In 2016, Dutch national Didi Taihuttu, his wife and three daughters sold everything they owned to invest in Bitcoin when it was trading at only $900.
“We sold everything we had – house, cars, motorbikes, holiday home, clothes, toys, furniture and [it] all went into Bitcoin,” Mr Taihuttu tells The National.
“As a family, we discovered that we preferred the minimalist approach to life. We wanted to prepare our kids for a decentralised future where everything will be provided by a sharing economy – cars, houses and more things will be entities on the blockchain that you can use for a certain time and pay accordingly.”
On Saturday, the total market value of cryptocurrencies rose to $2.06 trillion, according to CoinGecko, which tracks more than 8,800 coins. Bitcoin reached $48,152 at the weekend, its highest level since May 16, as it showed staying power above its 200-day moving average. At 5pm UAE time on Monday, the cryptocurrency was trading at $47,228.69.
Mr Taihuttu, 43, declined to say how much their cryptocurrency holdings are now worth.
The family, who are currently in Portugal, store their portfolio of digital currencies in secret vaults around the world, with 70 per cent of their holdings in cold storage and 30 per cent in hot wallets, which they access for daily expenses.
“My assets are spread across four continents, however, I do not wish to disclose the countries or places,” Mr Taihuttu says.
Cryptocurrency wallets are tools that are commonly used to store and protect digital coins, and come in different forms and varieties.
Hot wallets are connected to the internet and give cryptocurrency owners easy access to their digital coins. The cold wallet storage method is more secure as it is completely removed from the internet ecosystem.
Hot wallet storage systems are considered riskier as they can access (and theoretically be accessed by) other parts of the internet and are more likely to face security issues or potentially be hacked, according to Investopedia.
About 45 per cent of 4,000 people in the UAE, US, UK, China and South Korea polled by blockchain-based research platform Realresearch last year admitted to using digital wallets frequently, while 18.6 per cent of users said they use only cold wallets. Half the respondents also said the security of their cryptocurrency assets is extremely important when choosing a new wallet.
When storing cryptocurrencies, choosing the right wallet is one of the most critical decisions that investors have to consider, says Devesh Mamtani, chief market strategist at Century Financial.
“A cryptocurrency wallet stores both the private and public keys of a cryptocurrency user to a point of safety that no other person can gain access to their tokens without permission. This means that even if you have lost access to your own key, you will be locked out and will not be able to access your tokens at all. Different types of wallets include hot wallet, cold wallet, hardware wallet and paper wallet,” Mr Mamtani adds.
In hot wallets, the user entrusts their private and public keys to the platform that manages and secures both keys. A cold wallet can come in software forms such as apps that are used on a computer or smartphone or as a hardware device, which is plugged in but remains offline, Mr Mamtani says.
Mr Taihuttu started mining Bitcoin and Dogecoin in 2013. After his father passed away in January 2016, Mr Taihuttu, his wife and three children travelled to Thailand.
It was during their travels that Mr Taihuttu noticed how many people did not have access to banking systems. This led him to see Bitcoin as a solution for decentralised finance “in a way the internet was the solution for worldwide connectivity”.
“I want to support a decentralised open economy and don’t want to put my capital in the hands of centralised organisations,” Mr Taihuttu says.
“I saw it would be the (r)evolution of the monetary system into a decentralised one and decided to go all in and support it as it was in line with my values.”
Digital currencies are not licensed by the Central Bank of the UAE, although a number of cryptocurrency exchanges have been given permission to operate within the Abu Dhabi Global Market. The UAE dirham is the only legal tender in the country that is recognised by the regulator.
The Taihuttu family, who have travelled to 42 countries over the past few years, use their hot wallet cryptocurrency holdings to trade and pay for flights, housing expenses and groceries.
Although their cryptocurrency portfolio is dominated by Bitcoin, it also includes Ethereum, Litecoin, Cardano, Dot, Link and some Dogecoin, Mr Taihuttu says.
Mr Taihuttu allocates part of their profits to both the cold and hot wallets. The family rarely withdraws money from their cold wallets because they are long-term holdings, he says.
Mr Mamtani advises against storing a large number of cryptocurrencies in hot wallets as the system could be vulnerable to hacking. Investors should also research the platform they plan to use for their storage solution, he adds.
Earlier this year, a security breach on cryptocurrency platform Roll enabled a hacker to obtain the private key to its hot wallet and they stole about $5.7 million worth of cryptocurrencies, Mr Mamtani says. Similarly, in 2019, a hacker group breached a hot wallet on Binance, one of the world’s largest and most popular cryptocurrency exchanges, and 7,000 Bitcoins worth $41m were stolen.
Mr Taihuttu is unfazed by the volatility of cryptocurrencies, saying this is what makes it perfect for trading. An asset that is not volatile is too boring and doesn’t give you an annual return of 200 per cent like Bitcoin has done in the past 12 years, he adds.
“I believe Bitcoin will surpass $100,000 in this bull run and even $1m per Bitcoin in the long term. I see it as a decentralised pension fund,” Mr Taihuttu says.
“In the 1990s, you needed to do physical work to earn money but in the 21st century you can really let the money work for you by using AI [artificial intelligence] trading bots,” he says. “For me, Bitcoin is a decentralised, disruptive, 24/7 usable, borderless, immutable, censorship-resistant, P2P [person to person] digital cash that will include the excluded in the monetary system.”
Citing the evolution of money – starting from the barter system, commodity money, metal money, paper money, plastic money and internet money like PayPal – Mr Taihuttu believes it is now time to switch to decentralised internet money such as Bitcoin and other cryptocurrencies.
“If you want to support the decentralisation of the monetary system and take back full control of your money, the only way you can do that is by avoiding centralised entities that are able to freeze or take your money from you,” he says.
Mr Taihuttu prefers to have full control of his funds and not be limited by daily cash machine withdrawal caps or to answer questions when he sends money. “Freedom is very important to me,” he adds.
Pros and cons of hot and cold wallets
- It is convenient
- Much easier to transact and deal with
- Highly susceptible to online hacking even if the system storage platform is tried and tested
- Safer than hot wallet as the medium of storage is primarily offline
- Generally expensive compared with a hot wallet since it involves buying of physical storage involving hard disks and other storage devices
- It is highly inconvenient for daily and frequent trading