Cryptocurrency news | Mar 15, 2021
Getting Started with Cryptocurrency
By RTR Dennis
The cryptocurrency world is growing every day and as it moves more and more into the mainstream new investors are understandably interested but daunted by the prospect of learning a whole new system of finance. Today I will explain how to get involved with the basics of owning and managing a cryptocurrency portfolio securely and safely.
Firstly, Investing and trading in crypto can be very profitable, but, as with any investment, there are no guarantees. It should be dealt with as any other investment and a considered and measured approach is definitely key. Cryptocurrencies are not a get rich quick scheme nor are they a replacement for sound financial advice. All investments require a certain amount of work, patience and wisdom and cryptocurrencies are no different.
I should begin with a couple of very common caveats you may hear in the cryptocurrency world. "Never invest more than you are willing to lose" and "Do your own research" or DYOR
Precautions before buying cryptocurrency
While blockchain technology is inherently safe, you still need to consider the safety of your funds and how to best defend against potential threats from hackers and scammers, and to make informed decisions about where you will trade and how you will store your cryptocurrency.
Here are some simple recommendations before you get started:
- Get a brand new, secure email account to prevent your details from ending up in the wrong hands and keep all your crypto-relevant emails in one centralised and safe place. For a Secure email address I would recommend Gmail.
- Subscribe to a Voice Protocol Network or VPN service in order to prevent others from tracking your online activity, especially while trading. For the most reliable service we recommend NordVPN.
- Set up Two-Factor Authentication (2FA). 2FA is a very common extra layer of security that is required for trading on most reputable cryptocurrency exchanges. Even if your chosen exchange doesn't require 2FA to be set up it is definitely advisable to do so. I would recommend Google Authenticator as the best way to set up 2FA's for this purpose.
- Install an antivirus software, such as Avast, in order to protect your devices against Trojan horses or other threats.
- Before buying crypto on an exchange make sure you have completed their KYC (Know Your Customer) questions as they may not allow withdrawals without this so you could wind up with your funds held on the exchange until you are verified and this could add an extra unnecessary delay which could cost you money.
The safety of your funds is also determined by how you store your funds and where you trade which we will cover in the following sections.
Types of Cryptocurrency
Unless you have been living under a rock for the last 5 years you will no doubt have heard of Bitcoin (BTC) and perhaps a couple of other popular cryptocurrencies such as Ethereum (ETH) or Litecoin (LTC).
As a general rule, cryptocurrencies are split into two main types;
By definition an Altcoin is any cryptocurrency that isn't bitcoin. The term meaning "alternative to bitcoin". In more recent times the definitions have changed and altcoins are now referred to as low market cap coins or less common or popular coins. Coins such as Ethereum and Litecoin are now not considered altcoins as such as they themselves have been widely adopted and utilised worldwide.
There are now many options available to purchase crypto from fiat currency. For a lot of new investors the first step on the journey is to buy bitcoin although other cryptocurrencies such as Ethereum can also be bought directly from an exchange. There are several places to buy cryptocurrencies but broadly they can all be categorized into one of three types.
- Centralised: For the average person looking to invest in cryptocurrency a centralised exchange is where you'll likely buy your first coin. There are several examples of this but the largest and most popular include Coinbase, Kraken and Binance. For your first purchase you will need to find an exchange with what's known as an "on-ramp" or a way of depositing fiat currency and exchanging it for a cryptocurrency, for this purpose I would recommend Coinbase if you are in the United Kingdom or Kraken in the United States as they are both large, reliable and secure exchanges with proven track records. Before registering at any exchange be sure to check which forms of payment they accept as some only accept credit cards. Some smaller exchanges don't have an "on-ramp" so they require you to purchase crypto elsewhere and deposit it into a wallet on their site before you are able to exchange.
- Decentralised (Peer-to-peer): While it is possible to trade directly with other people met through online marketplaces or organised meetups, this method of obtaining and trading crypto is not recommended. This is the most common way an investor is scammed. They provide the cryptocurrency before payment and then the other party leaves. Once this happens it is not possible to claim your cryptocurrency back. A large improvement on this system is to use a decentralised exchange such as UniSwap or SushiSwap. These work in the same person to person way but they act as a sort of escrow service where both funds are held for the very short period until the transaction is completed then funds are released to the both parties. This means that neither party could be scammed but be aware that these services are not free and the exchange will take a percentage as a fee, always check the exact amount you will receive before finalising a transaction as fee's and exchange rates can vary greatly at peak network usage times.
- Over-the-counter: This final type of exchange is over the counter. For the vast majority of people this service won't be the best or even a viable option as these sort of exchanges deal mostly with large transactions of a million dollars or more. For this reason you may hear this term in the news when large companies buy a massive amount of Cryptocurrency quickly, these transactions are normally brokered and facilitated by large Over-the-counter exchanges that are set up to manage the inherent risks involved in moving large quantities of cryptocurrency. As I mentioned before, after the transaction is complete there is no way to claim your crypto back so these exchanges are often insured for hundreds of millions with several extra safety checks in place.
In order to store and trade crypto you’ll need a wallet. While funds themselves never technically leave the blockchain, wallets hold the keys associated with your funds, and whoever holds the keys controls the funds so it is vitally important that you know exactly where your funds are held and how to access them.
The easiest way to get a wallet for your funds is by registering with an exchange, such as Coinbase, Binance or Kraken. Be aware though that storing your currency on a centralised exchange means that technically they have ownership of that cryptocurrency until they release it to you and it also means that if that exchange is hacked or otherwise attacked then your funds could be lost.
A good rule to remember is "Not your key, not your Crypto" this means that unless you are storing your crypto in a wallet where you hold the private keys then it isn't technically your crypto.
There are many different types of wallets, but generally we can group them as either "hot" or "cold" wallets:
- Hot Wallets: Hot wallets such as desktop wallets (usually created by the token developers), mobile wallets (app-based), and online wallets (offered by exchanges to send and receive tokens), are needed to trade. However, as they are connected to the Internet and therefore susceptible to hacking, it is therefore recommended that you don't store your funds long term in a hot wallet but rather use a hot wallet only when you are making a trade.
- Cold Wallets: Cold wallets are not connected to the Internet. They can be paper wallets (simply, a print out of your keys along with a QR code you can scan) or hardware wallets (similar to a USB-stick or external hard drive). Currently, hardware wallets such as Trezor or Ledger are regarded as the safest way to store your funds.
It is important to know, however, that just like some exchanges only listing a limited number of currencies, wallets are also currency specific, supporting only a number of tokens. For this reason, always be certain of what currency you plan to store and then only storing that currency in a wallet that supports it.
My advice is to keep all funds in a private cold wallet that you own unless you plan on making a trade or transaction that day.
Tracking your Portfolio
As you delve deeper into the crypto space, you’re likely to end up looking to buy and sell a variety of coins at multiple exchanges and it can be difficult to track what you have and where. You could use an App such as Blockfolio or Delta or alternatively you could use a portfolio tracker on a website such as CoinGecko.com.
Now as you can imagine selling a cryptocurrency is almost exactly the same as buying one. Essentially you are trading one cryptocurrency for another. Where this process differs is when you are trying to realise some profits (hopefully) and you want to trade your cryptocurrency back into fiat currency such as USD, JPY or GBP. There are several exchanges that offer this service but be aware that each will vary in cost and speed and some exchanges may be off limits to you depending on the financial laws where you live. To withdraw fiat currency from an exchange you will first need to find an exchange that supports fiat withdrawals such as Coinbase or Kraken. You can then simply exchange your crypto for fiat currency and then withdraw it directly into your bank account. You should also check your local tax laws as you may need to pay tax on any profits you've made through cryptocurrency investment.
Please do heed my warnings and fight the temptation to jump all in on a soaring currency. Make decisions with your head not your heart and just to repeat my initial warning, do not invest more than you are willing to lose. Thank you for reading and be safe out there.