There’s an interesting problem that comes with cryptocurrencies: owning them is not as easy as it is with money, or even stocks. But that doesn’t mean you can’t benefit from the price swings in crypto: there are ways to invest in the coins without having to own them. Still, you might be the kind of investor who really wants to own a bitcoin or ethereum token. So let’s examine the differences between owning and investing in crypto.

Owning crypto

If you’re a hardcore cryptocurrency enthusiast, this might be your preferred choice. 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.

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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. 

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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. 

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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.

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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. 

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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.

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Vivid Invest offers you this kind of exposure thanks to our fractional coins. They mirror the price of the cryptocurrencies 1:1, and you can convert them back to a fiat currency like euros instantly. More details here. 

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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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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. 

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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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What's next?

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You now understand the basics. Let’s test your knowledge, and then go a bit deeper.