Step 2 — Creating and Safely Storing a Digital Wallet

Although you are more than welcome to leave your crypto assets within Coinbase, I’d recommend that you house them in a digital wallet. Digital wallets can either be stored in a hardware wallets (Trezor or Ledger) or digital wallets such as MyEtherWallet, Blockchain, or MetaMask (with countless more to offer). Each digital wallet is comprised of a public address and private key. Your public address is a string of characters that you give to everyone in order for them to send you crypto. Think of your public address as your home address, where you tell Amazon to deliver your purchases. Your private key, on the other hand, is a totally different string of characters used to unlock your wallet. Think of your private key as the key to your mailbox. Never, ever, ever, EVER give away your private key because you will wake up to an empty wallet.

*Side Note: There have been multiple phishing attempts to steal private keys. Never believe promos that offer free Bitcoin/Ether/Token if you provide your private key*

To recap, your wallet is your mailbox where you store your digital assets. Your public address (also referred to as public key) is the mailing address to your mailbox. Your private key is the key needed to open your mailbox and distribute your crypto assets (FIGURE 3).

FIGURE 3 — The 3 Aspects of a Digital Wallet

Physical Wallet

The safest way to store your private key is with a hardware device (mentioned above). This is because your hardware device is offline and protected from any form of hackers. If you wish not to purchase a hardware device, you can confidently keep your crypto in the digital wallets mentioned above. MyEtherWallet (MEW) offers a paper wallet option where you can print out your public and private keys for offline storage. Make sure you hide that paper in a safe place.

Digital Wallet > Coinbase: Storing Crypto

Why then, would you go through the hassle of setting-up a digital wallet when you can keep everything in Coinbase? I have two answers to that:

The first answer is that Coinbase is a centralized exchange. Like all centralized products, everyone using the product is susceptible to being hacked through the mercy of Coinbase. Therefore, if you have control of your private key on a digital wallet, it’s up to your actions whether or not your wallet is hacked. The second answer as to why you should have a digital wallet is because of the new opportunity to acquire and store ERC-20 tokens (DNT, ADT, ZRX, SNT, BAT, etc.). Coinbase is able to store three types of crypto: Bitcoin, Ether, and Litecoin. Although these are somewhat the main forms of crypto, you will be missing out on the massive opportunity acquiring ERC-20 tokens. Because Ethereum wallets such as MEW and MetaMask can store ERC-20 tokens, you will be open to great opportunities with a digital wallet.

* Please Note: Ethereum wallets can store ERC-20 tokens, but not Bitcoin/Litecoin. Bitcoin wallets cannot store ERC-20 tokens. Make sure you are transferring crypto assets between the correct wallets. An example of a bad transfer is if you move an ERC-20 token to Coinbase, because the token will not be accessible through Coinbase and can be as good as gone.

Withdrawing from Coinbase to your Digital Wallet

To transfer your Coinbase crypto to your digital wallet, you have to provide your public key as the destination address. Once again, please make sure to provide a Bitcoin public address when withdrawing Bitcoin, and an Ethereum public address when withdrawing Ethereum.

Gas Fees in Ethereum

When trading Ethereum and ERC-20 tokens, gas fees must be taken into account. Gas essentially is the transaction fee when sending Ethereum or ERC-20 tokens to another account/person. Depending on how fast you want your transaction to be processed, you can increase or decrease your gas limit. As of today (August 18th, 2017), a gas limit of $0.002 is enough for a transaction to go through in about 5 minutes. The average gas price right now is $0.134, according to ETH Gas Station. Generally speaking, MEW and MetaMask automatically calculate the average gas price, and you can therefore expect to pay about $0.13 per transaction. We’ll get into advanced tactics in setting gas limits when we reference ICO purchases.