Get Started With Crypto: A Beginner's Guide To Investing

Investing in cryptocurrency is risky, but it can also be rewarding. Cryptocurrency is a digital currency that uses cryptography to confirm transactions on a publicly distributed ledger called a blockchain. It relies on blockchain to verify transactions without central banks. There are thousands of cryptocurrencies available, each with varying values. The first cryptocurrency, Bitcoin, was developed in 2009 by a programmer using the pseudonym Satoshi Nakamoto.

If you want to invest in cryptocurrency, you can do so through a crypto exchange like Coinbase or Binance, or through a brokerage account. You'll need to do your research and choose which cryptocurrencies to buy, and then store your cryptocurrency in a crypto wallet. It's important to remember that the crypto market is extremely volatile, and there is little to no regulation.

Choosing a platform

When choosing a platform to begin investing in cryptocurrency, there are several factors to consider. Firstly, it is important to understand the risks associated with cryptocurrencies, such as volatility, lack of regulation, regulatory uncertainty, security concerns, and their short track record. Diversification and a long-term investment horizon are recommended to mitigate these risks.

Next, you should consider the features and functionality of the platform. Some platforms, like Coinbase, Binance, and Gemini, offer a wide range of cryptocurrencies and are intuitive to use, making them ideal for beginners. They also allow you to store your crypto directly on the platform without needing a separate crypto wallet. However, they may charge higher fees for buying and selling crypto, and there is platform risk, meaning if the exchange goes bankrupt, you could lose your crypto.

On the other hand, brokerage accounts like Robinhood offer a more limited selection of cryptocurrencies but provide access to other investment products like stocks and bonds. They may also have lower fees, but they don't offer the same level of functionality for crypto enthusiasts, such as staking.

Another option is to use a crypto wallet, which gives you more control over your private keys and can be safer for storing large amounts of crypto. There are several types of crypto wallets, including online wallets, mobile wallets, desktop wallets, and hardware wallets.

When deciding on a platform, it is essential to evaluate the number of tokens and coins available, the price or commission charged, ease of use, security, customer service, and additional features like crypto savings accounts. Additionally, consider the level of regulatory compliance and whether the platform is licensed to operate in your country or state.

• Coinbase: One of the most popular platforms with an easy-to-use interface, a good selection of coins, and high security. However, it has high fees unless you use Coinbase Pro, and it can be slow to adopt new cryptocurrencies.
• Uphold: Allows trading in multiple assets without having to convert back to fiat currency, including XRP and DOGE. Offers a simple and transparent pricing structure.
• Kraken: One of the original crypto trading platforms with a good selection of coins and margin trading. It is a real exchange, so it is not as user-friendly as some other platforms.
• Gemini: One of the largest and oldest exchanges, supporting most major cryptocurrencies and offering competitive interest rates.
• EToro: Offers a wide variety of digital assets and a practice trading account. Currently offering a $10 bonus for US users who deposit and trade $100 in crypto-assets.
• Crypto.com: One of the largest and fastest-growing crypto exchanges, offering access to over 90 tokens worldwide and 50 tokens in the US. Provides solid rates on crypto savings accounts. However, it has a complicated fee structure and limited customer support.
• Binance: Supports a huge number of coins and has fast transaction times. However, US customers have limited options, and there is limited customer support.

Remember to do your own research and choose a platform that aligns with your investment goals, risk tolerance, and level of experience.

Understanding the risks

Before investing in any cryptocurrency, it is imperative to understand the significant risks that come with it. Here are some of the key risks associated with investing in cryptocurrencies:

Volatility

Cryptocurrencies are known for their extreme price fluctuations. The crypto market is highly volatile, and it is not unusual to see the value of cryptocurrencies swing by 10% or more in a single day. This volatility can make it challenging to use crypto as a means of paying for goods and services, as retail prices would need to fluctuate to adjust for the currency's volatility. It can also be difficult for investors to stomach significant price swings, which can occur even within a single day.

Lack of Regulation

Despite the maturity of the crypto market, with Bitcoin having been around for over a decade, the world of crypto continues to evolve rapidly. There are thousands of cryptocurrencies and hundreds of places to trade them, yet there is little to no regulation. The lack of regulatory oversight means that investors are exposed to a higher level of risk compared to traditional investments. For example, the recent collapse of FTX, one of the world's largest crypto exchanges, resulted in customers losing nearly $9 billion.

Regulatory Uncertainty

The legal status of cryptocurrencies varies from country to country, and the addition of new regulations could significantly impact crypto markets. The dynamic and ever-changing nature of the crypto industry adds another layer of uncertainty for investors.

Security

While the blockchain technology underpinning cryptocurrencies is secure, exchanges and wallets can be vulnerable to hacking. If your crypto is stolen, there may be little recourse for recovering your funds. It is crucial for investors to carefully consider the security of their crypto assets and take appropriate measures to protect them.

Short Track Record

Cryptocurrencies have a relatively short track record compared to traditional investments. This makes it challenging to predict their future performance and can introduce an element of uncertainty for investors.

No Insurance

Unlike traditional bank accounts, which are typically insured, there is no insurance on funds held in cryptocurrency. If you or your custodian loses your cryptocurrency, there may be no way to recover your funds. This risk highlights the importance of secure storage and backup solutions for crypto assets.

No Dispute Mechanism

Cryptocurrency transactions, once confirmed on the blockchain, are finalized and irreversible. If you accidentally send the wrong amount or don't receive what you were supposed to in exchange, there is no way to dispute or reverse the transaction. This lack of a dispute mechanism underscores the need for caution and careful verification when conducting crypto transactions.

Easy to Lose Access to Funds

If you lose your private key, you will lose access to your crypto funds. The private key is essential for signing transactions and accessing your crypto wallet. It is crucial to back up your private key in multiple secure locations to prevent loss of access.

Limited Historical Data

The newness of cryptocurrencies means that there is a lack of extensive historical data for analysis. This makes it challenging to establish a balanced portfolio and predict how crypto prices will correlate with other assets. The lack of historical data can also make it difficult to assess the risks and potential returns associated with crypto investments.

Impact of News and Social Media

The crypto market is highly reactive to news and social media. Tweets from influential individuals, such as Elon Musk, have caused crypto prices to both jump and slump. This dynamic can introduce an element of unpredictability and volatility to the market, which investors should be aware of.

Mining Challenges

Mining cryptocurrency requires dedicated computing resources and can be a complex and resource-intensive process. The profitability of mining can be impacted by various factors, including the price of the cryptocurrency and the cost of electricity. Additionally, the sharp drop in crypto prices could make mining operations unprofitable, introducing another layer of risk for miners.

Market capitalisation

Cryptocurrencies are often classified into three categories based on their market cap: large-cap, mid-cap, and small-cap. Large-cap cryptocurrencies, such as Bitcoin and Ethereum, typically have a market cap of over $10 billion and are considered lower-risk investments due to their established track record and higher liquidity. Mid-cap cryptocurrencies have market caps ranging from $1 billion to $10 billion and are seen as a balance between risk and potential upside. Small-cap cryptocurrencies have a market cap of less than $1 billion and are highly susceptible to dramatic swings and increased volatility.

It is worth noting that the market cap of cryptocurrencies can swing dramatically due to their inherent volatility. Therefore, it is crucial to consider market trends, stability, and your financial situation when evaluating investment risks. Additionally, market cap should be considered alongside other indicators and metrics to make informed trading decisions.

Developer community

Developer Communities

Developer communities are an excellent way to get in touch with people who are working tirelessly to find solutions in the blockchain development field. These communities are a great way to learn and stay on top of what's happening in the blockchain development world.

Reddit

Reddit is an American news aggregation, discussion, and content-sharing site. As a registered member of the site, you can upload various posts like videos, photos, articles, and links that others can upvote or downvote. The posts on Reddit are subject to user-created boards, called subreddits, which cover a wide range of topics, including blockchain and Ethereum. The subreddit post that gets the most significant number of upvotes will be featured on Reddit's homepage, making it more visible to other users.

Rotterdam Blockchain Community

The Rotterdam Blockchain Community aims to empower individuals who want to bring change to financial services by using different blockchain implementations to make transactions more secure. They provide seminars with speakers from around the world, workshops with hands-on experience, and a resource library for beginners to learn about blockchain concepts and implementations.

Unlock Blockchain Forum

Unlock is an online platform that provides insights, intelligence, and information about blockchain technology. They have a community forum that is part of the anchor for the Dubai Blockchain event, where developers from across Asia exchange knowledge and showcase their developments. They also encourage business and government sectors to adopt blockchain technology for efficient, optimal, and secure transactions.

Blockchain Summit Singapore

This event is Asia's leading blockchain for a business conference, connecting industry leaders, business decision-makers, and tech innovators with blockchain distributors and distributed ledger technology (DLT). The summit features an interactive program with speakers and roundtable discussions, providing an excellent opportunity to learn from leading minds in the industry.

Blockchainvan

Blockchainvan is a forum site covering all aspects of blockchain, from understanding how bitcoin transactions work to more complex issues like blockchain's potential impact on the banking sector. They also have sub-topics on meetups, conferences, and jobs, providing a comprehensive package for those interested in blockchain technology.

Topcoder

Topcoder specializes in Ethereum blockchain development, providing tools, tutorials, and coding challenges to help users master the Ethereum platform. They also invite members to meetups with like-minded people and Ethereum experts from top companies.

Blockgeeks

Blockgeeks provides certification, guides, and blockchain services to its clients. They offer a free course on cryptography for beginners, as well as advanced-level courses and a learn-and-earn initiative. Their website includes tons of videos, articles, and infographics, making it a great resource for those looking to learn more about blockchain.

Medium

Medium is an online publishing platform with one of the largest article directories. It features a Blockchain repository called Blockchannel, which discusses new media and economic issues related to blockchain technologies. The owner, Steven Mckie, is a Bitcoin and Ethereum programmer and writer, and the channel also has a podcast on SoundCloud where they discuss the impact of blockchain transactions on financial markets.

IEEE Blockchain Community

The IEEE Blockchain Community is a place where trained professionals discuss different topics and how to make a difference in the world by implementing blockchain technology. Joining the community provides access to an E-newsletter, the IEEE Blockchain web portal, publications, and IEEE standards for blockchain development.

Other Notable Communities

• TMForum: A full-fledged Blockchain Development company offering resources, webinars, and projects.
• Ethereum: The largest developer community working on the Ethereum network.
• Filecoin and Polkadot: These blockchains have seen strong developer growth, with Polkadot doubling its developer count in 2020.
• DeFi Projects: These saw significant gains in developers over the last year, with Uniswap, Balancer, Yearn, MCDex, and Acala doubling their developer numbers.
• Near Protocol: A blockchain with interoperability functions that allow it to work alongside Ethereum.
• Avalanche: A new platform developed by Ava Labs, allowing anyone to produce their own multi-functional blockchains and decentralized applications.
• Arweave: A decentralized data storage protocol that enables the development of decentralized applications.
• Celo: A blockchain platform for creating mobile phone DeFi tools to facilitate global financial inclusion.
• Gnosis: A company that builds advanced Dapps and the popular wallet, Gnosis Safe.
• Algorand: A highly scalable network targeted at event tracking for the financial services industry.
• Solana: A blockchain created to easily track historical events or transactions in a specific sequence.

These developer communities provide valuable resources, connections, and insights for those looking to begin investing in cryptocurrency and blockchain technology. They offer a great way to stay informed and make more educated investment decisions.

Security and scalability

Security

To increase the network throughput on a blockchain network, there is an incentive to reduce the distribution of blockchain nodes either geographically or numerically. However, this pivot towards greater centralisation reduces security on Proof-of-Work (PoW) networks. When consensus is achieved on an open network with limited nodal distribution, a 51% attack is more probable as hackers can more easily amass the required hashing power.

Scalability

Scalability refers to the blockchain's ability to support high transactional throughput and future growth. Blockchains that perform poorly as adoption increases are said to lack scalability.

There are a number of methods currently in development or practice that seek to improve the scalability of blockchain networks directly. These include:

• Layer 2 solutions: These are networks or technologies that operate atop an underlying blockchain protocol to improve its scalability and efficiency. The Lightning Network, for example, is a Layer-2 solution built to improve transaction speeds on the Bitcoin network.
• Nested blockchains: A decentralised network infrastructure that utilises a main blockchain to set parameters for the broader network, while executions are undertaken on an interconnected web of secondary chains.
• State channels: These facilitate two-way communication between a blockchain and off-chain transactional channels using various mechanisms to improve overall transaction capacity and speed.
• Sidechains: A sidechain is a blockchain-adjacent transactional chain used for large batch transactions. Sidechains use an independent consensus mechanism to that of the original chain, which can be optimised for speed and scalability.
• Sharding: Sharding breaks transactions into smaller datasets called "shards" which are processed in parallel by the network, allowing for sequential work on numerous transactions simultaneously.
• Efficiency improvements: Technical optimisations may decrease the amount of computing resources required to receive, process and record transactions, allowing increased throughput without placing extra demand on the network.
• Block size increases: Various increases to the block size limit have been proposed over Bitcoin's history.

While the goal of an easily verifiable, widely scalable digital currency remains a challenge, there has been significant progress towards that goal.

Frequently asked questions