How do I protect my crypto?

JIM ARMSTRONG: A quick question: Are cryptocurrencies like bitcoin and ethereum safe? And if it is generally safe, well, how do I protect my crypto, and where on earth do I store it? If you’re asking questions like those or similar ones, you have found yourself in the correct place.

Hey there. Welcome to the Covering Crypto Livestream. I’m Jim Armstrong with Fidelity, and today we’re talking about considerations for protecting your crypto. And that’s going to talk about scams, storage options, and a whole lot more.

To have that conversation, I am thrilled to be joined by a pair of guests from Fidelity Digital Assets^®, sometimes referred to as FDA. You’ve both been on livestreams before, virtual on Zoom, but here we are in person. So thanks for making the trip to Boston, and I’d love it if you could just introduce yourself real quick and talk a little bit about the work you do at Fidelity Digital Assets^®. And Brian, we’ll start with you, if that’s OK.

BRIAN ALLEN: Awesome. Well, Jim, thanks for having us. Pleasure to be here. I’m Brian Allen. I’m a product manager at Fidelity Digital Assets. I lead our blockchain custody and wallet platform. So I’m happy to talk about the different ways you can store crypto, how you secure crypto, how you use crypto, things like that.

JIM: Have a lot of questions headed your way, Brian. So thank you. And Kristin.

KRISTIN SMITH: Yes, my name is Kristin, and I sit within the client services and experience team. So I specifically work on Crypto Help experience, helping customers with our crypto products and offerings. I’ll create a bunch of content for that so they’ll learn how to—or know how to trade or transfer assets, for example.

JIM: Excellent. A lot of questions headed your way, too. So thanks again for being here. Real quick, let’s take a look at our agenda for the day. We will start off by talking about those crypto safety basics, whether or not crypto is safe and why it matters to ask that question. We’ll talk a lot about common scams and hopefully how to avoid them.

We’ll also cover best practices to keep your crypto safe. We’ll talk about storage options, including wallets and custody and the trade-offs involved there. We’ll talk about specifically how Fidelity Digital Assets handles crypto security and custody. We’ll hit on crypto transfers and what to know before you send or receive. We’ll recap all of that, and then hit you with some live Q&A as well.

So we’ll get started here with some of those basics around crypto security, important conversations to have across the board. And I feel like—we get this trio of questions that we can start off with that came in during registration that gives you a bit of a hint towards what’s on people’s minds.

George asks, “Is crypto safe?” From Gloria, “How can you keep your crypto safe?” And Barbara, “How can I ensure safety of my crypto?” So Kristin, we’ll start—that’s the frame I want you to have in your mind there. It seems like there’s a lot of concern that people have about whether or not crypto is safe. So we’ve got a handful of reasons about why people might feel that way, and one has to do with the fact that crypto scams just get a ton of attention.

KRISTIN: Yeah, crypto scams get a lot of attention. So that’s one reason that people are weary and worried about if it’s unsafe. It is important to know that crypto scams—some cryptos are actually created to be scams, but that’s an umbrella term—”crypto.” So all cryptos are not scams. So that’s one reason.

A second reason is that transactions are irreversible, which is completely different from traditional finance. So that’s a little scary, especially if you’ve never done it before.

The third reason would be that we have volatility. So people—sometimes, the price fluctuations will scare them away. But it’s important to know that price fluctuations and volatility doesn’t mean that it’s unsafe, for example.

JIM: But you can understand why people feel like a big, big price swing in either direction maybe isn’t what they’re used to in more traditional investments. So that volatility, in their mind, reads as a lack of safety.

KRISTIN: Right, right. Correct. And then also crypto is still new to a lot of investors. They hear about it on the news. And when they hear about it, sometimes it’s associated with bad things. Sometimes it’s associated with good things. But they don’t necessarily know people personally that do it. So that can be scary as well.

JIM: And lots of—the fifth one I was thinking of is that people often ask us this question, too, is are there protections in place for crypto? And so there’s a difference between traditional assets. So talk about that.

KRISTIN: Yeah, exactly. So with traditional finance, you have protections with the FDIC and SIPC. But with crypto, those do not exist at all.

JIM: Also important to note, and just I want to add real quick for our viewers who might be somewhat new to the space, I think Kristin brings up an awesome point. Just because crypto is relatively young, in terms of its time as an asset class and it can be volatile, that definitely does not mean it’s, quote unquote, “unsafe.”

What it does mean, as we just mentioned, is that you, as the potential investor, really need to do a lot of your homework when it comes to understanding the investment that you might take part in. So that includes understanding the specific crypto you’re investing in.

As Kristin mentioned, some of them were built to be scams. So you want to watch out for those. And we’ll talk about that in a minute. And others might be more legitimate and worthy of your time. You want to use trusted platforms, absolutely. And you want to practice good security hygiene online, including protecting your account and being cautious of scams. And just like any investment, it really comes down to knowing the risks, staying informed, and only investing what fits your goals and your comfort level, which is exactly what this livestream is here to do.

So with that in mind, Kristin, I’d love it if you could talk specifically about some of the scams associated with crypto. Some of them are broad. You might hear them across the board. But some of them have to do specifically with crypto. And the number one that you wanted to start with is impersonation scams.

KRISTIN: Impersonation scams, yeah. This is our most common scam for sure. This is when you have somebody that is a trusted contact. It could be a company. It could be a support rep. Even with the emergence of AI now, you see it—people pretending to be a family member or celebrity, and they’ll use a sense of urgency to try and get you to send crypto, or give up your private keys or your password, for example.

JIM: So this is something like maybe they’ve made it so that the phone number that you’re receiving a call looks like it’s from your grandmother or your partner or something like that, but it’s actually the beginning of potentially an impersonation scam.

KRISTIN: Yeah, or they’ll even clone their voices, for example.

JIM: How about an—I think the step after that one is a romance or a confidence scam. These, for me, feel particularly scary.

KRISTIN: Yeah, these are similar, but they’re a little different in that the impersonation scam relies on urgency.

JIM: Yep.

KRISTIN: This one, they take their time. So you’re talking about weeks, sometimes it’s even months before they’ll hit you with the, “Oh, I’ve got this great investment opportunity.” Or “Hey, somebody in my family is really sick. Can you send me some bitcoin to help us out?”

JIM: So this is—they’ve built a relationship with you over time.

KRISTIN: Over time.

JIM: And I feel like this could be the—I think we’ve all gotten those text messages that say, “Hey, sorry I missed you for lunch yesterday,” and you didn’t miss anybody for lunch yesterday. But what they’re trying to do is build that conversation with you, and it’s a numbers game for them. They’ll keep doing it until they get someone on the line, and then they’ll try to get crypto from you.

KRISTIN: Yep. They’ll try and get crypto from you. They’ll try to convince you to fall in love with them. Yeah.

JIM: How about things called rug pulls or pump and dumps, traditional scams.

KRISTIN: Yeah, rug pulls, investment scams, pump and dumps—these are ones where they promise crazy returns. If you hear something that just doesn’t sound realistic, it’s probably not true. But yeah, these are ones where they try to convince you for guaranteed returns.

JIM: And so maybe they spin up a brand new token. They get some fake buzz around it, maybe online. They get you to buy it, and then they pull their money out immediately, leaving you—

KRISTIN: Holding the bag.

JIM: Wow. And those are fairly common?

KRISTIN: Yeah, those are fairly common, actually. And sometimes you got to be careful with those because they’ll actually send you a small return on investment first to convince you to send more money over. But yes, those are—

JIM: So that’s interesting. The theme is some of these scams are really long term. It’s not like someone dips into your IMs and then steals money right away. It’s a relationship.

KRISTIN: Yeah.

JIM: How about technical exploitation—cryptojacking?

KRISTIN: Cryptojacking, yeah. So this is where you want to be careful when you have anything that’s connected to the internet, or where you’ve got to click a link to go somewhere. So a good rule of thumb is if you’re going to an application or to a website frequently, just go ahead and bookmark it, so you always have it there. But always double-check it as well.

And then it also can exploit your wallet with the technical exploits. So if you’re linking it to something, that’s where you want to watch out what are you connecting it to.

JIM: So these are some of those basic digital hygiene things. Don’t click on suspicious links. If you didn’t ask for the text message, don’t respond to it. Don’t engage with it, generally.

KRISTIN: Correct. So anything that’s like phishing, is what we’ll call it sometimes.

JIM: OK. And how about the digital asset scams to tie into NFTs, non-fungible tokens.

KRISTIN: Yeah, so non-fungible token scams. I’ve been a victim to these a couple of times. But with NFT scams, say they’ll—and also have to be careful because sometimes these will be on legitimate websites.

JIM: Yeah, yeah.

KRISTIN: And say you’re going to buy a CryptoPunk. You know this was created in 2017, but somebody will create a replica or a counterfeit that looks exactly like it. Same price and everything, but you’re buying the fake version of it. So just look at the transaction hash or—yeah, transaction hash, and just ensure that it was made by the right people, it was sent from the correct wallet and around the same time that you’re looking at it.

JIM: All right. Comprehensive list there, Brian, but I want to turn to you. Anything else globally that you think people should be aware of when it comes to protecting themselves from crypto-specific scams?

BRIAN: Yeah. I mean, that’s a pretty good list. So thank you, Kristin. Maybe the only thing I’ll add is always remember what were you originally trying to do? What’s in it for you? There’s a lot to learn. There’s a lot of places that you can go off. But were you trying to in the very beginning, and then is what you’re actually doing going to accomplish that goal?

The big thing that goes along there is just go slow. There’s no urgency. If someone else is putting urgency on you, that’s a huge red flag. And even yourself, if you just want to go fast, it’s better to take the extra few minutes to double-check, triple-check, what are you really accomplishing?

JIM: Excellent. And to learn more about staying protected against crypto scams, we’ve got a resource that we’d love for you to bookmark. It’s on Fidelity.com/LearnCrypto. If you’ve seen the livestream before, you know that we send you there a lot because it’s got a ton of great resources. But there happens to be an article right at the top of that page on crypto scams, along with a lot of other resources as well. So that’s a great place to go and visit—Fidelity.com/LearnCrypto.

Brian, outside of scam awareness and protection, what else do you think—again, at a high level. We’ll go deeper in a second. But at a high level, what do people need to know to keep their crypto safe?

BRIAN: Yeah. I think one of the interesting things about crypto is there’s a lot of different options for different people for how you transact, how you hold your crypto. I expect we’ll go into a lot more detail on that later. Just for now, some basics that will apply no matter what you do.

Keep your private information private. So keep your Social Security number out of online websites. Never share a password. Never share an authentication code. Never share a private key. We’ll get to what a private key is later. Those things really need to be known only by you. Things like multifactor authentication codes—you need to have multifactor authentication enabled on anything that allows you to have that enabled.

We talked about urgency before. That’s a big one. Just go slow. Any rush, any urgency, that’s where you make mistakes, or that’s where you go back an hour later and go, uh-oh, I shouldn’t have done that, things like that.

And the final thing I’ll say here in this intro is really know who you’re doing business with and how your crypto is secured. There’s likely going to be some party that you deal with at some point of your crypto journey, whether it’s where you buy your crypto, where you hold your crypto, the company you buy a wallet from, the app you use on the phone. You should always go deep into who you’re trusting along the way because there’s always something in there that you’re doing.

JIM: And sometimes the tip-offs I feel like can be a little bit obvious. Like a misspelling, for example. I work on the team that helps send out sometimes emails from Fidelity. They are spell-checked and quality controlled to within an inch of their lives. So you’re never going to get an email from Fidelity where the “i” and Fidelity is spelled with an exclamation point, for example. But you need to have—you need to be vigilant looking for things like that.

KRISTIN: Correct.

JIM: All right, Brian, you alluded to storage. I’ve got a question now from a viewer named Laurel who wants to know the best way to store crypto, which sounds like it fits perfectly well with the majority or the plurality of people watching right now. So Brian, there’s no best way. So I’m not going to put you in the position of having to do that. But what are some of the ways that people can explore when it comes to storing their crypto?

BRIAN: Yep, definitely not going to answer the “best way.” But what we can say is what’s really important when you get started, whichever way you go, it’s always good to learn and have some fun with it. We highly encourage that.

Just high-level options would be, number one, you can do it all yourself. Or number two, you can use a custodian, a company like Fidelity Digital Assets. So I’ll level-set with a very exciting thing about crypto, a powerful thing about crypto, but also very intimidating, is you do have the control in your own hands if you want it. You have options. It’s not just everyone does it the same way. It’s about figuring out what’s right for you.

One main option is the self-custody option, the self-hosted wallet option, where you control the underlying blockchain security yourself. That’s where you control the private key. You are in full control of the transactions. You have to secure that wallet, secure that private key yourself. But that means you’re the only one involved.

The other option would be using a third-party custodian, a company like Fidelity Digital Assets, where that custodian takes care of all of those things on the back end of the underlying hardware security, the underlying connectivity to the blockchain, tracking your balances, offering you web portals to do transactions, giving you statements, tax things, all that good stuff.

And I expect we’ll probably go into more detail on each of these. But for right now, just know that you do have options, and it’s all about that trade-off. Do you want the self-custody option where you have more power, you have more control, but it’s all on you? You have the accountability for those decisions and how you secure it. Or do you want a third party to take care of some of that really hard stuff that you may not be as familiar with, but the inherent risk is you’re then trusting that third party.

JIM: We get that question a lot, and I see it already coming up in the live chat today—”not your keys, not your coin,” meaning people feel like they’re surrendering a little bit of that autonomy by using a third-party custodian. Talk a little bit more about that trade-off there. Because if you’re solely responsible for your keys, yeah, you have control. But that also means you assume 100% of the risk.

BRIAN: Yep, exactly. And I’d say I definitely agree with the sentiment of “not your keys, not your coin,” but I wouldn’t necessarily say it’s accurate either. What people are trying to say when they say “not your keys, not your coin” is if you don’t own it and have 100% of that control yourself, you don’t know that it actually exists.

So a big parallel would be, hey, if you have a gold bar, you better have that gold bar in your hand, or under your mattress, or in your backyard, or it doesn’t exist. That’s what people are saying. If you don’t have self-custody of bitcoin or any other crypto, you don’t actually own it. That’s the sentiment. I think that is somewhat true. I get it.

But the flip side would be as long as you pick a custodian that you really trust, that custodian is regulated in the right way, audited in the right way, and gives you enough information, there is a counterargument, too. And I’m not going to say which one I agree with. That’s up to all of you to decide.

JIM: Yeah, right. It absolutely belongs to each person figuring out their own unique storage plans. Speaking of which, Kristin, a question for you that came from Laura when she registered. She wants to know what storage options are for keeping crypto safe, for example, different wallets?

So we’ve already started using that terminology here, which I think can maybe, sort of, kind of trip people up a little bit because they know digital assets are digital. You can’t hold them. So what does it mean to have a wallet for storage?

KRISTIN: So a wallet is a self-custody option.

JIM: OK.

KRISTIN: And it is an optional option. It doesn’t have to be your only option. It can be combined with other options. But there are two ways you can use wallets. You can either use it as a hot wallet or a cold wallet.

So a hot wallet is something that’s connected to being online at all times. Typically, you see this in the form of an app on your phone, or it’ll be an extension on a web browser on your desktop. Cold wallet is often a hardware device for individuals. So it’s something that looks like a little USB—not a USB cord, but just a little—

JIM: Like a thumb drive. Yeah, yeah.

KRISTIN: A thumb drive, exactly. Now, there are different security risks with both of them. Like I said, the hot wallet is always online. So going back to those technical scams, you could potentially connect your wallet, if you’re trying to buy an NFT, to a bad actor, or a website that is going to take your keys. “Not your keys, not your crypto”—if they have your keys, they can take your crypto.

And then with the cold wallet—

JIM: The cold wallet is never connected online. Is that the right way to think about it?

KRISTIN: No. It can be connected. Some people actually do use cold wallets to participate with decentralized applications. It’s not advised to. Typically, that’s where people keep most of their stuff.

But also with the cold wallet, just going back to what we were talking about with private keys and whatnot, if somebody were to ever get your private keys—and this also applies to hot wallet. If somebody were to get access to your keys, that 12-word phrase or 24-word phrase, they can go buy a different wallet, or go sign in to an application online, and put those same 12 words into there and just take your crypto from there. So those are security concerns with them.

But just to narrow it down, cold wallet—offline, typically used for storage long term. Hot wallet is something that’s always connected to online. It’s in the form of an app or something, and quick, easy access for hot wallet.

JIM: And so maybe you’d keep some of your crypto in a hot wallet if you’re transacting with it on a fairly regular basis, whatever your cadence is. And cold wallet might be more longer-term storage. Is that—

KRISTIN: Correct. Yeah, you can look at it like that.

JIM: And you said seed phrase or passcode. I think for most people that probably reads just as password, but it’s a little bit more involved than that. So talk about those seed phrases.

KRISTIN: Yeah. So a password for your cold wallet or your hot wallet will actually get you into it. So you can just open it up, kind of like you open up your iPhone. It’s like you put in your PIN. But a seed phrase is what is used to actually track your crypto.

So when you open up a wallet, or when you create your wallet, the wallet application will say, these are these 12 words. Write them down. This is how you control your crypto. And even before you go beyond, they’ll say, all right, did you write it down? And they’ll give you four words and say put in the rest to make sure that you put it down.

Because, God forbid, something happened and you lost that wallet. If you still had that seed phrase, you could go to Walmart or any store, buy a hardware wallet, take those same 12 words, put them into the wallet once you open it, and your crypto will magically appear because your crypto is connected to those seed phrases.

JIM: And these are self-custody concerns. These are not concerns that generally you have if you’re custodying with a third party.

KRISTIN: Exactly. That’s why I tell my mom she can’t have a wallet. My mom has to go with a custodian.

JIM: Love it. And that’s—yeah, we’ll talk about that in a minute. But that tends to be the way that a lot of relatively new people start because managing all of this yourself in terms of safety and security can frankly feel a little overwhelming. So maybe you start off with a third-party custodian and then transfer out maybe as you get more. Or unless your daughter tells you not to, and then—

KRISTIN: I mean, the truth is, most people don’t even need a hot wallet. Unless you’re doing lending or borrowing, or you’re buying NFTs, you really don’t need a hot wallet because you can send crypto from a third-party custodian to somebody if you wanted to.

JIM: Got it. We’re covering a lot, and we’re doing it quickly, which is by design. But please remember that you can always ask us questions live. That’s the virtue of joining a livestream.

So ask your question just to the right of the video player. There’s an amazing team of folks in there answering questions live. We’re going to try to get a bunch of them, as many as we can, to Kristin and Brian towards the end of the livestream. But if you have questions, please put them in there. Upvote other questions, and we’ll get to as many as we can.

Brian, in the meantime, a question for you that actually came in during last livestream’s live chat. “How should investors think about storing their crypto—like using their own wallet versus a platform like Fidelity?” So this is the overarching theme we’ve had so far, but what remains unsaid?

BRIAN: Yeah, so definitely goes back to the trade-offs we were talking about earlier, with the high-level trade-off being self-custody, full control, full accountability if something goes wrong. You have to do it right yourself, where a custodian has the pro of they handle a lot of that stuff on their own, meaning you’re trusting a third party. Hopefully, you choose a reputable third party. I think Fidelity Digital Assets is one of those. But then you’re trading off. You are using someone that’s not yourself. You’re relying on that organization to do security.

I mean, going a little bit deeper on that, the self-hosted wallet, the self-custody solution that Kristin was talking about earlier, you can do a lot of things with those. You can go off in DeFi. You can buy NFTs. You can participate in many different blockchains. They’re extremely powerful.

And it goes back to, what are you actually trying to do? Do you need those features? Do you want to use your phone to pay with crypto for a cup of coffee? Do you want to be trading on decentralized finance all day long? Or do you want to buy your digital assets once, or once a month, and other than that, not transact. That’s going to inform the rest of your decisions.

Going a little deeper on the self-custody solution, there is a lot of different considerations to think about. Are you using your phone? Are you getting a hardware device? Which hardware device? You definitely need a backup of that hardware device, of that seed phrase or private key that Kristin was talking about.

Where do you put those backups? Do you tell your friends and family about those backups? Do they have instructions? There’s a lot to do there. And again, that’s powerful. That’s awesome. A lot of people, that’s one of the best things about crypto. Not your keys, not your coin. You can design that yourself. And nowadays, you can do a lot better than hiding a gold bar under your mattress when it comes to self-custody of crypto.

When it comes to using a custodian, biggest benefit, obvious benefit. If everything I just said sounds horribly intimidating, and you’re just trying to get started, just use a custodian like Fidelity Digital Assets. You can get up and running very, very fast. If you pick a trusted platform that you trust, you have a lot of security out of the box.

I expect we’ll probably get into it more in a little bit. But these custodians, like Fidelity Digital Assets—granted, I can only talk about Fidelity Digital Assets in terms of what I know. There’s a lot of investment and expertise and decades of knowledge and experience and expense. We don’t use those little thumb drives or credit card–sized wallets. There’s a whole different animal. A cold wallet—we would never connect a cold wallet to a laptop or a network. You might do that in a self-custody institution. Shouldn’t be.

And the last thing I’ll say about platforms and custodians, because we could spend all session on this, they probably will offer you some value-added service. It’s not just oh, they hold a private key for you that allows you to hold crypto. Like Fidelity Digital Assets, there’s a customer support team. You can call someone for help if you need it. If you forget your password to your web portal, there’s someone you can call that will help you out. They’ll get you back again in a secure way.

Monthly statements, the ability to deposit and withdraw in an easy manner, the ability to buy and sell crypto in the same account that you hold crypto and have settlement handled on your behalf, tax statements—there’s a lot of those kind of value add things that a custodian offers. If you do self-custody, you’re going to have to find something else to handle those instead.

JIM: We get a version of this next question a lot. So I’m going to send it your way. It’s from Kayla. “What’s the most beginner-friendly crypto platform or wallet to use?” So again, roughly, if you go by our survey, roughly half of the people watching right now haven’t put their toe in yet. How do they figure out what’s right for them, given the many, many options that exist?

BRIAN: Well, I think that all depends on what you’re actually trying to accomplish. And I’m certainly not going to say what’s best or easiest for you and what you’re trying to do. Generally speaking, picking a custodian, like Fidelity Digital Assets and starting small is the fastest way to learn. And what I would highly encourage people to do is go slow, learn. Try things out until you really understand where you’re going with your strategy.

Fidelity Digital Assets—some other pluses of it. If you already have Fidelity account, same login credentials, same mobile app on your phone, same website URL, Fidelity.com, to get started. You will need a separate crypto account. You can do that all through the same portal, same credentials. And then your crypto just shows up. You move money from account to account, and you have your crypto account right next to any other accounts you may have.

JIM: So Kristin, I want to ask you, because you shared earlier about some NFT challenges you had. How did you navigate this when you first got into crypto? How did you figure out hot wallet, cold wallet, custody, not custody? How’d you figure that out?

KRISTIN: Trial and error.

JIM: Yeah, really?

KRISTIN: Trial and error, yes.

JIM: OK.

KRISTIN: I did start with an institution, a third-party custodian, and kept most of my crypto there at first. But then I got a hot wallet. And with the hot wallet, I just used that to buy NFTs. Just did a lot of independent research. But I actually didn’t really get into cold wallets until much later. I was almost exclusively dealing with hot wallets because they’re so easy and quick and—

JIM: For sure. Yeah.

KRISTIN: Yeah. And then also if you get scammed, you don’t want to use that wallet anymore, which, like I said, I’ve been a victim of a couple of rug pulls.

JIM: Got it. OK. Brian, a couple more questions that came in asking for specifics about Fidelity Digital Assets, which you’ve touched on, but this will give you a chance in case there’s more to say. Christine is asking, “Does [Fidelity Digital Assets] secure crypto in a secure wallet?” And then Marcus has a more general question. “How does Fidelity [Digital Assets] handle custody and security?”

So by definition, there’s a lot going on behind the scenes that you can’t and shouldn’t and won’t divulge. But people who might be considering us, you’ve talked about choosing a trusted third party if you’re going the custodial route. What is Fidelity Digital Assets doing behind the scenes?

BRIAN: Yeah, no. Great questions. And those are the absolute right questions for folks to be asking. So I’m glad they keyed into that message already before you get started with the custodian. And also, you’re dead on, Jim. The people who are at the lowest level truly securing this crypto and designing the physical security, the cybersecurity all that, they definitely would refuse to come on this session. They like to remain behind the scenes.

But that’s one of the nice things about Fidelity Digital Assets. Folks can know that there are teams of true experts that have been doing physical security, cybersecurity, operations for many, many years, full teams dedicated to securing this product.

A little bit deeper on how Fidelity Digital Assets does this. One important thing I will mention is Fidelity Digital Assets does hold all of these private keys ourselves. So as Kristin was mentioning, you’re going to have this underlying private key and/or seed that really control all the crypto. Lose that key or seed—crypto is likely gone forever.

Fidelity Digital Assets does not partner, does not outsource, does not sub-custody those private key storage. Some other custodians absolutely do that. That’s one of the—as people go through their diligence of who to select, you need to be asking that question of what partnerships? Who’s actually the custodian?

A little more on Fidelity Digital Assets. We operate both online and offline wallets. Online—very, very small amount of your crypto, but that’s how we enable our customers to withdraw crypto, how we can enable them to buy and sell.

Vast majority of crypto is held in cold storage, which really just means offline equipment. And when we say offline, we mean fully offline. Never connected to any network, both the hardware, as well as the actual how data has moved in the past, stored in specialized, hardened facilities that have no network connections in them whatsoever.

And we could go on and on, and I’ll try not to. I kind of want to. But the last thing I’ll say is, Fidelity Digital Assets believes very, very strongly in multi everything. So that defense in depth, where based on some of these risks we were talking about earlier and the threats and the things people have probably seen in the news of lost crypto, you need to have controls at every single layer of your stack, where if one control fails, two controls fail, it shouldn’t matter because you have the multi everything. So that’s multiple people, multiple approvals, multifactor authentication, multiple safeguards, time locks, all of those things layered together for that level of security that we know our customers want.

JIM: Excellent. Let’s pivot to talk about transfers now, which is a pretty popular topic, I think. Kristin, a couple of questions came in for you. Wayne is asking, “Can my existing wallet be linked to my Fidelity accounts?” And then in a recent live chat, we had a similar question. “Is transferring my crypto from a different company to Fidelity safe?” So high-level, we can do transfers to and from your Fidelity Crypto^® account. But how about these questions about linking and other safety questions?

KRISTIN: So you can’t link it the way you link a bank account to your brokerage account. But you can send crypto from another exchange to Fidelity. And it is safe as long as you follow certain things. Like Brian was saying, go slow.

So make sure if you’re sending it from another exchange to Fidelity that you double-, triple-, quadruple-check the wallet address that you’re sending it to. Make sure that you’re sending it on the correct network. So if you’re sending over ethereum, send it over as ethereum. Don’t send it on a second layer because it’s a little bit cheaper. Send it on that Layer-1 blockchain.

Yeah. And if you want to transfer assets, or transfer your crypto into Fidelity, what you have to do is what we call enablement for transfers. And you can figure that out in your account. Or you can go to the website my team handles which is Fidelity.com/CryptoHelp. And we have tools there that will show you how to enable your account for crypto so you can get it over.

JIM: Just going to say thanks for doing the plug for yourself there. But this is like literally what you and your team do is try to figure out ways. Because everybody has—everybody has the question that you have right now. Literally, everybody’s like, how do I get this done? How do I do it? And so your team has videos and articles and frequently asked questions and all of those resources to help people answer their questions and not feel very lost.

KRISTIN: Correct. And it’s for anything that has to do with any crypto product we have.

JIM: How do you know, Brian, that you’re doing it right? How do you know? Because these are irreversible transactions in many, many cases. So how can you be sure, after you’ve read all of the work that Kristin and her team put up. How do you know?

BRIAN: Yep. You triple-check everything. I’m glad you reiterated that irreversible point. We really mean irreversible. You need to do this thing right. You should be a little scared when you’re doing it. Hopefully, not intimidated, so scared that you don’t get involved. But every single time you do a transfer, you want to go slow, triple-check everything, and really know what you’re doing.

So I’ll reiterate some of the points Kristin made of you’re going to check the address and the amount. You’re really going to look at that blockchain network. Then we would very, very highly encourage folks to do a small dollar test.

So don’t just move your entire value that you want to move in one sudden swoop. Do a small value test. Make sure that where you’re trying to send the crypto actually received it. And then do the full transfer value after. Again, you’ve got to be really careful to make sure that whatever you tested is the exact same thing that you do the next time. And you want to check these things every single time you do it, not just I tested it once three years ago, and it worked, and now I’m going to do it again. Remember, triple-check everything. Go slow. And yes, I said triple-check three different times on purpose.

JIM: Every time I have transferred crypto there’s always that slight anxiety/pit in my stomach. Like, am I—did I—am I? So that, to your point, encourages me to go maybe a little bit slower than I, quote unquote, “should,” after having done it for a bunch of years. But I don’t want to do it wrong, so I go slow.

Brian and Kristin, would love it if you could just—what are one or two nuggets that you would hope people watching the livestream right now take away? We have covered a lot. We’re going to cover more. But what are the one or two things you think this is what you must remember. Kristin?

KRISTIN: Yeah. I would say, number one, be wary of urgency. So for scams, or even just personally for yourself, piggybacking off of what Brian said, go slow. The second thing I would say is definitely do your own research. If somebody offers you something, and it sounds too good to be true, and there’s guaranteed returns, don’t just take their word for it.

Actually do your research. Go to that website. If you are a Fidelity customer, give us a call. We do have client services that can help you if you’re being told something is a good investment. And then, yeah, I would say those are the two biggest ones for me.

JIM: Great. And Brian.

BRIAN: Oh, those are good ones. Can I steal them? I’ll riff off it a little bit. I think the biggest thing is just know what you’re actually trying to do. You don’t need to know right away. But along the way, make your own decisions of what do you value? What is your strategy? Who are the people you trust? What’s your own knowledge?

And I always like to say, have some fun with it. There’s a lot of resources out there. This livestream is a great start, but this does not have to be the end. There’s a lot of fun things out there. If you do want to invest in the asset class, hopefully you are engaged and you know what you do. You want to learn both first, but it never stops. You keep going along the way.

JIM: And I would reiterate Fidelity.com/LearnCrypto has a ton of impartial, neutral information about the considerations that you should be having in mind as you start to make these decisions. And again, you can learn at your own pace. That’s the virtue and the value of Fidelity.com/LearnCrypto, is that you can, again, watch a video, look at an infographic, read an article, check out a frequently asked question, or 10 or 20, and then really build up your crypto confidence that way.

JIM: All right. David is asking, in what specific situations would you use hot versus cold wallets? So Kristin, what would you say?

KRISTIN: Yeah. So for a hot wallet—so there’s a lot of people that are interested in decentralization. You might hear the term “dApps” a lot.

JIM: What does “dApp” stand for?

KRISTIN: Decentralized applications.

JIM: All right. OK.

KRISTIN: So say you wanted to do like lending and borrowing in a decentralized way. You could use a hot wallet for that. If you wanted to buy an NFT, you could use a hot wallet for that. If you wanted to trade meme tokens, you could use a hot wallet for that. That way, it’s not connected to your cold wallet or your personal account.

A cold wallet would be used more so just for personal safety and security. One thing that a lot of people resonate to for cold wallets is that with cold wallets, it’s like you own it, but you also control it. So, God forbid, you were in a situation where you lost access to banks, or there was a major disaster, natural disaster. All the internet’s out. If you could get in a car and go to the next state over, or the next country over, you could take your cold wallet, and you could upload it, and you could get your cash out that way.

Or you could actually send it to Fidelity. Because now you have Fidelity Crypto^® account, but you have that money on your cold wallet. But really, just for—I know Brian said don’t keep it under the mattress, but really just having some money under the mattress.

JIM: Yeah. So I feel like maybe cold wallets, in my mind at least, I put them in the place for long-term storage. Like Brian said, maybe you’re buying a lump sum, or you’re buying once a month. And just if you maybe have that long-term mindset, a cold wallet put somewhere safe might do that?

KRISTIN: Yes, put it somewhere safe that nobody else has access to.

JIM: Brian, a question from Lemuel to you. Do I need a cold wallet for the cryptos I own with Fidelity?

BRIAN: Yeah. No, great question. And the answer is sort of, but you don’t need to worry about it. So when you pick a custodian like Fidelity Digital Assets, and you hold your crypto only with the custodian, not with self-custody, the custodian is going to take care of everything Kristin was just talking about. So all that private key security, cold wallets, hot wallets, things like that—

JIM: Seed phrases.

BRIAN: Seed phrases—the custodian is going to take care of all of that hard core cryptographic security as part of the product offering. That’s why you’re using them. I will mention that doesn’t mean that the customer is fully off the hook for security, either. You’re still going to have your own username and password, multifactor authentication code, that way that you get into your account, but similar to any other financial services offering, where you’re abstracting away the complexity of the crypto here.

JIM: But no need for an actual thumb drive, credit card–type thing with Fidelity Digital Assets.

KRISTIN: Not at all.

BRIAN: Fidelity Digital Assets has many of those cold wallets. They just handle it on behalf of the platform so customers don’t have to know, hey, should I keep—what percentage should I keep my hot wallet? What percent—nope. That’s what Fidelity Digital Assets is there for.

JIM: Got it. I will take this next question. We get a lot of them. The general flavor of this very common question today is, if I have an ETF or an ETP, is that considered, quote unquote, “owning crypto”?

And so I guess it depends on how you define “owning crypto.” But for the purposes of today’s conversation, the answer is no. If you own, for example, a spot bitcoin exchange-traded product, you don’t own bitcoin. You own an exchange-traded product that in this case has underlying assets that are exclusively bitcoin, or a spot ETH ETP as well. The underlying assets inside that exchange-traded product are crypto.

But for the purposes of custody and storage and the types of accounts that you can have them in, a spot crypto ETP or a crypto industry ETF functions just like any other ETP or ETF. It gets confusing because the underlying asset in this case is cryptocurrency, digital assets. But to answer your question, it’s kind of like a nuanced no. It’s generally no. You don’t own crypto the same way someone buying actual spot bitcoin or litecoin on Fidelity Crypto for example, owns crypto. You own a financial product that has crypto as its underlying asset.

Let’s see. Oh, Michael is asking—and maybe you could both take a 30-second stab at this. Can you define private key again? We did it kind of quickly. So Brian, you go first, and then Kristin.

BRIAN: OK. Great question because it is a little tricky. So private key is really the underlying cryptography that determines who owns which crypto on the actual blockchain itself. So the public blockchain—everyone knows that’s public. It’s out there for everyone. It’s really just the ledger that says who holds what assets, which are those digital assets.

And then the private key is what allows the person who actually owns those entries to spend those funds. So a simple way to think about it, we’re talking hard core cryptographic security. If you hold the private key, you own that asset. If anyone else has that private key, they can move those assets, transact them. That’s the way you determine ownership.

JIM: OK.

KRISTIN: Yeah, pretty much that. But just a little bit more layman.

JIM: Yeah, yeah.

KRISTIN: It’s basically just the 12 words. Well, it could be 12 or 24. I’ll say 12 for the sake of this conversation. But it’s the 12 words that grant you access to your crypto.

JIM: And if you’ve never done it, it’s like 12 of the most random words you’ve ever seen.

KRISTIN: Most random—cat—

JIM: Orange.

KRISTIN: Star.

JIM: Laptop. Yeah, you’re right. Just 12 random—

KRISTIN: Jim.

JIM: Yeah. All right.

KRISTIN: But yeah, you take those 12 words, and they will give you access to your crypto anywhere in the world. So if you lost your wallet, but you still had those 12 words, you could go buy another wallet. You could buy a cold wallet, or you could just download a new hot wallet. It doesn’t even have to be the same brand. And you just put those 12 words in once you open up the wallet and you’re creating it, and your crypto will populate.

So just think of it as 12 keywords are what is connected to your crypto. Just think about it like that. You don’t have to go super deep with it. At least I don’t.

JIM: Mark is asking a question. Let me see. I’ll read it word for word, and then we’ll parse it together. “How do you obtain a digital wallet to transfer crypto from one broker to another?”

But let me take a step back. You don’t—do you need a digital wallet to do that, to transfer? Like, say you have your crypto somewhere else, and you want to put it in your Fidelity Crypto account. You don’t need a hardware intermediate wallet between those two steps, do you?

KRISTIN: No. No, you don’t. All you would need to do is enable your account at Fidelity for crypto transfers. And when you do that, Fidelity will give you a wallet address.

JIM: Oh, OK. Right.

KRISTIN: So you’ll go to whatever other brokerage or exchange that you have. And you go to what you call is deposits. It’s called depositing when you want to send it out. Or when you want to send it to us, it would be a deposit. When you want to send it out, it’s a withdrawal.

So you would withdraw your bitcoin from whatever other exchange you’re at. And when you do that, you’ll put in the wallet address that’s connected to your account here at Fidelity. But like Brian said, you want to send a small amount first to test it. And then once it comes over, you can just do it again and again and again.

JIM: But no need to buy a physical, like we talked about—

KRISTIN: No need to buy physical wallet.

JIM: —hot or cold.

KRISTIN: You definitely don’t ever even need a cold wallet or a hot wallet. If you are somebody that trusts Fidelity—just think of it as a bank. You know what I’m saying? You can just have your crypto here and just seamlessly do everything here.

JIM: As a custodian. Amy is asking—this is a tough one. “Once somebody who self-custodies has been scammed and lost a large portion of their crypto position”—so Amy, if that happened to you, I’m sorry; that stinks—”what recourse do they have?”

JIM: Yeah.

BRIAN: And sorry to anyone that that has happened to. If you read the news, things like that, there’s definitely many examples of that. The short answer is it’s really hard to get those funds back. It’s definitely much harder than if you forget your username and password for custodians. Even then it can be hard.

Transactions are irreversible. Best course of action for folks who do think they have been scammed is—honestly, it’s law enforcement. That’s the kind of one and only avenue that you’ll have. I’ll even throw in a crazy thing out there. Make sure you don’t get scammed trying to recover from a scam.

JIM: I’ve heard about that.

BRIAN: That absolutely happens as well.

JIM: Any context you would add there? It’s a scary situation when it happens.

KRISTIN: Yeah, it’s very scary. The only thing I could really say is one, like Brian said, contact law enforcement. And then wherever you got scammed from or you sent your assets out from, also contact them. If it’s a hardware wallet, contact the wallet, or an exchange, contact them because you might still be exposed, and they might be able to shut things down so it can’t continue to happen. But yeah, pretty much law enforcement.

JIM: Yeah, it’s tough. Let me squeeze a couple more in before we run out of time. Ron asks, “When crypto is moved to a cold wallet, does your buy price stay the same? Or do you get a new buy price when you transfer your funds to the new wallet?”

KRISTIN: No, everything stays the same.

JIM: So you bought it, and maybe you have some—got a really fantastic low price for bitcoin. You want to move it somewhere else. You’re not subject to the next prices.

KRISTIN: Nope.

JIM: Got it. “I want to change my custodian from another to Fidelity.” OK. “Would I have to pay taxes when I transfer?” I have a blanket answer for this, but do you have any insight on what happens when I—go.

BRIAN: I’ll go and I am not a tax accountant. You should probably get actual advice there. But generally, no. If you’re just doing a raw transfer, you’re not doing any sort of buy or sell, there’s no gain or loss realized, there should not be tax consequences.

JIM: Just a direct transfer. You didn’t cash any of it. You didn’t sell your litecoin and pull some cash out. No transfer—no transaction happened. The transfer did happen. But you gave the caveat that I was going to give. Talk to a tax advisor. Talk to a CPA. Talk to a lawyer, somebody who knows the exact answer to your specific question.

That was a lot. Thank you so much. This was great. We’re just about out of time, so I want to thank you for spending part of the afternoon with us. Appreciate it.

KRISTIN: Thanks.

BRIAN: This was fun. Thanks for having us, Jim.

JIM: Absolutely. Thanks, everybody, who joined us in our live audience as well. Thanks for your questions and your engagement and dealing with our polls with us. If we didn’t get to your question today, and there’s a chance we didn’t because we took in a lot, please know that we captured it. We have it, and it’s absolutely going to help inform future episodes of the livestream.

If you’ve got some immediate questions that you’re looking for help with, we’d love it if you join the conversation over at Reddit at r/fidelityinvestments—another super kind and helpful and supportive team there, and also a nice community of people who you can get your questions answered by, as well as the Fidelity moderators over on Reddit as well.

On behalf of everybody behind the scenes at the Covering Crypto Livestream, thank you again for making time to be with us, and we hope to see you again soon.