Short course on cryptocurrencies: from purchase to storage
Thinking about investing in cryptocurrencies? We will help you figure out where to buy it, which coins to choose and how to store them later.
By the way, if you are already investing, read the article too – it can’t hurt to make sure once again that you are doing everything right.
Why do you want to invest in cryptocurrencies?
Whatever the reason is, the most important thing is to be honest with yourself and understand your motives.
Investing is a kind of gambling, a risk. So you should not allocate the money you need.
And if you are having a FOMO (a fear of missing out), you should relax! This area is still very, very new and likely to last for a long time. Therefore, you are not going to miss this boat.
In general, your goal should be to motivate yourself to gain the knowledge necessary to make well-founded decisions. Here is a list of questions that should be answered before buying cryptocurrency:
- What is this digital asset used for?
- What problem is it intended to solve?
- What technology is used to solve the problem?
- What kind of team is working on the project?
- Who is investing in the project?
- In what applications can technology be used in and can it scale?
- Is it a cryptocurrency, utility token or tokenized security?
By answering these questions, you will understand what a coin is, how this solution can be used in the future, and whether the team has the technical skills to solve specific problems.
You can search for information in blogs, forums or, for example, on Twitter. Remember that in this sphere there are people who are trying to make money by using the ignorance of others. So treat subjective information with some skepticism.
Also, carefully review the companies websites, news sources and white papers of the projects. They are more reliable sources than the subjective opinions of other users.
Are you registered on a crypto exchange?
Now that you have conducted your own research and are ready to make the first investment in cryptocurrency, you need to register on the exchange.
A reliable way to choose a proven stock exchange is to go to coinmarketcap.com, select the desired cryptocurrency and go to the Markets tab. The Source column shows the exchanges with the largest trading volumes for this asset.
Among the most popular and trustworthy ones are Binance, CEX, Bittrex, Coinbase, and Bitfinex.
Before registering on any exchange, pay attention to:
- It is necessary to look for exchanges that support two-factor authentication, notifications of entry and require careful KYC-procedures for user verification.
- Pay attention to platforms with a good reputation that have not previously been hacked.
Usually, you pay a commission in the range of 0.1-3% when buying coins on the exchange. This is the fee for platform services.
Daily buy/sell limits
Trading limits also vary on different exchanges. They depend on your level of verification. To confirm the data, you will need to disclose your personal data, for example, upload driver’s license or passport.
Many exchanges support bank transfers, debit and credit cards. Please note: some exchanges do not support the possibility of adding fiat money to your account.
The process of buying cryptocurrency is extremely simple: find the asset you are interested in, click the Buy button. The coin will appear in your account almost instantly.
Keep in mind: when buying on a centralized exchange, you do not control the wallet with your funds. You have access to the address, but in actual fact, the exchange controls the wallet. Therefore, after the purchase, send the cryptocurrency to the wallet controlled by you.
Please note that it is better to make the first purchase for a small amount, for example, $ 50. Such money is not so terrible to lose if something goes wrong.
What is “the wallet controlled by me”?
The wallet stores keys that provide access to your cryptocurrency. Each address is connected with a public and a private key. Everyone can see the public key: it is needed to send a cryptocurrency to it.
The private key should belong only to you. Only the owner of the key has access to the funds. Wallets come in various types:
- Online wallets (browser extensions, mobile, and desktop applications).
- Offline wallets. Among them: hardware devices (Ledger Nano S and Trezor) and paper wallets.
Online wallets are very easy to use, but less secure because they are always connected to the Internet. Offline wallets, on the contrary, usually rarely connect to the Internet, but are much less easy to use.
And finally: about operations with cryptocurrency and strategy
First, write down all your operations with cryptocurrency. Different countries have their own tax systems. There is no difference where you live – you need to keep records, because in this sphere everything can change, literally within a few months.
Second, get a good habit of tracking your crypto portfolio dynamics. This is the meaning of investing – to see how much profit the purchase brings.
You can track it via the Blockfolio or Coincap services — just enter the data on the acquired cryptocurrency.
When the market is on the rise, tracking the dynamics of crypto assets every three minutes can suck you in a lot. Checking balances through applications that are not connected to wallets will not put you at risk and will significantly simplify your life.
Such programs usually have additional functionality, for example, they can alert prices, provide real-time charts, news, and analytics.
When collecting data from reliable sources, ask about everything, always questioning the information. Take responsibility for your decisions.
There are only two strategies that can be used when investing in cryptocurrencies – trading and “holding”.
Trading involves the purchase and sale of crypto assets with holding positions for hours or days. This process involves the use of opportunities offered by market volatility. Thus, cryptocurrency prices can vary by 20-30% during the day, and this creates opportunities for obtaining significant profits.
The flip side of trading is “holding” (buy & hold strategy), which is based on the assumption that cryptocurrencies will be of great value in the future. It means that you keep digital assets until the moment when they significantly increase in price, and then sell them. This is usually a long process, and do not be surprised that it will take more than five years until the cryptocurrency prices rise significantly (if it happens at all).
You can combine both of these strategies. So, you can allocate a particular part of assets for long-term storage, and trade another.
In any case, invest only those funds that you are not afraid to lose.