Big Coin Investment: A Beginner's Guide To Crypto

Bitcoin is the world's largest cryptocurrency, with a market cap of over $1 trillion. It was introduced in 2009 by Satoshi Nakamoto, and since then, the cryptocurrency market has expanded to include thousands of coins.

If you're looking to invest in Bitcoin, you can do so through a broker or a cryptocurrency exchange. Examples of brokers include Robinhood and SoFi, while Coinbase, Gemini, and Binance.US are examples of cryptocurrency exchanges.

Before you begin investing, it's important to understand the risks involved. Cryptocurrencies are often subject to dramatic price swings, and their value can be influenced by various factors, including government regulations and security concerns.

Additionally, it's essential to do your research and understand the unique characteristics of each cryptocurrency before making any investment decisions.

Choose a crypto exchange

There are around 500 crypto exchanges to choose from, so it's important to do your research. Here are some factors to consider when choosing an exchange:

• Reputation and security: Go for a reputable, well-known exchange with strong security features. Look for an exchange with a physical address, transparency, and a good track record when it comes to security.
• Account creation: The harder it is to create an account, the better. If it's too easy, it suggests the exchange isn't trustworthy.
• Fees: Most crypto exchanges charge fees for transactions, which can be based on the transaction size or your activity level. Be sure to understand the fee structure before choosing an exchange.
• Currency pairs: Consider the cryptocurrencies offered by the exchange and whether they match your investment goals. Some exchanges offer a wider range of coins than others.
• User experience: Research the user experience of the exchange, including the interface, customer service, and educational resources.
• Regulation: Check if the exchange is regulated and complies with relevant laws and regulations.
• Storage: Consider whether the exchange offers offline storage options, such as cold wallets, for added security.

Some popular crypto exchanges include Coinbase, Kraken, Gemini, Binance, Crypto.com, and KuCoin. Each exchange has its own features, fees, and supported currencies, so be sure to compare them before making a decision.

Decide on a payment method

There are several payment methods you can use to buy Bitcoin. These include:

• Bank accounts
• Debit cards
• Credit cards

You can also get bitcoin at specialised ATMs and via peer-to-peer (P2P) exchanges.

Bank accounts

At most exchanges, you can connect your bank account directly to make payments. However, some banks may question or even stop deposits to crypto-related sites or exchanges.

Debit and credit cards

Although you can use a credit card to purchase Bitcoin, cryptocurrency price volatility could inflate the overall cost of purchasing a token when combined with a credit card's interest charges.

Credit card issuers treat Bitcoin purchases as cash advances and charge hefty fees and interest rates on such advances. For instance, American Express users will pay the current cash advance fee for such transactions, and the fee charged will vary by exchange.

Bitcoin ATMs

Bitcoin ATMs act like in-person bitcoin exchanges. Individuals can insert cash into a machine and use it to purchase Bitcoin, which gets transferred to online wallets for users.

Two charges are associated with ATM Bitcoin purchases: a purchase fee and a conversion fee for converting a fiat currency to Bitcoin. Both fees are fairly steep compared with those of other options. The worldwide average purchase fee at Bitcoin ATMs is 8.4% of the purchase amount and 5.4% for sales.

Peer-to-peer (P2P) exchanges

Some P2P exchange services provide a more direct connection between users. After creating an account, users can post requests to buy or sell Bitcoin, including information about payment methods and prices.

Although P2P exchanges don't offer the same anonymity as decentralised exchanges, they allow users the chance to shop around for the best deal. Many of these exchanges also provide rating systems, so that users have a way to evaluate potential trade partners before transacting.

Place an order

Once you have chosen a crypto-trading service or venue, the next step is to place an order.

Step 3: Place an Order

Cryptocurrency exchanges have evolved to mimic the same features as their stockbrokerage counterparts. Crypto exchanges offer several order types and ways to invest. Almost all crypto exchanges offer both market and limit orders, and some also provide stop-loss orders.

Kraken, for example, offers the most order types, including market, limit, stop-loss, stop-limit, take-profit, and take-profit limit orders.

Exchanges also offer ways to set up recurring investments, allowing clients to dollar-cost average into their investments of choice. Coinbase, for instance, lets users set recurring purchases for every day, week, or month.

After your transaction is complete, the information you need to access your cryptocurrency is held in a digital wallet. That crypto wallet can be hosted either by the cryptocurrency exchange or an independent wallet provider.

Step 4: Safe Storage

Bitcoin and cryptocurrency wallets are a place to store digital assets more securely. Keeping crypto outside the exchange and in a personal wallet ensures that investors have control over the private key to the funds. An exchange wallet is offered, but not recommended, for large or long-term cryptocurrency holdings.

Hot Wallets vs. Cold Wallets

Online wallets, also known as hot wallets, are apps on devices such as computers, phones, or tablets. These wallets generate the private keys to your coins on internet-connected devices.

The user of an online or hot wallet isn't the holder of the private key to the cryptocurrency that is held in it. Exchange wallets are custodial accounts provided by the exchange. If the exchange is hacked, investor funds are compromised.

Hot wallet holders who haven't created enough security run the risk of losing funds to theft. Strong passwords, two-factor authentication, and safe internet browsing should be considered minimum requirements.

Hot wallets are best for small amounts of cryptocurrency or cryptocurrency that is actively trading on an exchange and may be used like a checking account.

A cold wallet isn't connected to the internet and is at less risk of being compromised. These offline wallets or hardware wallets store a user's private key on something that isn't connected to the internet and come with software that allows investors to view their portfolio without putting their private key at risk.

A paper wallet is a wallet generated at certain websites that produce both public and private keys printed on paper. Many people laminate these paper wallets and store them in safe deposit boxes at their bank or even in a safe in their home.

A hardware wallet is typically a USB-drive device that stores a user's private keys securely offline. Such wallets have advantages over hot wallets because they are unaffected by viruses that could infect one's computer. With hardware wallets, private keys never come into contact with a network-connected computer or potentially vulnerable software.

Cold wallets are the most secure way to store your bitcoin or other cryptocurrencies. They do require technical knowledge to set up, though.

Select a safe storage option

After buying Bitcoin, the next crucial step is figuring out how to protect your crypto funds. This is particularly important, as Bitcoin addresses are anonymous, and transactions generally cannot be reversed. This means that if your Bitcoin is stolen, lost, or accidentally transferred, it will be extremely difficult, if not impossible, to recover.

There are two main categories of Bitcoin storage: third-party custodians and local storage. Wallets can also be classified as hot wallets or cold wallets. Hot wallets are connected to the internet and thus easier to access, while cold wallets are not connected to the internet and are held offline.

Third-Party Custodians

Third-party custodians, such as cryptocurrency exchanges, are similar to holding your cash or other financial assets at a licensed financial institution like a bank. The custodian is responsible for holding and managing your funds according to your instructions. Many crypto exchanges also provide functions such as cryptocurrency trading, staking, and exchanging Bitcoin for fiat currencies.

When choosing a third-party custodian, consider the following:

• Safety and Security: Evaluate the technical and organisational security measures deployed by the custodian, as well as their track record in responding to security incidents.
• Regulatory Compliance: Select a custodian with appropriate licenses to operate in your area, as bitcoin custodianship regulations vary across regions.
• Usability: Ensure the custodian's user terms, fee structures, and transaction workflows align with your needs. Consider factors such as minimum and maximum withdrawal amounts and settlement times.

Local Storage

Local storage, or self-custody, is particularly popular among individuals who want full control of their cryptocurrency. There are three main types of crypto wallets for local storage: software wallets, hardware wallets, and paper wallets.

• Software Wallets: These are web-based, desktop, or mobile crypto wallets. While web-based wallets are convenient and accessible from any device, they are considered less secure due to their constant connection to the internet. Desktop and mobile wallets, which require software downloads, are generally more secure, especially when not connected to the internet.
• Hardware Wallets: Crypto hardware wallets are specialised devices that are offline when not transacting. To access funds, users must physically connect the device to the internet and initiate transactions within the device, making remote hacking impossible. Hardware wallets are the most secure type but are less convenient, making them a good choice for technologically savvy investors.
• Paper Wallets: Paper wallets are created using a public and private key pair printed on paper. While technically "unhackable", paper wallets can be easily misplaced, stolen, or damaged, making them unsafe and time-consuming.

When considering local storage, keep in mind that there is no third-party intervention if you lose access to your private key. The risks involved are similar to keeping cash in your physical wallet or a secret location. Your funds may be lost forever if your wallet is stolen, misplaced, or if you forget your private key. Therefore, regular software updates, secure passwords, and contingency plans for emergency situations are crucial.

Manage your investments

Before you start investing in bitcoin, it's important to understand the risks and benefits. Cryptocurrency prices are volatile and can fluctuate drastically. It's crucial to do your own research and understand the market dynamics before investing. As with any investment, only invest what you can afford to lose.

There are two main ways to invest in bitcoin: with cash or using other cryptocurrencies. If you choose to invest with cash, you'll need to set up a crypto wallet or an account on a crypto exchange, verify your identity and bank account, and then start purchasing bitcoin. This process may vary depending on the platform you choose, so be sure to research different options and compare fees and security measures.

When investing using other cryptocurrencies, you'll need a wallet or an account that holds your existing crypto assets. You can then exchange these for bitcoins. This method can be more cost-effective as it eliminates the need to convert fiat currency into cryptocurrency.

Once you've made your initial investment, you can consider different strategies such as "hodling" or day trading. Hodling involves buying and holding bitcoin for the long term, riding out the market fluctuations, and aiming for long-term profits. Day trading, on the other hand, involves actively buying and selling bitcoins over short periods, aiming to profit from price spikes.

To securely store your bitcoin, you can use a combination of hot and cold wallets. Hot wallets are connected to the internet and offer easier access, while cold wallets are offline and provide higher security. You can use a hardware wallet, such as the Ledger Nano S or Nano X, which provides a secure way to store your crypto assets while still allowing you to manage them through a crypto management app like Ledger Live.

Remember to stay informed about market trends and keep an eye on your investments. Regularly review your investment strategy and adjust it as needed to align with your financial goals and risk tolerance. By staying diligent and informed, you can make the most of your bitcoin investments.

Frequently asked questions