Since its premiere in 2009, Bitcoin has witnessed a massive increase in popularity. So naturally, I am keen to agree that cryptocurrencies are revolutionizing the financial market as we know it.
Apart from being the gold of the cryptocurrency world (Bitcoin), there are more than 10,000 coins/tokens to invest in. With that in mind, I invested my time into preparing a thorough guide on how to buy and what to do with cryptocurrencies. Let’s get started!
- What Is Cryptocurrency?
- Why Are Cryptocurrencies So Attractive?
- Diversify and Don’t Rush In
- Do Your Research
- Choosing an Exchange Platform
- My Choice: Coinbase
- My Alternative: Robinhood
- How Do I Store My Cryptocurrencies?
- What Are Hot Wallets All About?
- What About the Cold Wallets?
What Is Cryptocurrency?
Before getting into how to get the most out of a cryptocurrency investment, it is necessary to explain this financial instrument.
Since its founding, I was impressed with the idea of encrypting transactions through an online ledger. At the time of writing (June 2021), I can purchase goods and services with nothing but crypto.
The cryptocurrency market is constantly growing, and there is a wide variety of companies that issue tokens that you can exchange for products.
The main reason why I was interested in investing in cryptocurrencies is because of decentralization (not controlled by banks or other financial institutions).
No Middleman
As someone who performs crypto transactions on a daily basis, I wanted to know as much as I can about blockchain technology.
Putting it simply, it is a security mechanism that allocates the transaction (chain) across different computers, thus making it impossible to track the buyer and the seller.
Why Are Cryptocurrencies So Attractive?
It is important to keep in mind that the original concept of cryptocurrencies was to perform anonymous transactions.
Today, millions of people compare it to stocks and think of it as an investment rather than forgetting that it has a great use case. The numero uno attraction is the potential for a high return.
While the price increase in early 2021 yielded a profit, I can say that the cryptocurrency market would be more stable if people started using tokens/coins instead of converting back to cash.
On the other hand, I am sure that the fall of the USD and the explosion of cryptocurrency functionality are inevitable in the years to come.
Exotic Investment
Although investing in crypto is adopted by millions worldwide, it isn’t as simple as depositing your money in the bank or finding a broker that will purchase the tokens/coins in your name.
On the contrary, it runs on a designated network that supports anonymous transactions.
Diversify and Don’t Rush In
The best piece of advice that I got from a friend who loves crypto is to allocate just a small percentage of my cash in the altcoins.
While the potential for a huge price explosion is very attractive, the risk of losing it all due to the volatility is pretty great.
While I do enjoy the use cases of crypto on a regular basis, anyone who simply wants to invest should keep it at a maximum of 10% of their total portfolio.
What I say to anyone who is a newbie in the crypto world is to stay away from greed and fear of missing out.
Not the Same as Stocks
The biggest mistake that people make is confusing cryptocurrencies with company stocks.
While the latter pays dividends, the former is all about earning profit from a direct price increase.
Remember, it wasn’t designed as an investment. So, naturally, the risk of putting your money in this “medium of exchange” is much greater.
Do Your Research
The key to entering the crypto world is to do your research.
While I enjoy reading others’ opinions on why a token/coin may be great to invest in, I don’t take any steps until I’ve read the white paper and made sure that that cryptocurrency has a logical use case.
Throughout the years, I’ve learned that the market is incredibly volatile and is found based on buying the rumor, selling the news.
Thus, it is much harder to predict a price increase, and it is the main reason why I am an advocate of long-term investing or “HODL-ing” as crypto enthusiasts would call it.
Bitcoin vs. Altcoins
While Bitcoin is still the most popular cryptocurrency out there with a market cap of around $750 billion (beginning of June 2021), there is a bunch of altcoins that hold great potential.
These include Ethereum, Binance Coin, Cardano, Dogecoin (started as a meme) and Bittorrent Token which may revolutionize file storage and sharing.
With that in mind, I am on a constant quest of performing extensive research and finding coins that I believe in.
Choosing an Exchange Platform
As I mentioned above, there isn’t a way to purchase crypto in banks or through other financial institutions.
Fortunately, hundreds of exchange platforms offer the opportunity to buy, sell, hold, stake, and margin trade with thousands of coins/tokens.
The closest explanation of these platforms is brokerage firms designated to exchange cryptocurrencies.
It is important to know that every trade and a buy/sell order comes with a fee that is the main profit source for these companies.
Ad Hoc or Long-Term
One of the points in which the crypto market is pretty specific is that there is no need to store your assets on the trading platform.
What I do after buying or selling is transfer my cash/ coins/tokens to a secure wallet that I find suitable for storage.
On the other hand, all exchanges offer the ability to keep crypto on their ledger.
My Choice: Coinbase
Among hundreds of different platforms, my personal favorite is Coinbase, as it is highlighted by explicit security standards, a user-friendly interface, and 24/7 customer support.
In my personal opinion, it is the ideal exchange to purchase, sell crypto and track the price volatility.
One of the coolest points is that I can make transfers from my credit card or by connecting Coinbase to my PayPal.
In addition to that, it allows recurring purchases, which makes it much easier to diversify the investment.
Vault Protection
Coinbase supports hundreds of cryptocurrencies and lists new coins/tokens on a weekly basis.
It also provides its users with vault protection that is by the latest security standards.
Naturally, this platform is as safe to store assets on as most hot wallets.
My Alternative: Robinhood
While I did say that most brokerage firms don’t allow crypto trading, there is always room for an exception.
Robinhood is a well-recognized platform with millions of active stock investors. The biggest advantage of RH is that it allows buying and selling of crypto without charging a commission.
It is the ideal exchange for diversifying portfolios between popular stocks and rising cryptocurrencies.
Unfortunately, its offer is pretty limited, and as of today (June 2021), it supports just a few popular cryptos, including Bitcoin, Bitcoin Cash, Etherum, Ethereum Classic, Litecoin, and Dogecoin.
Buying In-Person
Another popular way of acquiring crypto is by meeting the holder of the crypto in person.
While I didn’t have the opportunity to this, many of my friends find it to be the most effective way of trading coins/tokens without paying a huge commission (remember, Robinhood is fee-free).
How Do I Store My Cryptocurrency?
The easiest way to secure cryptocurrency is to keep it on the trading platform. Still, it isn’t my favorite method.
The reason is that there are a plethora of hot and cold wallet options that offer greater security without charging a huge commission.
What is a wallet? It is a program that connects public and private keys to a crypto address.
While at first I was pretty confused with how these work, the idea is that instead of holding the coins/tokens in that software, I use the public/private keys to access my crypto on the blockchain.
Record of Transactions
More than several hot (online wallets) allow features such as buying, selling, storing, and staking, which is much similar to earning dividends from stock.
What Are the Hot Wallets All About?
Even though some argue that cold wallets are a much better option, I am a fan of hot wallets.
The first reason is that there is no risk of physically losing the former. As long as I save my recovery phrase on a piece of paper and a secure app, there is nothing to worry about.
There are a few types of hot wallets, including desktop, online, and mobile, each holding a few advantages.
The first one is considered to be the most secure as not everyone can access the storage platform. The online wallet is probably the least secure as the private key is stored online.
Additional Layer of Protection
Lastly, is a mobile wallet (Atomic, Trust, etc.) which is my wallet as apart from storage, it can be used for making purchases in stores that accept crypto.
What I do to ensure that my crypto is 100% secure is connect to wallets through a Virtual Private Network such as NordVPN and thus install an additional layer of encryption.
What About the Cold Wallets?
At the end of the day, everyone should do their research and opt for the security method that suits their needs.
There is a wide variety of hardware wallets to choose from, including devices that look like USB.
While the fact that the private and public keys aren’t stored online makes the cold wallet a superb choice, losing the device makes recovering the crypto assets almost impossible.
An Additional Investment
What anyone who is entering the crypto market should keep in mind is that they need to pay for the cold wallet, which isn’t the case with online, mobile, and desktop wallets.
In addition, most USB-like storage devices are priced between $50 and $150.
Summary
Being a part of the cryptocurrency world is dynamic and fun. Still, talking from the experience of my few friends who invested more than they could lose, it certainly isn’t for the faint-hearted.
With that in mind, the greatest piece of advice that I can give to anyone is to take risks but do their research and not believe everything that they read in the news!