Beginners guide to getting started with crypto
Getting involved with cryptocurrencies can be an exciting, yet daunting adventure. In this post, we lay out some of the essential things to help get you started.
Firstly, and it must be said, while investing and trading in crypto can be immensely profitable, there are zero guarantees. It is not an easy short-cut to wealth, it requires work, patience and wisdom, and whatever amount of money you’re putting in, you’ll have to be willing (and able) to lose, should things go south.
Secondly, let’s assume that you already know that besides bitcoin there is a wide range of altcoins such as Ethereum, XRP, Litecoin, Dash and Bitshares. You also know that each transaction is recorded on an associated blockchain.
Safety
While blockchain technology is incredibly safe, you still need to think carefully about how to protect yourself from hackers and scammers, and make informed decisions about where you will trade and how you will store your funds (keys).
Here are some basic tips on safety:
- Get a fresh, new, secure email account to prevent your details from ending up in the wrong hands. Secure email accounts include Protonmail and Gmail.
- Subscribe to a VPN service in order to prevent others from tracking your online activity, especially while trading. Good VPN services include ExpressVPN and NordVPN.
- Set up Two-Factor Authentication (2FA). This will add an extra security layer to whatever account you deem important. Google Authenticator is a great app for setting up 2FAs.
- Install an anti-virus software such as Avast or Kaspersky, in order to protect your devices against Trojan horses or other threats.
The safety of your funds is also determined by how you store your funds and where you trade. While we will deal with this in the following sections, make sure to read our previous post where we cover security in more depth.
Wallets
In order to store and trade crypto you’ll need a wallet. While funds themselves never actually leave the blockchain, wallets hold the keys associated with your funds, and whoever holds the keys controls the funds.
The easiest way to get a wallet for your funds is by registering with an exchange, such as Coinbase, Binance, Sparkdex or over-the-counter platforms (OTCs). It is important to know, however, that just like exchange platforms only list a limited number of currencies, wallets are currency specific, supporting only a number of tokens. For this reason, it’ll be good to know beforehand what coins you intend to trade in and then to find out which exchanges and wallets support these currencies.
There are many different types of wallets, but generally we can distinguish between hot and cold 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 recommended that you store a large portion of your funds in a cold wallet.
- 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. Once again, it is important to check beforehand which currencies these hardware wallets support.
We basically advise to keep around 20% of your funds in a hot wallet and the remaining 80% safely stored away in a cold wallet.
Exchanges
In order to get started with crypto, you’ll need to obtain crypto. Bitcoin, due to its overwhelming popularity and fame, is by far the easiest one to obtain. However, altcoins such as Ethereum, can also be bought with fiat currency.
When it comes to choosing where to trade there are a number of things to consider.
- Peer-to-peer: While it is possible to trade directly with people met through ads or organised meetups, this method of obtaining and trading crypto is not recommended. It is easy to become a victim of fraud and once you’ve transferred funds to the other (especially crypto), there is no way to get your funds back if your trading partner doesn’t pay their end of the bargain.
- Over-the-counter: There are plenty of OTCs that mediate between buyers and sellers, usually offering a platform for ads to be placed and some type of escrow service. Many OTCs will enable buyers to obtain crypto using PayPal or a credit card. They may charge low fees, but it is important to be mindful of the fees charged by the bank as well. Although OTCs are sometimes preferred by those who wish to trade in large multi-million dollar amounts, not all OTCs are safe. They are not free from scams and both buyers and sellers will need to trust the broker as well.
- Exchanges: Some exchanges like Coinbase and Binance enable buyers to obtain crypto using a credit card. With Bitspark, it’s even possible to get crypto with cash or a bank transfer (and vice versa). Many exchanges, however, assume traders already have cryptocurrencies and in order to trade on these exchanges the trader needs to deposit their funds into their exchange account (wallet).
Exchanges are good to begin with in order to easily trade in and out of different currencies. It will be important to check which currencies are supported. Whereas Binance is well known for its wide array of different currencies, including tokens from recent ICOs, an exchange like Sparkdex (in addition to Etherum and Bitshares) boasts a variety of stablecoins, which are cryptocurrencies pegged to fiat currencies such as the US dollar, Renminbi and the Hong Kong Dollar.
When choosing an exchange, it is also important to distinguish between centralised and decentralised exchanges (refer to the DeCe scale). Centralised exchanges (CEXs) are generally easier to use and often boast more liquidity because of their popularity. The danger of CEXs, however, lies in the fact that they hold custody over your funds. This means that the safety of your funds depends on their security systems and, as has happened numerous times over the past few years, when they get hacked, you lose your money.
True decentralised exchanges (DEXs) such as Bitshares and Sparkdex, however, often offering much lower fees, facilitate peer-to-peer trading on the blockchain and leave custody over funds with the traders themselves. This type of exchange is widely recognised as the safest way to trade in crypto.
Trading
Generally, there are three ways to conduct a trade:
Limit trade
This allows you to set a price you want to buy or sell a token at and specify the amount of tokens you want. When the price of the token hits your price target, the buy or sell order is automatically filled.
Market trade
Some exchanges like Binance and Bittrex allow you to buy or sell at the market rate. This is the quickest way to buy or sell a token immediately.
Stop limit
This way of trading basically enables you to automatically trigger and order at a set price (or a better one), up until a set limit. This also works the other way around if you place a stop limit sell order.
Portfolio
As you delve deeper into the crypto space, you’re likely to end up trading a variety of coins at different exchanges. There are apps out there which can help you log your trades and assist you in remembering which tokens you’re invested into, how much you’ve bought, what price you’ve bought in at, and so on. Apps that you could consider are Blockfolio and Delta.
Keep up to date
Trading in crypto is an ongoing process. It is still a young field where lots of developments are happening simultaneously, whether from a technological, a regulatory or a social perspective. It will be good to keep up to date and track the news regularly for important events and insights.
Resources to keep an eye on include Coindesk, Cointelegraph or Coinjaw for an overview of the internet of cryptocurrencies. Forums such as Bitcointalk or Reddit can be useful to interact with other crypto enthusiasts, although once again, be vigilant and wary of any type of scam. Regularly check Coinmarketcap, to identify market trends and have an overview of the industry.
Lastly, meet others like you through MeetUp, at business events or conferences.
More on getting started with crypto:
Beginners Guide To Sending Money With Bitcoin And Stablecoins
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