Due to the recent boom in cryptocurrencies, many mainstream media channels and newspapers reported on the non-stop rise of Bitcoin (up 182% in 2017) and Ethereum (up 4257% in 2017), which resulted in many new people wanting to get involved with blockchain technology by investing some money in digital tokens.
Since quite a lot of friends and former colleagues have asked me about how to safely buy and secure these currencies, I thought I would outline the process I use myself to provide you with some guidelines:
My background in cryptocurrencies:
I got actively involved in blockchain & cryptocurrencies about a year ago when I read some fascinating articles about a new project (back then) named “Ethereum”. I bought myself some Ether (for about $14 per unit) and got involved in the seed funding round of the notorious DAO project, the first decentralized autonomous organization, which raised around $150M in its ICO (Initial Coin Offering) last year.
Little did I know that a month later, on June 18th, a hacker group exploited some weaknesses in the code that enabled them to withdraw approx $50M worth of Ether from the project into their own pockets. This “scandal” led to my small investment being worthless today and resulted in a hard fork splitting the Ethereum community into two separate groups, Ethereum & Ethereum Classic. I don’t want to get into the details about this, but you can read up on it here:
https://qz.com/730004/everything-you-need-to-know-about-the-ethereum-hard-fork/
This year I significantly increased my participation in the Ethereum project and developed a well working process of acquiring & storing digital currency. Here are the 5 steps I use to securely buy & store my crypto tokens:
Step 1: Register at a Cryptocurrency Exchange of your choice:
Similar to trading stocks, buying and selling cryptocurrencies is done through exchanges that enable you to switch fiat (e.g. US$ or €) into digital currencies like Ether. I personally recommend Kraken as an exchange, due to their high security mechanisms, responsive customer service and the fact they have their bank account in Germany, collaborating with the Fidor Bank AG.
Be advised that creating an account on Kraken requires you to verify yourself in various steps to be able to purchase larger amounts of tokens. These steps include verifying your identity, home address and contact details. Deposits to the Kraken account usually take 2–3 business days, with withdrawals from Kraken to your bank account going often quicker (less than 24h last time I used it with my Bank account).
Step 2: Make your Exchange account as safe as possible
Setting up your account on an exchange like Kraken is one thing, making it secure another. Follow these steps to ensure maximum security and to protect your money even if your account gets hacked.
a) Make sure to use a strong first password, the longer the better. I personally use a hashing algorithm to double secure my password and make it as complex as possible.
For that I use the SHA-256 algorithm, which you can check out here:
http://www.xorbin.com/tools/sha256-hash-calculator
b) Set up a two factor authentication using Google Authenticator
Download the App “Google Authenticator” on the AppStore or Google Play Store and go to the Security tap on your Kraken account. Select and activate the Two Factor Authentication method for your withdrawals and log-in. Select the TOTP method as an algorithm and scan the barcode with the App.
You now have a secondary password you have to enter every time you want to log-in or withdraw your money to a certain account. The passwords are time based and change every 30 seconds, to ensure maximum.
Read more about it here: https://support.kraken.com/hc/en-us/articles/203395513-How-do-I-set-up-two-factor-authentication-
c) Set up a strong Master Key that ensures that nothing can be change without it
The “Master Key” is the final layer that protects your account from being tampered with. If an attacker wants to change your withdrawal address, your password or your Email, to a different one, they will require to know your Master Key. This password is used as the final protection layer if someone tries to change your most basic information on your account.
For more info on that, check out:
https://support.kraken.com/hc/en-us/articles/201396847-What-is-the-master-key-shown-on-the-two-factor-authentication-page-
d) Activate the Global Settings Lock
The Global Settings Lock works together with the Master Key to ensure that none of the information regarding your Email, passwords or Two Factor Authentications can be changed without entering the Master Key beforehand.
Read more here: https://support.kraken.com/hc/en-us/articles/201396877-What-is-the-Global-Settings-Lock-
Step 3: Purchase the coin
Now to the fun part, purchasing your first tokens! I would recommend using the Advanced Kraken trading tool to find an entry point which seems well priced and is not on the recent all time high. As these currencies are highly volatile, making orders below 20% of current market price can be realized sooner than you think. Use Limit orders to ensure you pay the price you find realistic at any given time.
Step 4: Buy yourself a cold wallet to store your tokens
There are different types of wallets, but cold wallets are said to be the safest option when storing larger amounts of Ether or Bitcoin. They are similar to hard drives or USB sticks, with the difference being that they run their own operating system, which a hacker cannot access through your computer.
Hence any information stored on these devices is safe from attacks that occur on your computer, which is the most vulnerable part of the whole operation. You type in the your passcode right on the cold wallets hardware to unlock your currencies and to be able to send them to other accounts.
However, be sure to order these in advance, as they are completely sold out at the moment (June 2017) and are only available to buy in 2 months time.
I recommend using the Nano Ledger S, as it is very user friendly and costs only 70€. You can buy it here: https://www.ledgerwallet.com/products/ledger-nano-s
Step 5: Transfer the funds from your Kraken account to your cold wallet and store it somewhere safe
As soon as you made a purchase on Kraken, send your Ether/Bitcoin to your cold wallets address using the withdrawal function. Check what the address of your wallet is and type it into your Kraken account.
That’s it! Make sure you keep your wallet somewhere safe and you should be good to go. Remember that this is not a bullet proof guide on investing and storing Bitcoin or Ethereum, but more a collection of best practices I used in the past that seems to work very well.
Note: Even when your hardware wallet gets lost, you can still retrieve your money by using a backup password consisting usually of 24 words that you have to be able to list in a certain order.
Thanks for reading!
If you have any questions regarding how to invest in cryptocurrencies or which tokens are new and upcoming, simply shoot me a message on Linkedin and I will try to get back to you as soon as possible: https://www.linkedin.com/in/hilmarx/
Hilmar
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