Thursday, February 15th 2018

Confessions of a Crypto Miner: Storing Your Coins

Welcome back to Confessions of a Crypto Miner, my bi-weekly column about a crypto miner from 2013 trying to get caught up with the latest standards. I'm presently mining and reporting to you from a dual-GTX 1080 based rig mining zCash.

As requested by many readers, today, we are going to talk about safekeeping your digital currency, and particularly, how to do it safely. Crypto has gotten a bad rap as of late for being insecure, due to numerous hacks of exchanges - but the cryptography in it is actually very strong and solid, and nearly all hacks have been related to centralized services or bad practices.

The focus of this article will be how to hold coin safely for the purpose of investment. I will go over the types of wallets, and their pros and cons. It may seem a bit more technical than some of my usual works but it is very essential information that everyone considering crypto should know. I've done my best to boil it down to basic, easy to understand principles for you.

A quick note, however. This column seeks to tell you how to store coins long term in a safe fashion, but it does not necessarily recommend you do so. TechPowerUp does not give financial advice, and I'm not about to start. It's true that the crypto market has had a bad run over the past two weeks since my last column, but how you respond to that is up to you. Me? I'll still be here mining for the full year, as I promised (and it's still pretty profitable, by the way).

That said, I won't shy away from explaining some general principles I use in my own personal investments. As an example, my miner... right now, is running at full steam ahead with only one change to procedure: I've stopped cashing out. In the month of January, I made approximately $210 (about $170 after electric). This places me on target for a healthy earnings at year end, when considering the usual 1 year interest free credit promotion. What's making things complicated at the moment is the sharp drop of earning recently. I'm making only $100 after electric at the time I shut off the payouts. Why stop payouts? Because I fully expect markets to rebound. They have historically, after all, and to date this has already proven to be a healthy decision as my holdings (which are held in Bitcoin Cash) have appreciated nicely. Whereas for what little of February we have been through, at the low I would've been cashing out for probably around $40, I am now looking much more at the $70 range. The tip here is sometimes it is better to hold your coins than to panic and cash out immediately.

Now, how do we hold coin? We have to use a wallet, of course. Your virtual currency is stored inside wallets, of which there are basically four main types, which I will discuss in order from most secure to least secure: Offline Wallets, Online Full Node Wallets, Online Light Wallets, and Web Service Wallets. To be more precise, the wallet itself doesn't store the actual currency (like a physical wallet would do), rather it stores the private and public keys that authenticate a record in the block chain to be "your money".

Offline Wallets
Let's start with the most secure wallet option, the so-called "Offline Wallets." It is perfectly possible in Bitcoin and all crypto-currencies, to send money to an offline device and address. This includes something as simple as a piece of paper (my preference). How does this work? Well, at its core, all the cryptocurrencies follow a very basic principle: Public-private key cryptography. The private key is used to send money, and the public key is used to receive it. When you write down a public private key pair, you have a wallet. An example of how this works can be found at some client-side Javascript address generators such as can be found at sites like bitcoinpaperwallet.com. You then simply send money to the public key, and that private key isn't going anywhere short of being stolen. This is by far the most secure option.

Online Full Node Wallets
As secure as the idea of storing crypto on paper is, it isn't particularly convenient for what is touted as an "internet currency." You probably want to use some form of wallet software to store or manage your keys. The two types of self-managed wallet software available are known as "full nodes," or "light" wallets, respectively. Full nodes do a full sync with the network and are slightly more secure than light wallets. The original Bitcoin implementation, Bitcoin Core, is an example of a full node. They use a lot of disk space, bandwidth, and memory though (easily several tens of gigabytes in diskspace alone for downloading the complete blockchain).

Online Light Wallets
To address the full node performance limitations, a protocol known as "SPV" was developed. "SPV" stands for "Simplified Payment Verification" and what really matters to us about it is what it enables: It enables us to spend crypto without having to have the machine download the entire blockchain. This eliminates the dreaded "sync time" (which in Bitcoin's case, can last days) and lowers disk space and memory requirements. It is theoretically less secure because it relies on outside servers to do the "heavy lifting" of transactions, and although no known ways to lie about transactions are known via SPV, that's not to say there won't someday be an exploitable discovery made in it. It is a very unlikely but still present possibility that has me consider it less secure than the full node wallet model. Examples of light wallets include Electrum and its many derivatives, and this is personally my wallet type of choice.

Web Wallets
The final wallet type is the web wallet. Most web wallets rely on centralized servers and bookkeeping, and in doing so, they break everything that is great about crypto. You are not the only person who knows your private key; their servers store it, too. When they are hacked and they lose it, that's how funds get stolen, because their central books suddenly mean nothing and the funds in the private key are gone. Almost all big coin hacks have occurred at this type of wallet. I cannot recommend this wallet type, but the most secure among them is probably coinbase.com, one of the bigger Bitcoin exchanges. The only reason I consider them even slightly better than the rest is because they openly admit they use offline wallets ("cold storage" in their terms) to store the vast majority of their funds, limiting damage.

I hope this has been educational for everyone. If you take only one thing away from this article, take this: If you don't have the private key, you don't really have the money. Invest safely, everyone!
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28 Comments on Confessions of a Crypto Miner: Storing Your Coins

#1
aldo5
"....at the low I would've been cashing out for probably around $40, I am now looking much more at the $70 range." - well if you have a crystal ball info like that - why don't you just buy and hold? and apply leverage too? it seems like you know where is the bottom if that zcash price, because you understand the need (demand) of these all these valuable assets (coins)
Posted on Reply
#2
R-T-B
aldo5 said:
"....at the low I would've been cashing out for probably around $40, I am now looking much more at the $70 range." - well if you have a crystal ball info like that - why don't you just buy and hold? and apply leverage too? it seems like you know where is the bottom if that zcash price, because you understand the need (demand) of these all these valuable assets (coins)
Because then I wouldn't be able to write this column.

I've always said you'd do better investing.
Posted on Reply
#3
lynx29
aldo5 said:
"....at the low I would've been cashing out for probably around $40, I am now looking much more at the $70 range." - well if you have a crystal ball info like that - why don't you just buy and hold? and apply leverage too? it seems like you know where is the bottom if that zcash price, because you understand the need (demand) of these all these valuable assets (coins)
There is no crystal ball. If the USA congress wants to ban all C-currencies someday from allowing any business or bank to allow them, as soon as they announce it, it will all come crashing down.

In relation to the article, I would personally add that maybe having a diverse wallet system in place, so not keeping all your eggs in one basket so to speak. I regret formatting my HD in 2012 that had Bitcoin on it. :/
Posted on Reply
#4
R-T-B
lynx29 said:
There is no crystal ball. If the USA congress wants to ban all C-currencies someday from allowing any business or bank to allow them, as soon as they announce it, it will all come crashing down.

In relation to the article, I would personally add that maybe having a diverse wallet system in place, so not keeping all your eggs in one basket so to speak. I regret formatting my HD in 2012 that had Bitcoin on it. :/
Thanks for adding that. Even the best market analyst is still only making predictions. Something to keep in mind.
Posted on Reply
#5
silkstone
Have you looked into specific wallets of each type?

For light wallets, I like Jaxx as it gives you your private keys which you can back up and restore using any other type of wallet. It's also good for airdrops, etc. I'm holding a little ETC on there.
I'm also using MyEtherWallet for ETH. I generated the keys using the full node, but then access the wallet using myetherwallet. The biggest risk with that one is there are a lot of 'fake' websites with similar names.
For Monero, I'm using MyMonero. It seems like a good platform, but the transaction costs are pretty high. I'm not sure if this is due to the network or due to the platfrom.
For ZEC, I was using Jaxx, but the wallet isn't great for mining payouts and so I switched to cryptonator and then send to Jaxx from there.

It is also worth noting that non of the wallets store your coins, everything is stored on the blockchain. If you have control of your private keys, you have full control of your wallet. For online or light wallets, the best ones give you your private keys and (I hope) aren't saved anywhere on their servers. Always save these private keys and back them up on paper.

If you get a chance in future articles, you ought to do something on CPU mining too. You're 1800X should actually be able to pay for itself within a year. I regret buying my 8600K as its slow as hell for the tasks I do and really should have shelled out the extra money for a Ryzen. I'm thinking of getting a threadripper in the future as It will mine really well and double up as a plex server and handle some of the bigger workloads that I throw at it. My 8600K stutters like hell when giving it multi-threaded algorithms, but the ryzen 1600 I have at work doesn't bat an eye.

For a future article, you might also look at auto-switching mining which gives you the best payout and automatically exchanges to the currency of your choice. You mentioned that your mining profits went down over the past few weeks. Mine changed, but only by about 30% during the dip. I wasn't using any auto switching pools, but doing it manually. I'm going to look at setting my miners to auto switch some time this week.
Posted on Reply
#6
trog100
over the last two days bitcoin and other coins have broken out of their losing streak.. Bitcoin is now $10200 heading for £11000 and litecoin is up %40 .. all the other coins are up as well..

i think the losing streak is now over and its all up and away again..

my own little stash is up over 2K in roughly 2 days.. thats a nice 1k a day..

if the coins are rising.. cashing out unless there is a desperate need for cash is the wrong thing to be doing..

of course i could be wrong.. he he he

the bottom line is.. cryto ether has to die or start to go up again.. my money is on the second option.. as you know i mine and hold..

crypto has had a bad start to the year but i recon that bad start is now over.. up up and away :)

i do believe the whales have flushed the system out deliberately to get rid of the damaging and volatile froth.. from now on its up only in a more stable fashion..

trog
Posted on Reply
#7
silkstone
trog100 said:
over the last two days bitcoin and other coins have broken out of their losing streak.. Bitcoin is now $10200 heading for £11000 and litecoin is up %40 .. all the other coins are up as well..

i think the losing streak is now over and its all up and away again..

my own little stash is up over 2K in roughly 2 days.. thats a nice 1k a day..

if the coins are rising.. cashing out unless there is a desperate need for cash is the wrong thing to be doing..

of course i could be wrong.. he he he

the bottom line is.. cryto ether has to die or start to go up again.. my money is on the second option.. as you know i mine and hold..

crypto has had a bad start to the year but i recon that bad start is now over.. up up and away :)

i do believe the whales have flushed the system out deliberately to get rid of the damaging and volatile froth.. from now on its up only in a more stable fashion..

trog
Remember Trog, you haven't actually made any money until you sell it. Though you might not need the cash, you ought to consider selling mining profits to expand mining, or even take profits every now and then so that your investments are essentially free. I think you are right about the timing though. I haven't cashed anything out since early January. I did do some currency switches (that haven't yet panned out), but I fully intend to start selling again come March.
Posted on Reply
#8
trog100
i dont agree with the "you havnt made any money until you sell it" principle.. why on earth would i swap crypto which is going up in value for fiat which can only keep going down.. :)

i also dont want to expand my mining.. with the current cost of hardware i dont consider it a very good investment..

i am mining 10 x 1070 cards (current cost about 6K) and i own 6.5 eth.. 25 litecoin.. 26 neo and 1000 cardano coins.. in the last two day my mining has earned me maybe forty five dollars.. my hodling has earned me over two thousand dollars.. i expect it to earn me much more over the coming months..

dont get me wrong.. to hodle you have to believe the price of crypto is gonna keep going up.. during 2017 it did i think now we are over the 2018 bad patch.. crypto will get back on route.. up up and away.. he he

i can afford to sit on my stash and i will... really cant see any point at all in selling it..

trog

ps.. i dont consider that what i am doing is entirely risk free but risk nothing gain nothing is an old saying.. one thing i will say is.. i am not a gambler by heart.. so obviously i dont consider the risk to be a very high one..
Posted on Reply
#9
Captain_Tom
trog100 said:

crypto has had a bad start to the year but i recon that bad start is now over.. up up and away :)

i do believe the whales have flushed the system out deliberately to get rid of the damaging and volatile froth.. from now on its up only in a more stable fashion..

trog
Haha I will continue to reiterate this: If you ignore the price, Quarter 1 of 2018 has had more good news than almost any quarter in crypto's history. Multiple governmental hearings in the US touted Bitcoin as revolutionary, tepid countries like India and South Korea finally confirmed they have no plans to ban anything, and multiple major companies have spoken about adopting Bitcoin.

Yeah the price went down in January and early February, but it was still up 10x it's value a year ago! This is healthy profit taking, and really nothing else as long as Bitcoin doesn't go below $4000 (And the overall market doesn't go below 250 Billion).
Posted on Reply
#10
Bytales
What about storing on Hardware wallet, thatts wherei have all my ERC Tokens, and the hardwarees wallet security is pretty good.
Posted on Reply
#11
R-T-B
Bytales said:
What about storing on Hardware wallet, thatts wherei have all my ERC Tokens, and the hardwarees wallet security is pretty good.
Qualifies as a type of offline wallet. Paper is cheaper, but hardware is cooler. :)
Posted on Reply
#12
noj
Thanks for all of this great info RTB! I came across your articles and decided to mess around with mining a bit because of them. I don't have a true mining rig, just a consumer grade PC with a Quadro M2000 card but I figured why not give it a try and see what this is all about! :)

Quick question on the wallets and whatnot for you though, I set up zacash4win and am using the Zec Miner to mine to it. Based on my understanding, the zcash4win wallet is an offline wallet, correct? Thanks again for taking the time to lay this all out and I look forward to reading more!
Posted on Reply
#13
silkstone
noj said:
Thanks for all of this great info RTB! I came across your articles and decided to mess around with mining a bit because of them. I don't have a true mining rig, just a consumer grade PC with a Quadro M2000 card but I figured why not give it a try and see what this is all about! :)

Quick question on the wallets and whatnot for you though, I set up zacash4win and am using the Zec Miner to mine to it. Based on my understanding, the zcash4win wallet is an offline wallet, correct? Thanks again for taking the time to lay this all out and I look forward to reading more!
It is an offline wallet. The blockchain can get pretty big, so keep an eye on disk usage. If it gets too big for comfort, I'd recommend using cryptonator for mining payouts and Jaxx for storage.

You might also look at using miningpoolhub to mine the most profitable coin ant auto-switch to ZEC. It won't make much of a difference to your ROI with 1 card, but it's a fun little exercise getting everything set up.
Posted on Reply
#14
noj
Thanks. How does this compare to using something like NiceHashMiner? That auto switches too right? Seems like there are nearly as many miner/algo/pool choices as there are coins...
Posted on Reply
#15
R-T-B
noj said:
Thanks for all of this great info RTB! I came across your articles and decided to mess around with mining a bit because of them. I don't have a true mining rig, just a consumer grade PC with a Quadro M2000 card but I figured why not give it a try and see what this is all about! :)

Quick question on the wallets and whatnot for you though, I set up zacash4win and am using the Zec Miner to mine to it. Based on my understanding, the zcash4win wallet is an offline wallet, correct? Thanks again for taking the time to lay this all out and I look forward to reading more!
Zcash4win is an online full node wallet. I use it and it's pretty decently up to date and secure, but it's in that rung.

The key difference is it connects to the internet and downloads the blockchain.

noj said:
Thanks. How does this compare to using something like NiceHashMiner? That auto switches too right? Seems like there are nearly as many miner/algo/pool choices as there are coins...
The nicehash wallet at least is a web wallet. But you can cash out. I recommend you do so often as you can and to another wallet, anywhere else.
Posted on Reply
#16
noj
Thanks again. I'm on the fence as to whether or not I want to invest in a decent gaming rig and then run something like this for a while to offset the costs a bit. I just replaced my 10+ year old custom build with a cheap-as-I-could-find Dell inspiron outlet deal, but I already regret not getting something I can game on. At first I thought buying a gaming rig with dual 1080 gt's and what not would be a no brainer because it would pay for itself in 6 months, but as I'm running some stuff now I'm starting to realize that the profits are about half of what they initially looked like it would be. Even if I don't break even in 6 months or never for that matter, having half of a $2k gaming rig paid for is pretty appealing so I may still do it.

I noticed that in your initial setup, you had estimated that you would be earning about $300/month (~$10/day), paying off your investment in about 6 months. Later on, you lowered your daily estimate to $5. Was that because of a change in value of the coins, lower hash rate than you expected, something else, or a combo of all of the above? Just trying to get a better understanding of where my own estimates may be off before I make a decision.
Posted on Reply
#17
trog100
the rig in my specs us producing about 5/6 dollars per day 24/7.. mining eth or nicehash.. the profits depend on the price of whatever it is your mining and difficulty levels..

my rig does normal desktop stuff and mines at the same time.. i do turn the miner off to play games.. it wont properly do both at the same time..

mining dosnt use much cpu power just gpu power.. a pair of 1070 cards does a good job both for gaming and mining.. just over 30 mhs per card and the power usage is low..

the profits have halved in the last month.. i expect them to go up a bit but not to where they were..

trog
Posted on Reply
#18
silkstone
noj said:
Thanks again. I'm on the fence as to whether or not I want to invest in a decent gaming rig and then run something like this for a while to offset the costs a bit. I just replaced my 10+ year old custom build with a cheap-as-I-could-find Dell inspiron outlet deal, but I already regret not getting something I can game on. At first I thought buying a gaming rig with dual 1080 gt's and what not would be a no brainer because it would pay for itself in 6 months, but as I'm running some stuff now I'm starting to realize that the profits are about half of what they initially looked like it would be. Even if I don't break even in 6 months or never for that matter, having half of a $2k gaming rig paid for is pretty appealing so I may still do it.

I noticed that in your initial setup, you had estimated that you would be earning about $300/month (~$10/day), paying off your investment in about 6 months. Later on, you lowered your daily estimate to $5. Was that because of a change in value of the coins, lower hash rate than you expected, something else, or a combo of all of the above? Just trying to get a better understanding of where my own estimates may be off before I make a decision.
The rate at which you get the coins goes up and down depending on how many people are mining on that card. The estimates for daily income are just that, estimates. For example, If you mine at a high rate of coins while the price is low, you might only be getting $5 a day, but if the price goes up by 50%, and you sell then, you'll actually get $7.50 for what you mined.

It's all about timing. Mine the coins and if you don't like the price, don't sell and hold for a while. If you think the price is going to go down or want zero risk, sell straight away.

As an example, I was mining ZCL at a rate of $13 a day, when the price was $50-70. The price is now $160 a day, so If I sold them, I'd actually be getting closer to $30 a day for that period.

Stupidly, I sold 1 ZCL for about $70 to put into a few other alts, but the price didn't rise so much so I should have just waited.
Posted on Reply
#19
R-T-B
noj said:
I noticed that in your initial setup, you had estimated that you would be earning about $300/month (~$10/day), paying off your investment in about 6 months. Later on, you lowered your daily estimate to $5. Was that because of a change in value of the coins, lower hash rate than you expected, something else, or a combo of all of the above? Just trying to get a better understanding of where my own estimates may be off before I make a decision.
That's a "if I sell immediately" estimate. For a combination of factors (all of the above, really, minus hashrate) the market has worsened. Now is not an ideal time to sell, IMO.
Posted on Reply
#20
psyko12
As always very interesting article! Thanks so much for sharing information.
Posted on Reply
#21
trog100
R-T-B said:
That's a "if I sell immediately" estimate. For a combination of factors (all of the above, really, minus hashrate) the market has worsened. Now is not an ideal time to sell, IMO.
mining eth the difficulty factor has changed a fair bit from when you made your 10 dollars a day estimate for two cards.. i was getting about the same mining two cards.. but it also had me down as 1.2 eth per month for my 10 cards.. i am now at 5 dollars per day (two cards) but more importantly if you dont just blindly sell it now has me down as only mining .78 eth per month with my 10 cards..

what crypto prices do during the coming moths is sitll an unkown but during the last three months of 1017 i mined about 1200 dollars (10 cards) but simply hodling what i mined turned that 1200 dollars into over 3000 dollars.. that was when nicehash got hacked with bitocoin at around 8000 dollars.. two or three weeks later with bitcoin up near 20000 dollars that mined 1200 dollars .31 btc would have been worth 6000 dollars..

once you start looking for a good time to sell you are entering the land of the unknown.. you are in danger of becoming a hodler... for a true hodler there is never a good time to sell.. he he

trog

ps.. i mine with 10 cards in all.. two machines one an 8 card mining only machine the other my 2 card desktop machine.. the desktop machine is useful for figuring out whats going on... the 8 card machine mostly just gets left alone doing its thing..
Posted on Reply
#22
R-T-B
trog100 said:
once you start looking for a good time to sell you are entering the land of the unknown.. you are in danger of becoming a hodler... for a true hodler there is never a good time to sell.. he he

trog
I consider myself more of a market analyst, I've called the trends more often than not as of late, some on this here forum. I'm not ready to bear the "hodl" banner just yet. ;)
Posted on Reply
#23
trog100
R-T-B said:
I consider myself more of a market analyst, I've called the trends more often than not as of late, some on this here forum. I'm not ready to bear the "hodl" banner just yet. ;)
no but you are heading there.. he he

trog
Posted on Reply
#24
R-T-B
trog100 said:
no but you are heading there.. he he

trog
I consider myself the driver on this little trip, but time will tell, right? ;)
Posted on Reply
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