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Right now, I'm in the process of creating a Coinbase account. As I'm typing this question, Coinbase is verifying my ID. Once the registration process is over I'd like to buy Ether. Once I buy Ether it will be stored on the databases of Coinbase, right? This seems like a liability to me, so I'd like to store it locally. However, I don't know how to do that. I read online that I need a wallet, so I downloaded Mist. But Mist requires me to download the whole blockchain (which is currently more than 30GB?). I don't wanna do that, because I think it is a waste of space.

Can someone tell me what I should do? I'm a beginner to Ethereum.

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For cryptocurrency wallets, you have four choices:

Web-based wallet: Which is what you have with Coinbase; they have the keys for you and make things easier for you (as you don't have to install anything locally). Coinbase does have the option of a "Vault" which adds more control back to you if you're concerned about them handling your private keys, though it's currently only for Bitcoin assets, so not useful for your Ether.

Full Local wallet: That would be like the Mist wallet/browser; you install it locally and interact with it on your desktop. It's more secure since you have the keys locally, and you get a copy of the blockchain locally, so you can interact with it directly. Downside is that the blockchain does take up a fair chunk of hard drive space.

Lite Local wallet: You don't need to have the whole blockchain just to transfer Ether around. Installing a lite client like Jaxx would allow you to transfer your funds from Coinbase to your local wallet, but you're then trusting Jaxx's Ethereum nodes to communicate with. You have more control over your private key, but it's still trusting a third-party.

Hardware wallet: A TREZOR- or Ledger-type device is the most secure in terms of keeping your private key safe, though you then need to use their applications or a web-based wallet that can interact with them (like MyEtherWallet.com) to use your funds.

So, if you're concerned about Coinbase having your private keys, you can either pick another web-based wallet provider that you trust more (generate a wallet on MyEtherWallet, or install MetaMask), or use a local client, or purchase a hardware wallet.

My general recommendation is to use different wallets when the value of what you're saving increases. Aside from the advice to never invest more than you could risk losing, I'd say using a local wallet (lite wallet app on phone or laptop) for "pocket change" daily spending currency, and a hardware wallet for long-term savings is a good route to go. Web-based wallets are okay for special uses (exchanges, etc.), but shouldn't be storing the majority of your funds.

  • Thank you! What do you personally recommend? – Zarif May 31 '17 at 19:17
  • @Zarif Good suggestion to add; I edited my answer to include my recommendation. – MidnightLightning May 31 '17 at 19:23
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    Coinbase Vault, at the moment, June 1, 2017, is only for bitcoin. Not a current option for ether. The Vault is likely very secure (from hackers) and offline, but at the end of the day, Coinbase "controls/holds" the keys. Nothing like maintaining your private keys offline (trezor, paper, etc) yourself where only You have access. – nanonerd Jun 1 '17 at 18:51
  • @nanonerd Good point; updated my answer to reflect that; thanks! – MidnightLightning Jun 1 '17 at 19:37
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MidnightLightning lists many viable options. But I will add that you can also use cold storage in the form of paper wallets. I can't think of a more secure solution than generating your key-pair offline on a piece of paper and storing it in your safe. Then you can send the ether to the public key, and later you can just sweep the paper wallet using the private key.

See here: Is there a way to generate ethereum paper wallets?

  • That's a very interesting option! Thanks for your help. – Zarif Jun 1 '17 at 13:49
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    You can use an offline means to generate a seed phrase, then use the "restore" option of the hardware wallet rather than the "generate new" to use it, to get the same effect. I didn't include paper wallets as a separate category, since part of the setup for hardware wallets has you write down your seed on paper and keep it safe, effectively making a paper wallet too. A hardware wallet is effectively a "smart" paper wallet (easier to use, harder to mess up), so you'd really only need to use a real paper wallet if you didn't trust any of the hardware wallet vendors (nor their audits) at all. – MidnightLightning Jun 1 '17 at 19:48

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