- 21 Jul 2021
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Cryptocurrency, also popularly known as crypto, is essentially a digital form of currency that one can utilize in buying services or goods. Cryptocurrency uses an online ledger that has powerful cryptography, which makes it safe to carry online transactions. Cryptocurrencies are not regulated and are usually traded for profit.
Fundamentally, cryptocurrency is a form of payment that is usually exchanged online for services and goods. There are several types of cryptocurrency, but Bitcoin is the most popular among them all. Several companies have also introduced their currencies, often referred to as tokens.
Tokens are usually traded for a specifics service or product that the company is offering. For instance, think about how casino chips and arcade tokens usually work. To access these specific services and goods, you will have to exchange actual currency for crypto.
But how does cryptocurrency work? Well, crypto utilizes a technology known as blockchain to work. Blockchain records and manages transactions and is a technology that is decentralized and spread across several computers. What makes blockchain technology appealing is the maximum security.
Types of Cryptocurrency
There are several types of cryptocurrency available that you can select from and invest in. More specifically, over 10,000 cryptocurrencies to choose from, and they are all traded publicly. Cryptocurrencies keep multiplying.
Some of the most popular cryptocurrencies are Bitcoin, Ethereum, Binance coin, Tether, XRP, Cardano, USD coin, Dogecoin, Uniswap, and Polkadot.
Why There is a Rise in Popularity in Cryptocurrency
There are several reasons why many people have moved to crypto and why it has become so popular. Listed below are a few reasons.
If you would like to buy cryptocurrency, you need to have a wallet, an online app that will hold your currency. It is worth stating that you can easily buy some cryptocurrency using dollars, while others will require you to purchase them using another type of cryptocurrency. Once you create an exchange or an account, you can transfer actual money in it to start buying cryptocurrency.
Generally, cryptocurrencies are legal in most countries. However, you may have to confirm if they are legal in your country before you consider buying them. You should also be careful and know how you can protect yourself from fraudsters.
How to Protect Yourself When Buying Cryptocurrency
When buying cryptocurrency, you have to be careful, especially in an initial coin offering (ICO). Ensure you read that company’s fine print and look out for the listed information.
Has the currency been developed, or is the company still sourcing funds to develop the currency? It is less risky to invest in something that is already in existence.
Do you only own a stake in the crypto or tokens, or do you also own a stake in the company? It is essential to distinguish this because the former means you can only use the tokens as you would in an arcade, while the latter means you can participate in the earning.
Are there any notable investors who have invested in it? It is often a good sign to invest in crypto where notable investors have invested.
Find out the owner of the company. It is essential that you invest in a company whose owner is well-known and also identifiable.
While it may take some time to go over the fine print, it is good to have clarity before investing in a specific cryptocurrency. It is worth stating that a long prospectus is a good sign that the cryptocurrency is legitimate. Although, legitimacy is not an assurance that the specific currency will succeed or it is the best.
You should also be aware that having cryptocurrency exposes you to theft. This is because many hackers usually try to get into the computer network that maintains your assets. Essentially, you need to be a risk-taker if you are interested in investing in cryptocurrency.
Investing in Cryptocurrency
Now that we have explained the basics of cryptocurrency. We can get into how to invest in them. It would help to do your due diligence before investing in cryptocurrency because this will help you make a well-informed decision when choosing what type of crypto suits you.
Doing extensive research on the various available cryptocurrencies will help make the process less confusing when you are finally ready to buy. Listed below are a few easy steps you should follow when buying cryptocurrency.
Choose a Cryptocurrency Exchange or a Broker
If you are new to cryptocurrency, it would be best to ensure that your broker or exchange allows purchases made in dollars and fiat currency transfers. This is because specific exchanges will only let you buy cryptocurrency using another cryptocurrency.
You need to pick a crypto exchange or a broker before you can buy cryptocurrency. Both will allow you to buy cryptocurrency, but they have some differences. Below is an insightful explanation of the two.
A cryptocurrency broker takes out the hassle of purchasing crypto, especially if you are new to it. They offer you interfaces that are easy to use and ones that will interact with exchanges on your behalf. It is worth noting that some crypto brokers often charge a higher fee than exchanges.
Cryptocurrency brokers are convenient, but you need to be careful when dealing with them because you may encounter restrictions on moving your crypto from the platform. This is a big deal for seasoned crypto investors who would like to have their holdings in a wallet since it is more secure. Other individuals opt for hardware crypto wallets for more security because these are not connected to the internet.
This is a platform where sellers and buyers often meet to trade their cryptocurrency. Usually, the fees in an exchange are fairly low, although their interface is pretty complex with advanced performance charts and several types of trade. This can seem quite intimidating to individuals who are new cryptocurrency traders.
If you have some background knowledge in trading stocks, an exchange may not be overwhelming for you. However, a lot of the popular cryptocurrency exchanges usually have a really easy purchase option. It is worth mentioning that this convenient and beginner-friendly option comes at a cost.
You will notice that the charges are significantly higher than they would be had you bought the same crypto through the trading interface of each platform. Therefore, it would help to learn how to use the common trading platform before buying cryptocurrency if you would like to save on costs.
Create an Account and Verify It
After deciding on what crypto broker or a crypto exchange, you will be using, sign up and create an account. There is a chance that you may have to verify your identity based on how much you plan to buy and what platform you are using. This step is quite crucial because it ensures you meet the set federal regulatory requirements and prevents fraud.
Some sites cannot allow you to sell or buy cryptocurrency if you have not completed the verification process. You may have to submit a copy of your passport or driver’s license on the platform, and they may also require you to upload your selfie as proof that your appearance matches the submitted documents.
Deposit Cash to Start Investing
You must have funds in your account to buy crypto. There are different approaches you can take to credit your account with funds. You can make a payment with a credit or debit card, authorize a wire transfer, or link your bank account to your crypto account to deposit money.
The funding method you choose and your broker or exchange will determine how long you have to wait before using the deposited cash to buy cryptocurrency. It is worth mentioning that depositing money from a credit card is expensive and extremely risky. Therefore, even if your broker or exchange allows you to do this, it would be best to avoid it.
Your credit card company will process your crypto purchase as a cash advance, meaning that it will be subject to a high-interest rate. You will also be required to pay extra cash advance fees. For instance, you could pay up to 5% of the transaction total when making the cash advance.
Not forgetting that this will be an addition to any fees that your crypto broker or crypto exchange may charge you. Usually, this can also go up to 5%, so you could lose 10% of the cryptocurrency purchase to fees. Therefore, if you can avoid using a credit card, do so.
Order Your Cryptocurrency
After you are through with transferring funds to your account, you can proceed to place your cryptocurrency order. As discussed earlier, there are several cryptocurrencies you can purchase. The selection is so wide you will be overwhelmed, there are top and popular contenders like Bitcoin and Ethereum, and then there are more obscure cryptocurrencies.
The cryptocurrency you choose to invest in is entirely up to you. Once you have decided what you would like to purchase, you can key in the ticker symbol of the cryptocurrency and the number of coins you want to purchase. Most crypto brokers and exchanges allow you to purchase fractional shares of crypto.
This essentially means that you can buy a small piece of high-priced tokens such as Ethereum or bitcoin that would require several thousand to own.
Select Your Preferred Storage Method
Protections such as the Federal Deposit Insurance Corp (FDIC) do not backup crypto exchanges, which means your crypto is at a higher risk of being hacked or stolen. Suppose you lose or forget the codes to accessing your account. You could potentially lose your investment.
Therefore, you need to have safe and secure storage where you can have your crypto placed. Note that you do not have much choice in how your crypto is stored if you buy it from a broker. Listed below are some of the options you have if you buy your crypto from an exchange.
Cold crypto wallets are one of the safest and most secure storage options you can choose to hold your crypto in because they are not connected to the internet. They are usually external devices such as a hard drive or a USB. However, you need to be extra careful with cold wallets because you may never recover your cryptocurrency if the device fails or breaks or if you lose their key code.
The same thing can happen to specific hot wallets. However, some hot wallets are usually run by custodians, meaning that if you get locked out of your account, they help you get back in. The same cannot be said about a cold wallet.
Alternatively, you can store your crypto on a paper wallet which you can generate from specific websites. It will generate private and public keys for you that you will print on a piece of paper. So you will need the private key and piece of paper to access your crypto in these addresses.
Note that paper wallets are designed for long-term and high-security investments because you cannot quickly trade or sell crypto stored in a paper wallet. It also helps to safely store your paper wallet in a safe at home or a safety deposit in your bank.
It would be best if you had some knowledge to be able to set up a cold wallet. The best way to set one up is having a cold hardware wallet that will be storing your larger crypto holdings long-term, a hot wallet that will store the minimum crypto you need to sell or trade, and an exchange account you will use to sell and buy.
Hot wallets are cryptocurrency wallets usually run on devices with internet connectivity and are stored online. Some of the devices include phones, computers, and tablets. They are pretty convenient except for the part where they are more susceptible to theft since they are connected to the internet.
It is not uncommon for people using hot wallets and very little security to have their funds stolen. There are several ways in which this can take place. For instance, if you are on a social network platform and you keep talking about how much crypto you are holding, you can easily be stolen from.
Luckily, there are several ways to make hot wallets secure, provided you take precautions. For instance, some of the minimum security requirements you should take are safe internet browsing, two-factor authentication, and strong passwords. Hot wallets are best used for crypto that you are trading actively on an exchange or small amounts of crypto.
Consider it like a checking account. Traditional financial wisdom dictates that the bulk amount of your money should be in an investment account or a savings account. Your checking account should only hold the money you plan to spend, so the same should apply to your hot wallet.
Let the Cryptocurrency Stay on the Exchange
After you purchase your crypto, it is usually stored in a crypto wallet attached to the exchange. Suppose you want to move it because you do not want to work with the provider with who your exchange is partnering with you can opt for a cold wallet or a hot wallet. Note that you may have to pay a fee to facilitate this transfer, depending on the size of your transfer and the exchange.
It is worth noting that exchange wallets are not the best option since their security is not that great. If anything, security is not a priority for them. Therefore, if you would like to hold your crypto long-term or if you have a larger holding choose any other storage option but an exchange wallet.
Alternate Ways of Buying Cryptocurrency
Cryptocurrencies are currently popular since many individuals are buying them, so note that it is a pretty risky and volatile choice of investment. If you feel like investing in crypto through a broker or an exchange does not feel safe or right, there are alternative methods you can use to invest in crypto indirectly.
Below are the alternate options you can work with to invest in crypto indirectly
Investing in Companies That Are Connected to Cryptocurrency
You can invest in cryptocurrencies indirectly by investing in companies with tangible services and products connected to cryptocurrencies. Buy stocks from companies that own or use crypto and the blockchain powering them. To buy shares from such companies, you will need to have an online brokerage account.
It would be best for you to consider your current financial situation and your investment goals before investing in companies with a stake in crypto. Do some research, so you know what companies are worth investing in. Your choice has to be calculated.
Investing in Companies That Are Connected to Cryptocurrency
Exchange trade funds (ETFs) are one of the most popular investment options you can choose. ETFs offer you instant diversification when you invest in them, and they are a less risky option than individual investments. This is an excellent choice if you are not sure about directly investing in crypto.
There are several opportunities to invest in crypto ETFs, which essentially means that you will be investing in several cryptos at once.
Cryptocurrency is very volatile, so you need to do some research before deciding which crypto is the best investment option for you. Ensure that you are equipped with sufficient knowledge to make an informed decision before you start buying crypto. There are several resources online that can enhance your knowledge about cryptocurrencies.