A Beginner's Guide To Investing In Cryptocurrency

Investing in cryptocurrency is a risky business. Cryptocurrency is a digital currency that is encrypted and often decentralised. It has no intrinsic value and is not backed by a government or precious metal. Its value depends entirely on how others perceive it.

There are thousands of different cryptocurrencies, the most famous being Bitcoin. But there are also altcoins, such as Ethereum, Cardano, XRP, Solana, and Dogecoin.

If you want to invest in cryptocurrency, you need to choose a broker or a crypto exchange, such as Coinbase, Gemini, or Binance.US. You then need to create and verify your account, deposit cash, and place your order.

You also need to decide how you will store your cryptocurrency. You can use a software wallet, which is necessary for active trading, or a hardware wallet, which is more secure but less accessible.

It's important to remember that the cryptocurrency market is extremely volatile. Prices can swing wildly, and there is a risk of losing your investment due to fraud, hacking, or regulatory changes.

Choosing a broker or crypto exchange

There are two main ways to buy cryptocurrency: through a broker or a crypto exchange. Both have their advantages and disadvantages, so it's important to understand the differences before making a decision.

A cryptocurrency exchange is a platform where buyers and sellers meet to trade cryptocurrencies. Exchanges often have relatively low fees, but they tend to have more complex interfaces that may be intimidating for new crypto investors. Some popular exchanges include Coinbase, Gemini, and Binance.US. These exchanges offer user-friendly purchase options, but they charge higher fees than their standard trading interfaces. It's important to note that some exchanges only allow the purchase of crypto using another crypto, so choosing an exchange that allows fiat currency transfers and purchases with US dollars is crucial.

Cryptocurrency brokers simplify the process of purchasing crypto by providing easy-to-use interfaces that interact with exchanges. Robinhood and SoFi are well-known crypto brokers. However, brokers may charge higher fees, and there may be restrictions on transferring your cryptocurrency holdings off the platform. Additionally, some brokers sell user data or don't execute trades at the best market price.

When choosing between a broker and an exchange, it's essential to consider your level of comfort with the complexity of the platform, the fees involved, and the level of control you want over your cryptocurrency holdings.

Creating and Verifying Your Account

Once you've decided on a broker or exchange, you'll need to create an account. This typically involves providing personal information and verifying your identity to prevent fraud and meet regulatory requirements. You may need to submit a copy of your driver's license or passport, and in some cases, a selfie to confirm your appearance matches the documents.

Depositing Funds

To start buying crypto, you'll need to fund your account. You can do this by linking your bank account, authorizing a wire transfer, or using a debit or credit card. It's important to note that using a credit card for crypto purchases is risky and expensive due to the high-interest rates and cash advance fees associated with it.

Placing Your First Order

With funds in your account, you're ready to place your first cryptocurrency order. There are hundreds of options to choose from, including well-known names like Bitcoin and Ethereum, as well as lesser-known cryptos. You can enter the ticker symbol of the cryptocurrency you want to buy, such as "BTC" for Bitcoin, and specify the number of coins you wish to purchase. Most exchanges and brokers allow the purchase of fractional shares, enabling you to own a portion of high-priced tokens.

Selecting a Storage Method

Cryptocurrency exchanges are not insured or protected like traditional financial institutions, so it's crucial to choose a secure storage method. You can leave your crypto on the exchange in a "hot wallet," which is convenient but carries a higher risk of theft since it's connected to the internet. Alternatively, you can use a "cold wallet," which is a physical device like a USB drive that is not connected to the internet, offering greater security. However, if you lose the keycode or the device fails, retrieving your cryptocurrency may be challenging.

Creating and verifying your account

To create and verify your account, you must first decide on a cryptocurrency broker or exchange. While both options allow you to buy crypto, there are some key differences. Cryptocurrency exchanges, such as Coinbase, Gemini, and Binance.US, tend to have more complex interfaces with multiple trade types and advanced performance charts, which can be intimidating for new crypto investors. On the other hand, cryptocurrency brokers, such as Robinhood and SoFi, take the complexity out of purchasing crypto by offering user-friendly interfaces that interact with exchanges for you.

After deciding on a platform, you can sign up and open an account. Depending on the platform and the amount you plan to buy, you may need to verify your identity by submitting a copy of your driver's license or passport, and sometimes even a selfie, to prove your appearance matches the documents submitted. This step is essential to prevent fraud and meet federal regulatory requirements. Only after completing the verification process will you be able to buy or sell cryptocurrency.

Depositing cash to invest

Depositing cash into your account is a crucial step in the process of investing in cryptocurrency. Here is a detailed guide on how to go about it:

Choose a Platform

The first step is to select a suitable cryptocurrency exchange or broker. Examples of well-known exchanges include Coinbase, Gemini, and Binance.US, while Robinhood and SoFi are prominent brokers. Exchanges usually offer lower fees but can be more complex to navigate, with advanced charts and multiple trade types. Brokers, on the other hand, offer user-friendly interfaces but may charge higher fees. It is also important to ensure that your chosen platform allows fiat currency transfers and purchases with US dollars or another desired fiat currency.

Create and Verify Your Account

After selecting your platform, you will need to create an account and verify your identity. This typically involves submitting a copy of your driver's license or passport, and sometimes a selfie, to prevent fraud and meet regulatory requirements.

Deposit Cash

Once your account is set up, you can deposit funds into it. You can link your bank account, authorize a wire transfer, or even use a debit or credit card to deposit money. However, be cautious when using a credit card, as these transactions are often treated as cash advances with higher interest rates and additional fees. Depending on the platform and payment method, it may take a few days for the deposited funds to become available for crypto purchases.

Select Your Cryptocurrency

With funds in your account, you are now ready to place your first cryptocurrency order. Research the hundreds of options available, from well-known names like Bitcoin and Ethereum to lesser-known options like Theta Fuel or Holo. You can then enter the ticker symbol and the number of coins you wish to purchase. Most platforms allow you to buy fractional shares, enabling you to invest in high-priced coins without needing to purchase a whole coin.

Store Your Cryptocurrency

Finally, you need to decide how to store your cryptocurrency. You can leave it in the wallet provided by the exchange or transfer it to a separate hot or cold wallet. Hot wallets are online storage options that are convenient but carry a higher risk of theft. Cold wallets, on the other hand, are offline storage devices like USB drives or hard drives, offering the most secure option but carrying the risk of loss or device failure.

Placing your cryptocurrency order

Once you've decided on a cryptocurrency exchange or broker, you can create and verify your account. This process may involve submitting a copy of your driver's license or passport, and sometimes a selfie, to prove your identity and prevent fraud.

After your account is set up, you'll need to deposit some money. You can do this by linking your bank account, authorising a wire transfer, or using a debit or credit card. It's worth noting that credit card companies process cryptocurrency purchases as cash advances, which are subject to higher interest rates and additional fees.

Now that there's money in your account, you're ready to place your first cryptocurrency order. There are hundreds of cryptocurrencies to choose from, from well-known names like Bitcoin and Ethereum to more obscure options like Theta Fuel or Holo.

When deciding which cryptocurrency to purchase, you can enter its ticker symbol—for example, BTC for Bitcoin—and how many coins you want to buy. With most exchanges and brokers, you can purchase fractional shares of cryptocurrency, allowing you to invest in high-priced tokens like Bitcoin or Ethereum without needing thousands of dollars.

After you've placed your order, your cryptocurrency will be stored in a digital wallet. This can be hosted by the exchange or an independent wallet provider.

Selecting a storage method

After you've bought your cryptocurrency, you'll need to store it in a digital wallet. There are several options for storing your cryptocurrency, each with its pros and cons. Here are some things to consider when selecting a storage method:

• Security: Choose a wallet with robust security features, such as two-factor authentication.
• Fees: Consider the transaction fees charged by different wallets. If you plan to trade frequently, opt for a wallet with lower fees.
• Supported cryptocurrencies: If you want to trade various crypto assets, select a wallet that supports multiple cryptocurrencies beyond Bitcoin and Ethereum.
• Storage and custody: If you're concerned about remembering passwords, consider a custodial storage option like a hot wallet, which can help you recover your password if needed.
• Customer service: Opt for a wallet that offers live chat support for faster response times in case of emergencies.
• Hot wallets: These are crypto wallets connected to the internet and run on devices like tablets, computers, or phones. Hot wallets are convenient, but they carry a higher risk of theft. Examples include Guarda and Mycelium.
• Cold wallets: Cold wallets, such as Trezor and Ledger, are not connected to the internet, making them a more secure option for storing large amounts of cryptocurrency. They usually come in the form of external devices like USB drives.
• Paper wallets: Paper wallets are a less common option that involves printing your private keys and address on paper and storing them in a secure location. While relatively safe, paper wallets are vulnerable to physical damage, theft, or loss.
• Crypto exchanges: Cryptocurrency exchanges like Coinbase, Gemini, and Binance.US provide free hot wallets with little to no setup required. However, your crypto is more vulnerable to theft on these platforms.

Ultimately, no storage method is entirely safe from hackers or theft. It's essential to carefully consider your options and select a storage method that best suits your needs in terms of security, accessibility, and convenience. Remember to review your storage method regularly and ensure your crypto remains secure.

Frequently asked questions