Owning vs. investing in crypto: what's the difference?

I remember trying to get into Bitcoin back in 2014, when, as a nerdy little university student, I wanted to learn about this cool new cryptocurrency thing I had heard about. I didn’t know the slightest thing about how it worked, but I figured I could google my way to knowledge pretty fast. After an hour of trying to learn the difference between a hardware wallet vs. a software wallet, which wallet was the best, and whether I should be installing a full bitcoin node on a separate computer, I gave up. 

Sometime between then and now, bitcoin and other cryptocurrencies went from being a computer science project to an investment, and everything changed. Suddenly, brokers were offering the ability to invest in cryptocurrencies in minutes, even seconds, letting people test their investing chops on the volatility of the coins’ prices. 

So what’s the difference between owning cryptocurrency and investing in it? Let’s dive into each in more detail and figure out which one is best for you. 

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Owning crypto 

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If you’re a hardcore cryptocurrency enthusiast, you might be interested in owning crypto. That means you want to get a crypto wallet. There are two kinds — cold and hot. Hot wallets are connected to the internet. You’ll often find them as part of apps that act as exchanges, where you can exchange euros or dollars into cryptocurrencies. It’s very similar to a bank account.

Cold wallets are not connected to the internet. They can be pieces of paper, or hard drives, but the point is because they’re completely offline, they’re basically secure from internet hackers. Like physical wallets, the only thing they’re vulnerable to is physical thiefs. 

Both wallets work by having two keys: a public key and a private key. You can think of the public key like an address, so people know where to send money to when they pay you, and the private key like a password, that allows only the holder to access the funds in the wallet. 

If you want to pay with a cold wallet, you’ll have to transfer its private key to a hot wallet. After that, if you want to put the money back into cold storage, you’ll want to create a new cold wallet, as the one you had has now been exposed to the internet. 

You can probably see the main appeal of all of this — privacy. Cryptocurrency owners want to have a decentralized, secure fund that only they control, instead of banks or anyone else. And if you want to pay directly in your cryptocurrency, provided the vendor accepts it, you can do that. 

Like investing in cryptocurrency, your funds will increase or decrease in value compared to the fiat currency you mostly use, likely euros. If you want to cash in on that profit, you’ll have to convert your funds back to that currency. ‍

Investing in crypto

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What if you don’t really care about your funds being accessible via the internet, and just want to bet that the price of a cryptocurrency is going to go up? That’s where investing in crypto might be your best bet. When you invest in crypto, you don’t have to necessarily own what you’re investing in. Like with fractional shares, there are a whole host of assets that mirror the price of popular cryptocurrencies, allowing you to make money when they rise, and lose money when they fall.

There are two main differences here from owning: one is that you can’t store your investment in an offline wallet. As you’re likely going through a broker, your investment is an over-the-counter product that you access using an online app. The other difference is that you can’t pay in your cryptocurrency directly. Instead, you have to convert your investment back to euros or dollars or whatever currency you’re using, and then pay. This isn’t a big deal right now, as only a tiny amount of places allow you to pay using cryptocurrencies, and most of them only accept Bitcoin or Ethereum. 

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Which one is right for me? 

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Now that we’ve explained the major differences, this question should be rather straightforward. Do you want to store your cryptocurrencies offline and pay directly with them? Then you want to own. Do you just want to invest and try to make money off the price of Bitcoin or another currency? Then investing is the easiest way for you to do that. 

Of course, you can always do both, or try one, and then move on to the other. The point is, it’s not as hard as it used to be to experiment and give it a try. 

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Any opinions, news, research, analyses, or other information contained on this website are provided as general market commentary, and do not constitute investment advice, recommendations nor should be perceived as (independent) investment research. The author or authors are employed by Vivid and may be privately invested in one or several securities mentioned in an article. Vivid Invest GmbH offers as a tied agent of CM-Equity AG the brokerage of transactions on the purchase and sale of financial instruments with the exception of those in the area of foreign exchange brokered by Vivid Money GmbH.