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What you need to set-up before trading crypto

Choose a Wallet and an exchange (or several)

Now that you’ve mastered the fundamentals of cryptocurrencies, let’s move onto the practical things you’ll need to actually start trading. There are mainly two things you’ll need to set-up:

  • A wallet to store your cryptocurrencies
  • An exchange to trade on

Storing cryptocurrencies differs from storing normal money in a few senses since cryptocurrencies make use of public-key cryptography to keep assets safe. While many assume, that you’d store the actual bitcoin in your wallet, what you actually end up storing is your private key. Sounds complicated? It doesn’t have to be.

If we go with a simple analogy, you can imagine your private key as something similar to the PIN you use to make bank transfers and your public key as your bank account. You can tell anyone about your bank account which would enable people to transfer money to you, but you wouldn’t be openly telling them your PIN.

Unlike a PIN that is 4–6 digits, private keys consist of a long string of random letters and numbers that is hard to memorize for most of us. And once you lose it, you will never gain access to your crypto again, hence the famous saying “not your keys, not your bitcoin.”

When it comes to storing the private key, you can choose between different types of wallets. The biggest two categories for wallets are “hot” and “cold” wallets also referred to as online or offline wallets.

“Hot”/Online Wallets

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Hot wallets are one of the least expensive, easiest ways to store your private key. They can be an application, like the Bitcoin.com Wallet or a desktop wallet like exodus. Whatever you choose, bear in mind that hot wallets require an internet connection to function properly. Hot wallets will provide you with a seed phrase, that will help you recover your private key in case you ever lose access to the wallet or simply switch devices. Hot wallets are great for spending crypto, as transfers are quickly and conveniently processed. However, this kind of wallet is seen as the least secure option to actually store bitcoin.

“Cold”/Offline wallets

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What all cold wallets have in common is that they store your cryptocurrencies offline. This increases the security of your holdings, by making it impossible for hackers to gain access to your savings.

There are different kinds of cold wallets such as paper wallets, where you print out your private key on paper or hardware wallets that are devices specifically designed to store cryptocurrencies. Funds on hardware wallets are relatively easily accessible as long as you have access (your PIN or password) to the wallet. Popular hardware wallet brands include Trezor, Ledger and KeepKey.

If you’re planning to store bigger amounts of cryptocurrencies a hardware wallet would be a valuable investment.

After setting up your wallet, the next thing you’ll need to start trading is a trading platform. There are many exchanges out there (and we’re an exchange so we’re obviously biased;), which can be categorized into centralized and decentralized exchanges.

Centralized exchanges

Centralized exchanges are very much similar to stock exchanges and brokers in the world of traditional finance. They offer a centralized platform with a central order book where all orders of their traders will be hosted.

Benefits of centralized exchanges include high liquidity, that they offer a point of contact in case you’re experiencing issues and their user-friendliness.

The majority of centralized exchanges keep a small fraction of their traders’ funds in hot wallets to ensure fast execution of trades while most of the crypto on a CEX will be stored in cold wallets.

Decentralized exchanges

In line with the decentralized spirit of the blockchain community, we’ve seen more and more decentralized exchanges capture market share in the crypto-world. As their name suggests, these exchanges have a decentralized order book and rely on smart contracts for the execution of trades. When using a DEX, you can directly connect with your wallet, set up an order and once it’s been executed you can disconnect.

Benefits of decentralized exchanges include that they don’t present a single point of failure and privacy.

On the downside, many DEX are built on specific blockchains, the sort of tokens you can trade on them is limited to that specific chain and liquidity cannot yet compete with centralized exchanges.

The choice is yours if you go for hot wallets, cold wallets or a combination of both. Whatever you choose, never forget to do your own research on the brand you’re buying.

As for exchanges, the more sophisticated your trading gets, you will probably opt to use several exchanges to profit from minor price differences. Want to know how to get started on our exchange? Click here for an introduction.

If you want an easy-to-use, fast Bitcoin and Bitcoin Cash Wallet, check out the Bitcoin.com Wallet. We’ve just launched a new version of it and you can even use it to pay for real-life purchases (as long as the merchants accept BTC or BCH).

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Naomi Oba

Naomi Oba

Writer in Crypto — passionate about financial education, blockchain, books, and food.