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How to buy and store digital currencies

10 August 2021 Andrew Ludwig

 

Click on the video link to watch the short interview with David Farelo, Head of Operations and Trading @ CURRENCY HUB.

 

There are many marketplaces called “bitcoin exchanges” that allow people to buy or sell Bitcoins using different fiat and cryptocurrencies via mobile apps. These exchanges are more relevant for individual or retail investors purchasing up to R1m wort of digital assets. Bitstamp, Coinbase and Kraken are leading global exchanges while Luno and Valr are the two leading South African based bitcoin exchanges.

“OTC” exchanges facilitate much larger transactions and are specifically geared for institutional and corporate investors that are looking to secure large amounts of cryptocurrency at specific rates. They offer very competitive rates compared to mainstream exchanges, largely due to the volumes being traded through them. Having access to the right counterparties is advantageous if you are looking to establish a position in cryptocurrencies and worth considering an intermediary to do all the hard work in sourcing the best rates and securing the assets in your own digital wallet.

Bitcoins are stored in a “digital wallet”, which exists in the cloud, on a user’s computer or on a cold storage device. A wallet is a type of virtual bank account that allows users to send or receive Bitcoins, pay for goods or save their money. Security can be a concern when buying and storing digital currencies in digital wallets on exchanges as investors are susceptible to the security vulnerabilities of the exchange. Keeping your Bitcoin off-exchange is known as cold storage and is often seen as more secure than a traditional wallet kept with an exchange. When Bitcoin is stored offline, it is entirely separate from any internet access, which substantially reduces the threat of hackers. 

There are various cold storage methods, such as:

  1. Paper Wallet: A paper wallet is a way to safeguard against hackers or computer malfunction and involves printing the public and private keys on paper. Since this paper contains all the information needed for spending the coins, its safekeeping is extremely important.
  2. Hardware wallets: Storage devices, such as USB drives, are also used to keep the secret keys. These devices can be kept safe in a storage facility or deposit box to make sure that they don’t fall into the wrong hands. Trezor and ledger are two leading cold storage USB devices.

The industry is moving at a considerable rate, with custody services being offered exchanges, and traditional prime brokers, and recently we saw the announcement f a custody service being offered by Investec. The DeFi (Decentralised Finance) environment is beginning to blossom with all sorts of options to store your coins as well as lend them while in storage to generate interest. A careful due diligence should be completed before committing to any crypto- lending and staking solutions.

 Article written by Andrew Ludwig https://www.linkedin.com/in/andrewjohnludwig/ , Head of Distribution @ CURRENCY HUB https://currencyhub.co.za/and founder of BLACK ONYX https://blackonyx.co.za/ and FUND HUB https://fundhub.co.za/.

Disclaimer: This article does not constitute financial advice. While the author and his firms are regulated by the FSCA, cryptocurrencies are not a regulated investment.  Please refer to CURRENCY HUB https://currencyhub.co.za/ a juristic representative of BLACK ONYX (FSP 47701) https://blackonyx.co.za/ for more information.

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