Sidebar: Setting up your cryptocurrency wallet

This is a sidebar post; you may wish to read the main mining rig post first.

Depending on the currency you choose to mine, you may need to create a wallet and/or address to receive the proceeds. The way this works will vary across currencies, but they’re very similar.

Wallets are usually a copy of the blockchain for your currency, along with the keys and address for your own “account” in the currency. It’s sort of an odd configuration if you compare to modern banking, but it serves the dual purpose of tracking your own balance and strengthening the security and scalability of the network.

Web wallets

You can use a web wallet, with an exchange like Bittrex or Coinbase, and in this case your address is created and maintained by them. You get an almost-instant address to send currency to, and you don’t have to deal with keys and secrets and recovery phrases, as your login (and 2-factor authentication) to their site activates your account with them.

(Nicehash kinda falls under this category, but they do not handle exchanging between currencies. You would be a “seller” on their site, selling your mining capacity in return for BTC which you could then send to a regular exchange under certain circumstances.)

A  benefit to this model is that it’s easier to directly convert between currencies (BTC to ETH, or ETH to USD, for example) if you’re on an exchange.

A downside is that if the exchange is hacked, accidentally deletes their keys, or goes out of business, you may not have any recourse to recover what was in the account. Nicehash had a situation like this late last year, where hackers got into their central wallet and stole 6000+ BTC that was owed to Nicehash users. There have been a couple of other situations like this over the past few years as well.

 

Local wallets

You can install a wallet program on your personal computer (or a cloud instance, if you must), making a copy of the entire currency blockchain and ensuring that only you (or anyone with access to your computer and keys/phrases) have access to the currency you accumulate.

The upside to this is there’s security and privacy, as you probably know everyone who has access to your computer.

The downside is that you usually have to download the entire blockchain before your wallet is usable. For my Parity (Ethereum) wallet this is about 66 GBytes, and for Bitcoin it’s almost 200 GBytes. The sync can take hours or days, and if you have a data cap or a low speed connection, it can cause other complications. The upside is that ongoing traffic will be lower once you get that initial sync done. And you can back up the data and make a second copy on a second PC if you want redundancy.

For Ethereum, you can either install the official Ethereum Wallet client, or you can sync faster if you use the Parity client. For Bitcoin, the Bitcoin Core wallet is probably the way to go.

If you don’t leave your PC on all the time, you might want to consider using an Intel NUC or even a Raspberry Pi in the corner somewhere to run your wallets. The initial sync is pretty I/O intensive, so an SSD would be idea if possible. you could also sync to an SSD on your PC, and then copy the data to the NUC or Pi and start the wallet up there. (I haven’t tried using a NUC or Pi with SD for the wallet storage, but I may have to try it now.)

Cashing out your cryptocurrency

You’ll probably want to cash out some of your cryptocurrency at some point. There are two ways to do this.

1. Fiat Currency

First, you can convert it to “fiat” currency, or government-issued legal tender (i.e. US Dollars, Euros, British Pounds). If you need to buy more GPUs for your mining rig, or pay your electric bill, this is probably what you’ll do.

Coinbase and some other exchanges will handle this for you. It’s a bit complicated, but their sites will guide you through the process. You will need to link to a bank account or Paypal account, and most likely (in the US at least) will have to confirm your legal identity so the exchange can comply with money-laundering laws. This also means that if you get enough currency, your transactions may be reported to the IRS or your local taxation authority.

This sort of cash-out may take up to a week to process, depending on how you choose to get paid out and how quickly the exchange handles the transaction. Coinbase says ACH payments to a US bank account should take a week. Paypal payouts, when enabled, are within half an hour.

2. Cryptocurrency Payments

Second, you can purchase goods and services from some vendors directly with cryptocurrency. One example is GPUshack, the company that sells Ethos licenses and mining rig kits. They take payments in Bitcoin Cash (not Bitcoin itself), Ethereum, and Litecoin. Other vendors and some local individuals also accept cryptocurrency (Craigslist even has a checkbox for the option).

This option will be faster than an ACH withdrawal to your bank, of course, but you have to work out the dance with your seller (especially an individual seller), and most businesses do not accept cryptocurrency (public utilities, retail stores, restaurants, etc). Delays in transaction confirmation, along with transaction fees, can also complicate things. But if your cryptocurrency has increased in value since you mined it, you can absorb these issues pretty easily.

If these posts help you, feel free to visit our “support” page, or you can send some Ether to 0x0055AE64F55df4Ae3e7BE0629537Eedf1adECba4

 

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3 thoughts on “Sidebar: Setting up your cryptocurrency wallet

  1. Pingback: Getting Started with Cryptocurrency Mining – Building Your First Rig | rsts11 – Robert Novak on system administration

  2. If you’re mining Ethereum, I recommend using MyEtherWallet as your wallet target. No need to download all the data and widely respected in the community. Then you can occasionally transfer to something really secure like a Trezor (which I use) or Ledger.

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    • I’m curious about the advantages you saw in Trezor vs Ledger. I see Ledger has the second screen now (which they originally didn’t). Might be more coins supported on Ledger but I suspect that will change over time, and I’m not as worried about my 20 XRP as I might be my Ethereum. 🙂

      I’m poking around a bit, and I’m hypothetically intrigued by Ledger’s mobile device support (via OTG), but I don’t think I’ll be using it away from my desk much so I don’t feel too driven in either direction because of that.

      Like

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