If you haven’t read Part 1: Is Crypto for Me?, I would suggest reading that before continuing
You can buy crypto just about anywhere. However, before you do, I recommend that you first choose and create your wallets. The wallets allow you full control over your private keys. This is the non-custodial way of buying and storing your crypto in your own accounts.
Custodial vs Non-Custodial vs Partial
Custodial - Are accounts created by CEX (Centralized Exchanges) or some centralized authority like Coinbase, Paypal, or potentially a normal bank. They will own and manage your private keys. They are subject to hacking due to being a large target.
Non-Custodial - These are self-managed and owned by you. The private keys are in your possession. This also means that you have to be very careful about how you manage and keep them safe.
Partial - This allows a third party to hold keys that are used as a multi-signature.
“However, the exact amount of control either party has to sign the transaction without the other party—such as in the event of an emergency—depends both on the legal arrangement between customer and provider and the specific key management model of the custody solution.”
Learn more about custodial vs non-custodial wallets
Choosing your wallets
This is for a non-custodial option where you have full control over the keys, accounts, and wallets.
You could just buy crypto without choosing and creating your wallets. However, as we’ll learn, it’s better to first create your wallets and then buy the crypto.
There are many wallets to choose from that support different blockchains. This adds to a lot of confusion.
Before you decide to buy crypto, you need wallets to store your crypto. To get started, the first thing is to create accounts in these two wallets:
Metamask - ERC-20 tokens on the Ethereum PoW blockchain
Keplr - Token on the Cosmos PoS blockchain
Why these two wallets?
While there are many wallets for specific blockchains, these two are the easiest to get started with. While there are limitations like there isn’t an extension for a privacy-focused browser like Safari, it is available as a Chrome extension and Brave uses Chrome extensions.
It’s not much different than your Apple wallet on your iPhone.
Side note: Apple should make their wallet have the ability to store your crypto wallets, accounts, and passphrases. If I am going to trust something stored in the cloud or on a device owned by a company, Apple has a better incentive to protect your privacy than Google or Amazon or Facebook, or any big bank. I’m also concerned about giving more power to big corporations.
There’s a long way to go before this gets easier.
Buy, Trade, Exchange using DEX
Don’t buy any crypto from a CEX (centralized exchange link) like Coinbase or PayPal.
If you want to get into crypto, why would you use a CEX? Just avoid crypto and go to your bank, it’s not much different. DEX’s (Decentralized EXchanges) are a much better avenue if you are interested in acquiring crypto or care about decentralization, privacy, etc.
Deep Dive: To learn more about CEX vs DEX
Get and set up your wallets first!
You’ll need both wallets. The Ethereum and Cosmos blockchain are the two most popular blockchains. Ethereum is currently PoW (Proof of Work -> moving to PoS) chain, and Cosmos is PoS (Proof of Stake) chain. To acquire any token in the PoS chain almost always requires transfers or swaps between the chains. Right now, it’s not that easy to go from directly from cash to a PoS token like ATOM.
Metamask - An Ethereum Blockchain Wallet - “hot” (web) Wallet
Metamask is an Ethereum Blockchain wallet. Easiest is to install it as a Chrome extension. Once you install the extension, sign in with your email and password, then you can create an account. Note the types of accounts. The one that says hardware is connected to a “cold” wallet which is even more private since it’s not connected to the internet unless you really need to have access to it.
Deep dive: crypto wallets (https://www.investopedia.com/terms/h/hot-wallet.asp)
Before you go thru the next steps, decide how safe you want to be. You can use a “cold” wallet like Ledger (Nano X) or stay with a “hot” wallet like the Chrome extension. You can connect the web wallets to the hardware-based wallet.
Steps:
Use Chrome or Brave browser
Search Metamask extension and “Add to Chrome”
Setup Account - email and password (8 characters - make it cryptic). Store it in a safe place.
It will create a random 12-word seed phrase. This is very important. You cannot lose this or you’re toast!
It will create an account for you. Don’t ever try to type this account. Use copy/paste. Be very careful about where and how you use it.
[Optional] - Connect to a hardware wallet like Ledger to store your crypto offline. A 24-word seed phrase is required to unlock it
Note The one that says “ledger” uses a hardware “cold” wallet that is not connected to the Internet most of the time.
Keplr (Cosmos Blockchain) “hot” (web) Wallet
Both are available as Chrome browser extensions. These are called non-custodial “hot”(web) wallets vs custodial hot wallets (Coinbase, etc) from centralized exchanges which I would recommend you avoid.
Metamask and Keplr Wallet Guides
You should only hold a small amount in a hot wallet and the rest in a cold wallet connected to an external hardware device like Ledger.
When you need to transfer from the two different wallets. You’ll pay a small fee. These fees are hard to track, along with keeping your private key seed phrase safe, and the multiple accounts, and wallets. Often, there are little fees for everything. There is no good management tool that says what your monthly fees are for which transactions. It’s all discoverable but the work is on the user right now.
You SEND ETH from one account to another - TRANSFER between accounts (https://medium.com/@shalu0628/meta-mask-exercise-transfer-ether-from-on-account-to-another-account-e7ae8eb35d37)
SWAPS are exchanging tokens within a blockchain or between blockchains
TRANSFER refers to moving tokens between wallets e.g. from Metamask wallet to some other place to hold
Why use a non-custodial wallet like Metamask and Keplr?
As I mentioned, the downsides of CEX + custodial wallets in Coinbase far outweigh the management pain of DEX + non-custodial wallets. Besides, the fees in Coinbase are a ripoff.
Remember, with great power comes great responsibility.
You own your financial life. Don’t get into it if you don’t want to take on this responsibility.
Banks and investment companies like Fidelity and Vanguard aren’t going away any time soon. They will allow you to hold crypto assets in the future if it becomes a thing.
Balancing UX with privacy and control is a major challenge and opportunity. We’ll get into this in future posts.
The next blog post will walk thru Part 3: How to secure your wallet, account, and seed phrase (MacOS) followed by Part 4: How to fund your wallet, with crypto.