(Disclaimer- This is just a guide for educational purposes and doesn’t recommend any individual coins)
So you have decided you would like to invest in cryptocurrencies!
In its simplest form investing in Cryptocurrency can be broken down in to 3 steps.
- Choose how you will store your Cryptocurrency
- Choose an exchange and purchase Cryptocurrency
- Safely store your investments via the methods chosen in step 1
1. Choose how you will store your Cryptocurrency.
The reason this is number one on the list is simple. IT is the MOST important part!
Unlike traditional forms of investing and banking YOU have the sole responsibility to ensure the safety and security of your investments.
A cryptocurrency wallet is a secure digital wallet used to store , send and recieve digital currency like Bitcoin.
Most coins have an official wallet or officially recommended third party wallets. In order to use any cryptocurrency you will need to use a cryptocurrency wallet.
How Does a Cryptocurrency Wallet Work?
Cryptocurrency itself is not actually “stored” in a wallet. Instead, a private key is stored that shows ownership of a public key. So your wallet stores your private and public keys, allows you to send and receive coins, and also acts as a personal ledger of transactions.
Your cryptocurrency resides on the Blockchain and your wallet lets you claim ownership of the coins.
If hackers or criminals get hold of your private keys you have essentially lost the right to ownership of your coins.
This is why your choice of wallet and your attention to security is so important.
Types of Wallets
Below are some of the different types of cryptocurrency wallets:
Desktop Wallet: The most common type of wallet. Typically an app that connects directly to a coin’s client.
Online Wallet: An online wallet is literally a web-based wallet. You don’t download an app, but rather data is hosted on a real or virtual server. Some online wallets are hybrid wallets allowing encryption of private data before being sent to the online server.
Hardware Wallet: Dedicated hardware that is specifically built to hold cryptocurrency and keep it secure. This includes USB devices. These devices can go online to make transactions and get data and then can be taken offline for transportation and security.
Paper Wallet: You can actually print out a QR code for both a public and private key. This allows you to both spend and receive digital currency using a paper wallet. With this option, you can completely avoid storing digital data about your currency by using a paper wallet.
The term “hot wallet” describes a wallet connected to the internet. The term “cold wallet” describes a wallet not connected to the internet (for example a hardware wallet unplugged and in a safe.) When cryptocurrency is in “cold storage” that mean it is being held offline in a “cold wallet.” Funds you want to use like cash should be in hot wallets, funds you want to store long term are best held in “cold storage” in an offline wallet.
For long term investing we recommend only using a Hardware Wallet or paper wallet. With the proper steps taken these are the only failsafe options. Guide coming soon on the 2 main hardware wallets, Ledger nano and Trezor.
Hot wallets despite all precautions can be targeted by hackers, Malware, Phishing scams and viruses.
Exchanges offer a managed wallet in which they hold the private keys.In effect they own the coins, NOT YOU. While convenient to have all your coins available in one place there have been many cases of Exchanges being hacked or closing due to insolvency.
2. Buying Cryptocurrency.
So to get started you will need to find an exchange that is legal in your country and accepts your deposit currency.
https://cryptocoincharts.info/markets/info This list of exchanges ranks them in order of volume. So ideally choose the largest exchange that accepts your deposit currency and has the coins you want to trade.
Once you have chosen a broker you will need to sign up, likely get verified for Anti money laundering rules and then you can deposit funds via bank transfer or credit card. Credit card almost always has higher fees so its better to take your time and choose the cheapest option.
Placing an order.
Depending on which exchange you choose there will be a couple of different ways to make that purchase.
Some exchanges will have a user friendly interface in which you will enter the amount of your base currency you wish to spend and you will see how much Crypto you will get.
Other exchanges will have an order book. You can place a “Market order” which will buy immediately at the ask price. Or you can place a “limit order” at a price that is currently below the ask price. In effect you are trying to get a better deal.
Now its time to get your coins safely into your chosen long term storage.
3. Safely store your investments.
Now we need to get your coins out of the exchange and into your secure storage.
The safest method of long term storage is a hardware wallet. Hardware wallets keep your private keys isolated from the internet which keeps them safe from hackers and malware.
The most well known hardware wallets are-
The ledger Nano and Ledger blue currently support Bitcoin, Ethereum and 20+ other coins. (also all the Ethereum ERC20 tokens)
The Trezor currently supports Bitcoin, Ethereum and 6 other coins.
If you have purchased coins that aren’t supported by the hardware wallets then we advise you use the official wallet for each coin and create a cold storage paper wallet
What is a paper wallet?
Paper wallets are an offline cold storage method of storing your cryptocurrency.
It includes printing out your public and private keys on a piece of paper which you then store and save in a secure place.( like a safe or deposit box)
Bitcoin and pretty much any Altcoin can be stored with a paper wallet. You will need to search online how to do it for your coin but rest assured it wont be hard.
Online and software wallets.
If you really cant be bothered with hardware and paper wallets, and you are willing to accept the risks with hot storage then you can still take some precautions to minimize the risks.
Below are some tips to help minimize the risks of a hot wallet.
- Create a new email account for signing up to any online service related to crypto.
- Always use 2FA on exchanges,email address and wallets if possible.
- Always use a random password generator for ALL passwords. The longer the better. Think 20+ characters. There are apps that can help with this.
- Use a “safe” device for your crypto dealings. So this would be a device that has been wiped clean and is set aside for ONLY crypto related web browsing. This is to avoid malware and viruses as much as possible.
- Store your passwords in a password storage app in offline device (like your old iphone 3) make sure this device has a code in case it is stolen.
- Make sure all your devices have codes and can never be unlocked if you happen to leave your phone on the bus.
- Turn off browsing history on your devices.
- Turn off browser password managers.
All this might sound like paranoia but this isn’t like traditional money. The police wont help you and there is no way of retrieving lost funds.