured it’s in the most secure cold storage that you can provide yourself with.
Steps : Securely Storing & Accessing ETH
As I’ve mentioned before, I’m not covering hardware wallets, however I will say it’s pretty damn easy to move your newly bought funds to a hardware wallet.
The best way to succeed with securing your funds into a Hardware Wallet is to simply follow the instructions from the manufacturer and reach out on reddit if you run into any issues. But follow the same overall guidelines and even if you are wanting to skip Paper Wallets for now, I recommend still reading through the following steps on creating a highly secure paper wallet...just so you can get the same principles to follow in dealing with your hardware wallet.
One of the most important things I stress with any new wallet is to always test everything with a very small amount, both ways (sending to and withdrawing from the wallet) and making sure the transactions all go through successfully before sending large amounts.
I’ve mentioned MyEtherWallet earlier and that is the method I’ll be walking you through to create your first Cold Storage Super Secure Wallet for your ETH stash.
In some of the steps below, there is an alternative and easier approach, which is potentially less secure (depends on how vulnerable your computer and tech is or was). These alternate steps will be italicized and again, although easier do put your cryptocurrency at greater risk.
Now if you read the sections before, you’ll recall that a wallet consists not only of the public wallet address, where coins are sent...but also a private key that unlocks that address...allowing you to access the coins it holds.
To generate a new wallet with the highest security requires a computer that has never seen the internet or any network before. Sure, you could generate a wallet on a computer that’s been online, etc...and maybe it’s secure and maybe you’ll be fine. But in the off chance that your computer is infected with some sort of virus or spyware, or in some way can make you vulnerable...why take the chance of putting thousands if not millions of dollars at risk? There’s no coming back from a cryptocurrency hack.
This is why we keep quiet about our stashes, why we use separate accounts for things, and why I encourage you...even if you use a hardware wallet...to create a paper/offline wallet following this part of the guide.
It’s a little bit involved and may sound complicated, but it’s really not that hard and I hope I can simplify it and help you feel comfortable enough to do it. Part of this process involves creating a DVD that you can boot a computer from to do this work. I’m working on developing a bootable disk that will be prepackaged with everything you’d need to do this portion, that I could send to anyone who feels overwhelmed doing it themself, but that will be in a few weeks at least until I’m able to get it created and ready to copy and mail to people. Let me know if it sounds like something you’d want and if enough people want it I’ll try to really prioritize that.
Okay, now let’s get started! I hope I didn’t scare you away to thinking it’s too hard, it really isn’t just takes some patience to get things setup the first time, then it’s pretty easy after that.
Part 1 - Get an Offline Computer Setup
You don’t necessarily need a computer that has never been online to do this...as I just mentioned, I’ll show you how to create a bootable CD from which you can boot any computer, keeping it offline and running what’s called a “Live CD” version of Ubuntu (a linux-based operating system normally used to try out the Ubuntu OS before installing). What’s great about a Live Ubuntu CD is it will run a fully operational OS on pretty much any PC (sorry you will need access to a PC, not Mac) and from there you can open a saved copy of the myetherwallet website, to generate a new Ethereum wallet without ever going online. We’ll cover accessing this “offline” wallet later and how to transfer funds out of it...without it touching the web.
Alternate Option: You can also use a computer booted in normally and simply take it offline after opening the web pages we’ll be using. For WiFi this is as simple as disabling your WiFi device when you’re ready to go offline. For non-wifi computers, it’s as easy as unplugging your Ethernet cable.
Get your hardware ready, here’s what you need to have at your disposal:
- A PC
- A writable DVD disc
- A new, never used, USB Flashdrive (Any size is fine)
- A USB Printer (you can also just write the public and private keys down, but it’s easier to print them and looks nicer for your records)
- Packing tape or a laminator
Alternate Option: If you’re doing the less secure approach, I recommend using an Apple computer or Linux, NOT WINDOWS. Also, for the alternate less secure approach you will not need a writable DVD.
Skip any step below that “If Following Alternate Option, skip” if you want to just stick with the alternate less secure option.
If Following Alternate Option, skip
Visit Ubuntu.com and download and follow the instructions for creating/burning a bootable Ubuntu Live DVD. You can do this from a normal computer with a DVD burner, but preferably one that is definitely not infected! Maybe use a Mac and if you don’t have a mac, find a friend who will let you do this from theirs. Macs are just much less likely to be crawling with computer viruses!
Ubuntu has a very easy to follow process for downloading an ISO (image file) that can then be used to burn a bootable DVD. This DVD will be used to boot your PC later.
If Following Alternate Option, visit: https://github.com/kvhnuke/etherwallet/releases/latest
At this page, under the "Downloads" section, click and download the file that name begins with "dist-" and ends in ".zip".
Visit myetherwallet’s git (this is where the latest build of their website software is securely updated to: https://github.com/kvhnuke/etherwallet/releases/latest
At this page, under the "Downloads" section, click and download the file that name begins with "dist-" and ends in ".zip".
If Following Alternate Option, skip
Unzip the downloaded file to the new empty USB flash drive. It should just be a folder with an index.html file and other subfolders and files inside. The ZIP is about 20MB in size and inside is a folder called etherwallet-mercury or some other build name after the hyphen.
If Following Alternate Option, skip
Take your newly burned DVD and the USB thumbdrive containing the etherwallet folder, and keep them in a safe place. The USB drive will NEVER be connected to an online computer ever again! It should be solely dedicated to this use and only plugged into a computer booting off the new DVD you created.
We’ll use these in just a moment to create your new secure wallet.
Part 2 - Creating your cold storage, offline, Ether wallet
Next you’ll generate your first official secure and offline ethereum wallet. To do this you’ll need the PC, new DVD and USB thumbdrive, and your printer or pen and paper.
Alternate Option: If following the less secure alternate approach, you’ll need your Mac or similar secure computer, a new USB thumbdrive and a printer or pen and paper.
Disconnect any Ethernet cable plugged into the PC you will be booting to.
Alternate Option: If you don't have Mozilla Firefox, install it now before going offline. Disable any WiFi on your computer or disconnect the Ethernet cable (or both)
Go to the folder where you extracted the ZIP folder from step 3 in Part 1 above. You'll see a file called "index.html", open it using Mozilla Firefox only.
If Following Alternate Option, skip
Power off the PC, power it back on and insert the boot disk, then immediately reboot. DO NOT plug in the USB drive yet.
If Following Alternate Option, skip
Boot the PC using the bootable Ubuntu Live disk. Choose “Try Ubuntu” when it boots up...and you’ll be taken to a desktop with a menu bar. DO NOT connect an Ethernet cable or wifi, EVER during these Live boot sessions.
If Following Alternate Option, skip
After you’ve booted into the Live Ubuntu disk, and are sure it’s offline, plug in the USB flashdrive containing the web software from myetherwallet.
If Following Alternate Option, skip
It may not allow you access to the flashdrive, you may get an access denied message. That’s fine, simply press the key combination: CTRL ALT T, and a “Terminal” or “console” window will appear with a flashing command line prompt.
If Following Alternate Option, skip
Type the following and press Enter: sudo nautilus
If Following Alternate Option, skip
A new window should appear and on the left you’ll see drives listed...including a flash/USB drive, the one you plugged in….It’s important to point out, you should NOT have any other USB drives connected to the PC while doing this.
If Following Alternate Option, skip
Double click the drive and it will open this time, revealing the contents which should be the folder containing the website info from myetherwallet...of which there will be an “index.html” file.
If Following Alternate Option, skip
Double click the “index.html” file and it will launch in the browser of the live session and look, just like a regular webpage, as if you were online. It should, however, display an error that says something to the effect that you are not online...that it cannot communicate with a server, etc. This is fine, and expected.
The page that displays by default is the Generate a new wallet page. So simply type in a long and unique sentence that you come up with. My recommendation is that you choose 9 words, rather than 9 characters and include spaces between each word. This is what we’ll call your Seed Phrase. If you are in a private and secure location, you can click the little “eyeball” to reveal the phrase you typed so you can copy it. Don’t click Generate yet!!!
Alternate Option: Do the same as above, and now plug in your blank USB thumbdrive and open it in another window.
Create a new folder on your USB drive and call it “Wallet”.
Alternate Option: Do the same as above, creating the folder in the USB thumbdrive.
Back on the myetherwallet page, copy/paste your new Seed Phrase into a text file within that new “Wallet” folder on your USB drive...you can create a new text file by right clicking within the folder and clicking “New document > Empty document” then double click it and paste the phrase….rename the new document to “Seed Phrase”.
Alternate Option: Do the same as above, creating the new text file within the new Wallet folder in your thumbdrive using the text editor of your computer. Name it “Seed Phrase” and paste your copied password from the myetherwallet page into the text file and save it.
Now click “Generate Wallet” back on the myetherwallet page and you’ll go through a few steps. Download the JSON file to the Wallet folder on your USB drive and then click the warning “I Understand. Continue.”
Alternate Option: Do the same as above, downloading the JSON file into your thumbdrive’s new Wallet folder and continuing.
Next it will display your Private Key and give you a Print button, so you can print your Paper Wallet.
Do two things:
1 - Copy your private key and paste into a new text file in your Wallet folder, name that file Private Key. Make sure it’s identical to the one you see on the web page!!
2 - Next, connect your USB printer to the computer and wait for it to be detected. If it’s not or you have issues with it, you can print to PDF and work on this later.
Regardless, proceed by clicking Print. It will initiate a new tab in the browser and allow you to either print to your USB printer or to a PDF file and save that on your USB flashdrive in the Wallet folder. The printable Paper Wallet will have both the Address (public key) and Private Key, including QR codes for both.
Alternate Option: Do the same as above. If your normal printer is a wireless printer, I urge you to connect to a USB printer to print the paper wallet, even if you decide to just save it to a PDF file for now and print later, when you print it the image file is exposed showing your Private Key. And you want to make sure that your Private Key is never on a system that is online in any form, image, text, text file etc.
Back on the webpage, below the print section, click “Next: Save Your Address”
Alternate Option: Do the same as above.
You’ll be prompted to enter your Private Key or upload your json file to unlock your wallet. Because you’re offline, go ahead and copy/paste your private key from the text file you created in Step 14 and click “Unlock”. This will reveal your Wallet Address (Public Key) which was also visible on the Paper Wallet you printed.
Alternate Option: Do the same as above, keeping your computer offline this entire time.
Store your paper wallet and the USB flashdrive in secure locations!!! That is your cold storage account!! But before you send large amounts of money to it, we need to test and make sure everything works and you have everything recorded correctly.
Alternate Option: Do the same as above!
Make sure you remain offline until all the tests are complete. After you’ve gone through a deposit and withdrawal test, stay offline until you’ve unplugged the USB thumbdrive, closed all your browser windows, and copied some random new text. I’ll explain at the end of this step-by-step. For now, leave eveything offline.
Part 3 - Test Send (Deposit)
This part is the same whether you are doing the most secure approach or using the Alternate Option with your normal computer offline.
To test your new wallet and make sure everything went as expected in the setup phase, you’ll need to actually send Ether to the wallet, check it’s balance and see the Ether arrive, and the send Ether from the new wallet out to your Coinbase account...and again check that the transaction goes through and that you have access to your new wallet.
To perform this test, you’ll want to remain offline and you’ll be incorporating your smart phone for part of the test.
But let me stress this: at no time will you need to connect the offline computer to the internet, ever, to send funds from it...it probably sounds weird and how is it possible to send money from an offline wallet. But the reason it works is the offline computer will generate a transaction ID that contains all the data the Internet needs to process a transaction...you’ll use your smartphone to send the transaction ID to the web, without having to enter your private key on your phone or on any online device. You enter the private key on the offline computer, unlock your wallet while offline, generate a transaction with the parameters you want (like the amount to send out) and it will generate a TX ID that your phone can then scan from a QR code and send to the blockchain, initiating a withdraw from your wallet! Pretty cool stuff.
So here are the steps involved:
First let’s send a small amount of ETH to the newly created offline wallet, go to your Coinbase account from your mobile device, preferably using the Coinbase app, and locate your ETH Wallet using the menu in the upper left of the screen.
From your ETH wallet, either touch the little “paper airplane” looking icon in the top right of the screen, to initiate a Send.
For this test, just send $2 worth of ETH. Enter the amount as USD and touch SEND. To make sure you are entering USD and not ETH amount, make sure the number on top is $0 when you arrive at the send screen...if it shows 0.00 ETH on top and $0 on the bottom, just touch the two arrows on the left and it will swap and put the $0 on top, where you can now enter $2.
I point this out because 2ETH could be an expensive mistake if there were a problem during our test! Remember, anytime you send cryptocoin, use caution and make sure you entered things the way you expected to.
The next screen is where you enter your newly created offline wallet address, so you can send this $2 test to that wallet.
Rather than type in the wallet address, you can simply open the PDF you saved earlier or use the paper wallet you printed, and scan the “YOUR ADDRESS” QR code by touching the little QR looking icon in the To field on your smartphone.
It will scan pretty quick and you’ll see the To field populate with the wallet address. Make sure it matches up to the printed “Your Address:” on the paper wallet. If part of it is cut off in the To field, just touch the To field and it will activate the text field so you can see the entire wallet address.
After you confirm they match, on your mobile device select and copy the address in that To field and then paste it in your Notes or note taking app so if the test is successful, you have an easy to access way of copying and pasting that address in the future.
When ready, simply touch “Send” in the upper right of the mobile device and it will prompt you for your PIN or fingerprint, etc. and send the ETH to your paper wallet.
Sending/Receiving Ether can take a few minutes or seconds, depending on many factors, so the next step you’ll do is to check the progress of the funds reaching your new wallet on the blockchain...but you may need to keep checking for a few minutes before they arrive.
To do this, from an online computer or the same online mobile device you’re using, open a browser and go to https://etherscan.io. Paste your new wallet Public Address (the same you just sent to) into the top search box and hit Enter or return.
A new page will display, showing the balance of that address, any transactions, etc. Near the bottom of the window you should see the new transaction you just placed processing or “pending”.
After you see the transaction go through and no longer “pending”, you should see the balance on the etherscan page for your wallet reflect roughly what you sent to it. A very small amount of ETH is used in transactions as “gas” which is sort of like a tiny fee for doing a transfer...so that’s why it’s “roughly” what you sent. The amount of gas is very very small, we’re talking pennies basically.
Not only can you look up your public wallet address on etherscan and see it’s current state, history of transactions, etc...you can also look up a specific transaction by transaction ID. We’ll talk a little about this when I cover sending from your offline/cold storage wallet.
But suffice it to say, etherscan is an extremely useful site to keep tabs on things, balances, transactions and much more. You can also see the balance of anyone’s wallet using the same method and their transaction history. Remember, the blockchain is a public ledger.
Part 4 - Test send FROM your new offline wallet
This part is the same whether you are doing the most secure approach or using the Alternate Option with your normal computer offline.
Now that you have confirmed a successful send to your wallet, don’t send more just yet! First make sure you can withdraw from that wallet...while it remains offline of course.
Again, we’ll be using a smart phone in tandem with this process to make it easier. This is also the same process by which you would do any future sends out of this Cold Storage wallet safely and securely without exposing the wallet’s private key to any network or prying eyes.
On the Offline computer where you created your wallet, return to the browser that has the offline version of myetherwallet opened from earlier.
In the future when you go to send out of this cold storage wallet, you’d boot from the disk like we did before, plug in the USB and open the index.html file to do this step.
On that myetherwallet offline site, choose the menu item on the top that says “Send Offline”. Don’t fill in any fields yet.
On your smartphone go to https://www.myetherwallet.com/#offline-transaction and you’ll see the same page.
From your smartphone on that page, in the top field under Step 1: Generate Information, enter your cold storage offline wallet address...this is the address you just created on the offline computer and did your test send to. You should have copied and pasted that wallet address into your note app on your smart phone and you know it’s correct if the send test succeeded, so go ahead and copy and paste it into this Generate Information field in the browser of your smartphone.
Then touch the “Generate Information” button.
When you touch the Generate Information button, two new boxes appear below that button on the smartphone’s webpage. They are Gas Price and Nonce. You’ll need these exact values for the next step, so copy or write them down.
Next you’ll need to know your balance in your offline cold storage wallet, so also paste that address into a new browser tab over at https://etherscan.io and then look for the ETH balance for the wallet. We’ll be sending half of this balance out back to Coinbase for this test, so write down approx half of the ETH balance number (not the USD equivalent)
Now go to your Coinbase app to get your Coinbase ETH Wallet address. This is where you’ll be sending the test to from your offline wallet.
To get this, open the app and navigate to your ETH Wallet. (make sure you are in the ETH Wallet, not the BTC) Then, in the upper right, next to the little “paper airplane” send icon, there’s a little QR looking icon. Tap it and you’ll see a QR scan screen open, at the top you’ll see an option called “My address”, tap it and you’ll see a large QR image and a link that reads “COPY ADDRESS” beneath it.
Touch “COPY ADDRESS” and it will say “COPIED” when it has successfully copied it.
Now paste this in your note app on your smartphone and make sure it’s not the same as your cold storage address...make sure it copied the new one. You can also write this down if it’s easier in the following steps to enter it on the offline computer, as you’ll have to enter it by hand on that computer.
On the offline computer, you’ll go to the “Step 2: Generate Transaction” section of the offline myetherwallet page.
Using the data you collected in the previous steps, fill out each field of “Step 2: Generate Transaction” except for “Gas Limit” and “Data”, these can be left alone for this test.
You’ll then need to unlock using your private key...so open the text file you created earlier on the USB drive and copy and paste your private key in the field that appears when you select Private Key on the offline page....or upload the json file you downloaded earlier when setting up this offline wallet...and click Unlock.
After unlocking, click the button “Generate Transaction” just below this unlock section of the page.
A QR image will appear on the right which contains the Transaction ID (TXID).
Using your smartphone, open a QR reader app (or download a free one and use it) and point your phone’s camera at the offline computer screen to read the QR TXID.
The QR Reader App should provide the very long string of characters which constitutes the TXID. Copy it and return to your phone’s browser where you have the myetherwallet website open.
On that same page, at the bottom, is a blank area to paste the TXID under “Step 3: Send / Publish Transaction”. Paste it there and touch “Send Transaction”.
If all went well so far, the phone’s browser will produce a message that has a tracking link to track the transaction. You can touch that link to open the etherscan.io page where the transaction will show as processing or some similar message.
When it’s completed, it will show you the completed status and you’ll be able to check your Coinbase account and see an incoming deposit of the ETH to your Coinbase ETH wallet!
Practice this a few times with small amounts, until you feel comfortable doing it with larger. And after I do a test send of a tiny amount, and it goes well, I do another of a slightly larger amount and make sure that goes well and THEN do the target amount.
Get in the habit of always doing a couple tests before the real deal, to make sure you are not making some simple mistake that can cost you big.
Also a note to reiterate on etherscan...some transactions take time, more than a few seconds and maybe more minutes than you feel comfortable with...so don’t panic until you are sure it’s not showing up. Usually it’s just delayed a bit if you don’t see it right away, especially when it comes to sending to an exchange.
FINAL STEP: Returning Online (IMPORTANT)
It’s important to do the following steps before you return online.
Eject the USB thumbdrive, and store securely.
Alternate Option: Do the same.
Using a laminator or clear packing tape, laminate your printed wallet(s) and store securely.
Alternate Option: Do the same.
Eject the DVD and shut the computer down.
Alternate Option: Close all browsers and programs, copy some random text and paste it into a new text file on your desktop, to make sure your copy/paste does not retain the Private Key, and ensure you did not copy or save any image or text to your computer containing your private key. Then Reboot BEFORE going online.
Once the computer is back up, you can go back online.
Steps : Buying Altcoins/Tokens (Exchanging)
Buying altcoins (alternative coins) and tokens based on Ethereum is really a lot easier then it may seem. In many cases it does require an extra step, which is just exchanging your Ether for the token of choice.
In this step-by-step, I’ll walk you through the process assuming you’ve purchased ETH and it’s in your Coinbase account, ready for trade.
While I love the decentralized exchange of etherdelta, I’m going to show you how to buy tokens through a centralized exchange as it’s most commonly used, has more coins supported, etc. If the exchange you like using doesn’t have the token supported yet, you can always check the other exchanges. For example, Liqui.io which I love, doesn’t support the same tokens as Poloniex...which I don’t love. But if I must have the token, I’ll do the exchange where I can and from a trustworthy exchange, even if it’s not my favorite. Poloniex isn’t my favorite because they have unexpected problems a lot and don’t really tell people unless you ask. But this is in large part due to the sheer volume of what they handle and this means problems are bigger, support may take longer, etc.
I’ll do my best to cover the bases in the following steps so regardless what exchange you’re on, it should be similar and make sense...as some of them call things by different names. For example, to locate your Deposit address where to deposit ETH for use in trades in Liqui is under Balances and in Poloniex is under Deposits/Withdrawels.
So the basics of an exchange that you’ll be using most are as follows, just so you don’t get thrown off by the different naming schemes:
1 - Balance or Deposit/Withdrawels: This is the part of your exchange account where you can deposit and withdraw funds for use in exchanging for tokens. It’s sort of like your “bank account” within the exchange. You can deposit and withdraw in every currency they support. So you can deposit ETH but you can also deposit a supported token, in case you wanted to trade it back to ETH or to Bitcoin or whatever. Likewise you can withdraw any supported token after a trade or when you no longer want your funds in the exchange.
2 - The Exchange: This is where, once you have funds in your Balance, you can trade for different coin pairs. For example, you can deposit ETH and then go to the exchange portion online and do a buy order for LISK or Golem, or whatever token is supported that you’re wanting to buy.
Besides those two major parts of any exchange account, the only other area you would want to pay close attention to is your personal profile, your limits on buys/deposits/etc (some exchanges won’t show a balance for a coin unless you deposit a certain amount - case in point is Poloniex where you must deposit at least 1 ETH for your ETH balance to be revealed, so always read the fine print)
Deposit ETH funds into the exchange. To do this, login to the exchange and locate the Balance or Deposit section and you should see a list of supported coins/tokens. Choose the Deposit or “+” option for ETH to display the Ether wallet address you’ll be sending to. Make sure it is the correct token (ETH in this case) and copy the address.
Login to your Coinbase account and navigate to your ETH Wallet. Start a new Send and enter a very small test amount of ETH you want to send to your Exchange account to make sure it goes correctly, before sending the larger amount you’ll be using for the token buy.
For the To address, paste the wallet address you copied from your exchange account.
Double check it matches the one you saw and copied from your exchange account.
When you’ve verified it all looks correct, complete the send.
Note: For poloniex, testing would require sending a little over 1 ETH, as Poloniex has a 1 ETH deposit limit and sending 1 ETH would end up just under 1 ETH due to “gas”, the TX fee. So you’d need to send 1.01 or similar ETH to see it show up. So just be extra careful sending to make sure you have everything entered correctly...mainly that you have pasted the ETH Deposit address from your poloniex account accurately into Coinbase.
Check the status of the test send and verify it arrives in your Exchange ETH account. You should see your balance go up by about what you sent (remember there’s a tiny transaction fee). You can also check the status by pasting the wallet address into etherscan.io and watching it there.
If your exchange is having difficulty processing Deposits, it may take longer than even the network takes for the transaction to be verified. I sent a small amount of token to Poloniex once and it took 24 hours to show up, even though it was confirmed and finished on the blockchain. This is not always the case, but reach out to support if the transaction doesn’t appear within 30 minutes...unless you’re sending Bitcoin which may take longer.
Once your test is a success, do the same process to send the amount of ETH you want to trade into token. Be just as careful to make sure you don’t make an error on this go around and make sure the To address you paste is matching up to your exchange deposit address.
Once this transaction shows up in your exchange in your ETH balance, you’re all set and ready to buy your token!
Navigate to the Exchange portion of the exchange you’re using and you’ll see a section called “Markets” where you generally will see the major coins as tabs or options you can select. These major coins are the Markets you’ll be basing your trades off of, and because we are using ETH as our funding option, the Market you’ll be trading within is the ETH Market. So select that Market and you’ll see all the available token and coin pairings you can trade with displayed.
Locate the token you want to buy in the list and click it. Within the Exchange window there will also be a Buy box and a Sell box. You’ll see these switch to the token you chose.
For example, within Liqui.io, when I select ETH Market and click GNT to choose Golem tokens, the Buy and Sell boxes change to “Buy GNT” and “Sell GNT”.
Now that you have your token of choice selected, you can place a buy order. If you want to just buy now at the best market price, most Buy boxes will have quick links to prefill the fields with your Max ETH in your account and with the Best Market Price for the token. You can either click these and the fields will auto fill or enter the amount of ETH you want and the price you want to buy GNT at.
Keep in mind, you can place a lower than market buy price, it just may take a while to fulfill the order and may never fulfill the order. So if you want to buy immediately, just enter the best current market price or click the link to have the exchange auto populate it.
Double check that everything is correct and that you are buying at the price point and with the amount of ETH you intend to.
Click Buy and follow any confirmation steps your Exchange requires. Depending on security settings you’ve set or their policy you may need to confirm via email, or just click Ok.
Even if you place a buy at the best/lowest market price, it may not fulfill immediately. It can take some time and may fulfill through several small exchanges, depending on what sell orders are out there that match your buy order.
So you may see your token balance going up slowly as this process commences.
Once the buy order is complete, you are the proud new owner of that token! Now it’s time to store it safely off the exchange.
Steps : Securely Storing Altcoins (tokens)
Storing ETH-based ERC20 tokens is the exact same process as the “Steps : Securely Storing & Accessing ETH” section earlier. You can store ERC20 tokens in a new wallet address you create using that process, or in the same address you created for Cold Storing your ETH.
But make sure you understand the token first, before sending it to such an address, and confirm that it is a supported token for an ETH address.
You can also store many tokens on Hardware Wallets. For this, you need to check with the hardware wallet manufacturer for what tokens their wallets support. The nice thing about these hardware wallets is the manufacturer may add token support along the way and you can just do a firmware update to get your device to support that token.
So don’t send your token to any wallet unless you’re sure that address can support that token.
Let’s say your token is ERC20 and you created a new wallet using the steps from the section ealier on creating a secure wallet.
How do you know those tokens arrived? Where do you see the balance when looking at the wallet in etherscan.io?
The first time I sent GNT to an ETH address I thought I FU when I checked etherscan, as I saw a 0 balance. But then I noticed a tab called Token Transfers and a new section that appeared on the etherscan page while looking at the address called “Token Tracker” under Misc, with a link called “View Tokens Balance & Value” that if you click, will show your ERC20 tokens and balances.
Withdrawing tokens out of a secure wallet, or offline wallet, is the same process as earlier in accessing ETH...except when you enter the amount, you also change the drop down that says ETH to the token you’re withdrawing.
If it doesn’t work offline, you may have to access it online to pull the funds. It was glitchy when I tried to generate a transaction of a token using an offline wallet. Not sure why, could have been the version of myetherwallet just needed an update and because it was offline it didn’t have the update.
So this is why I like to store each token in a separate wallet. In case you need/want access to withdraw a token, and you are running into errors trying to do it offline, you can just go online with that one wallet, get your token out, and “burn” the wallet...never use it again.
Consolidating everything in a single ETH Wallet makes doing that much harder and annoying if there’s any issue with it.
Whatever you do, do NOT leave your new tokens in the exchange. If you’re not sure whether the token is supported in a hardware wallet, check with the manufacturer and get instructions on how to deposit them into the hardware device and make sure you have any required firmware updates before doing this. If you’re not sure whether the token is supported in an ETH wallet, visit the ERC20 Token Explorer by etherscan at https://etherscan.io/token-search and search for the token to verify it can be stored as an ERC20 token in an Ether wallet. Otherwise, just ask on the /r/ethtrader subreddit.
Steps : Cashing Out to Fiat (local government currency)
To cash out of ETH or a token, you simply follow the same process we covered in the “Steps : Securely Storing & Accessing ETH” section earlier when we did the test withdraw. You’ll do two small test sends out of your cold storage wallet and then the large sum you are wanting out.
You’ll want to send these amounts out to your Coinbase wallet. So you’ll get your ETH Wallet Address from within your Coinbase account by navigating to your ETH Wallet and, from the mobile app touch the small QR looking icon in the upper right, just beside the “paper airplane” icon. This will open a Scan code screen and at the top you’ll see “My address”. Touch this and you’ll have the option to “COPY ADDRESS”.
You can also get this info from your Coinbase account from a browser, by navigating to “Accounts” and to the right of your ETH Wallet you’ll see a link that says “Get ethereum address”. Click this and you’ll see your address displayed that you can then copy or write down to send to.
After you’ve successfully sent your ETH to your Coinbase ETH Wallet, you can withdraw it as local fiat.
To do so, within Coinbase navigate to Sell...from the App you can do this from the Dashboard at the bottom of the screen, by touching SELL. From a computer browser you can do this by navigating to Buy/Sell and selecting the Sell tab.
Choose your ETH Wallet to sell from.
Choose your Deposit To method. You can withdraw using Paypal, Bank, or to your USD Wallet in Coinbase. There is a fee involved for withdrawing.
That’s it! You have fiat. Keep in mind, if you live in the USA, there are capital gains taxes when cryptocurrency is turned into fiat...at any time...on the gains experienced since you first invested if any.
So speak to a tax attorney regarding before you cash out.
This guide is a work in progress and I’ll keep making updates and improvements. In addition, I’ll be adding new guides and helpful info at https://www.ethadvisor.com and am open to feedback, suggestions and any questions or clarification you may need. You can reach me via reddit or twitter.
Thanks for reading and hope this guide helped you out!
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