Small Cryptocurrencies: A Guide To Investing Wisely

Cryptocurrencies are digital currencies that can be used for online money transfers, purchases, and rarely, offline purchases. They are mined by large networks of computers that run 24/7 completing complex equations. Bitcoin is the most famous cryptocurrency, but there are thousands of others to choose from.

If you're looking to invest in small cryptocurrencies, it's important to understand the risks. Cryptocurrencies are incredibly volatile and risky. Their value is based solely on others' willingness to use and trade the currency, so they can easily gain or lose value. For example, Bitcoin fell to about half its price in 2021.

When investing in small cryptocurrencies, it's essential to do your research and understand the specific risks and potential of each coin. Some factors to consider include the coin's technology, adoption, and real-world applications. It's also crucial to only invest what you can afford to lose and diversify your portfolio to minimize risk.

- Cosmos (ATOM): A blockchain platform that operates in a decentralized manner, aiming to interconnect different blockchains.

- Ethereum (ETH): The second-largest cryptocurrency, known for its smart contracts and decentralized finance tools.

- Litecoin (LTC): Often considered a stable alternative to Bitcoin, with faster and cheaper transactions.

- Cardano (ADA): A proof-of-stake blockchain that fosters a developer-friendly ecosystem for decentralized applications.

- Dogecoin (DOGE): An internet meme-turned-cryptocurrency that gained popularity due to Elon Musk's tweets.

- Monero (XMR): A privacy-focused cryptocurrency that obscures transaction details on its blockchain.

- Binance Coin (BNB): The native cryptocurrency of the Binance exchange, offering discounts on trading fees.

- Solana (SOL): A blockchain known for its speed, low fees, and ease of creating decentralized applications.

- Tether (USDT): A stablecoin whose value is pegged to the US dollar, useful for reducing price risk.

How to research small cryptocurrencies

Researching small cryptocurrencies can be a challenging task, but here are some strategies to help guide you through the process:

Start with the Basics

If you are new to the world of crypto, it is recommended to start with well-known and established currencies such as Bitcoin and Ethereum. There is a plethora of resources available online, most of which are free, that can help you gain a basic understanding of cryptocurrencies and blockchain technology.

The original Bitcoin Whitepaper by Satoshi Nakamoto and the book "Mastering Bitcoin" by Andreas Antonopoulos (skipping the programming parts) are good starting points. Additionally, consider buying and selling small amounts of these major cryptocurrencies to gain practical experience.

Look for Information on Project Websites and Whitepapers

For smaller coins, information may not be as readily available as it is for established platforms. Therefore, it is crucial to conduct thorough research. Start by checking the project's website and whitepaper, which should provide an introduction to the project, its industry, and the problems it aims to solve.

Evaluate the website's legitimacy by checking for important information such as contact details, terms of use, and privacy policy. Look for broken elements, external links, and assess the content for grammar and spelling errors. You can also use tools like https://www.urlvoid.com/ to check the website's reputation and safety.

Assess the Coin's Purpose and Use Case

It is important to understand the actual use of the cryptocurrency or token. Even if a project has a good use case, the associated currency or token may not have any real value or use, making it purely an object of speculation.

Consider whether the cryptocurrency has a unique and logical use case. For example, Ethereum's focus is not just on being a digital store of value but also on using blockchain technology for transferring data and information.

Research the Development Team

It is crucial to research the team behind the cryptocurrency. Look beyond a few names and titles on the website, and seek out detailed information about their previous experiences, achievements, and qualifications. Utilize platforms like LinkedIn, Twitter, and GitHub to learn more about the team members and their activity.

Reach out to the team with any questions, as their responsiveness and feedback can provide valuable insights into their dedication and expertise.

Analyze the Project's Whitepaper

The whitepaper should explain the project's vision, goals, technology, amount of funding needed, number of tokens allocated to investors, and the length of the ICO campaign. Be cautious if the whitepaper is overly complex, vague, or overly optimistic, as this could indicate incompetence or deliberate obfuscation.

Explore Other Sources and Reviews

Expand your research beyond the information provided by the developers, and seek out additional sources such as news websites, analysts, and other businesses. Check discussion boards like BitcoinTalk and Reddit, where you can find threads and forums dedicated to specific cryptocurrencies.

Research the cryptocurrency's competitors and how the project you're interested in differs from them. Assess the project's competitive advantage and weaknesses by comparing it to similar projects.

Understand the Risks and Sustainability

Remember that investing in cryptocurrencies is risky, and it is important to only invest what you can afford to lose. Avoid getting caught up in the hype, and be wary of projects that focus solely on potential returns without a solid technological foundation.

Look for red flags, such as huge returns that seem too good to be true, anonymous ownership, closed-source code, and private blockchains.

By following these steps, you can gain a comprehensive understanding of small cryptocurrencies and make more informed investment decisions.

How to buy small cryptocurrencies

Before investing in small cryptocurrencies, it's important to understand the basics of crypto and the risks involved. Cryptocurrencies are digital currencies that use cryptographic techniques to enable secure transactions without the need for central authorities like banks. They are often built on blockchain technology, which maintains a tamper-resistant record of transactions. Crypto prices are extremely volatile, and the industry is subject to regulatory changes and security threats.

When you're ready to start investing, follow these steps:

Step 1: Choose a Broker or Exchange

You can buy cryptocurrencies through a broker or a crypto exchange. Brokers offer user-friendly interfaces that interact with exchanges for you, while exchanges provide a wider range of features and cryptocurrencies but can be more complex. Popular exchanges include Coinbase, Kraken, Gemini, and Binance.US. When choosing a platform, ensure it supports fiat currency transfers and purchases with your local currency.

Step 2: Create and Verify Your Account

Sign up and create an account on your chosen platform. You may need to verify your identity by providing documents such as a driver's license or passport. This step is essential to prevent fraud and meet regulatory requirements.

Step 3: Deposit Funds

To buy crypto, you'll need to deposit funds into your account. You can link your bank account, authorize a wire transfer, or use a debit or credit card. Credit cards are not recommended due to high processing fees and interest charges. Be aware of any deposit fees charged by the platform.

Step 4: Place Your Order

With funds in your account, you can place your first cryptocurrency order. There are hundreds of cryptocurrencies to choose from, including well-known ones like Bitcoin and Ethereum, as well as smaller altcoins. You can purchase whole or fractional shares, depending on the platform.

Step 5: Select a Storage Method

Cryptocurrency exchanges and brokers typically provide crypto wallets to store your digital assets. However, these wallets may be less secure and prone to theft or hacking. For better security, you can transfer your crypto to a hot wallet (an online wallet) or a cold wallet (an offline device like a USB drive). Cold wallets are the most secure option but require technical knowledge to set up.

Remember to do your research, understand the risks, and only invest what you can afford to lose. Cryptocurrencies are highly speculative investments, and their values can fluctuate dramatically. Diversifying your portfolio across multiple cryptocurrencies can help manage risk.

How to store small cryptocurrencies safely

Storing your cryptocurrency safely is crucial, as there is no third-party institution to protect your tokens or guarantee your investment if something goes wrong. Here are some detailed and direct instructions on how to store small cryptocurrencies safely:

Understand the Basics

Before investing in small cryptocurrencies, it is essential to understand the basics of crypto storage. Cryptocurrencies are stored in crypto wallets, which can be on reputable crypto exchanges/apps or specialised devices. It is important to choose a storage option that is both secure and accessible. Losing access to your crypto means it is likely gone forever. An estimated 3.7 million Bitcoin have been lost, and in 2021, $14 billion worth of crypto was stolen.

Choose the Right Wallet

There are several types of crypto wallets, including hot wallets and cold wallets. Hot wallets are connected to the internet and are convenient for frequent trading. Examples include online cloud wallets, mobile wallets, and software wallets. On the other hand, cold wallets are not connected to the internet and are better for long-term holding. Examples include hardware wallets, paper wallets, and USB devices. Most cryptocurrency holders use both types of wallets, depending on their needs.

Best Practices for Storing Cryptocurrencies

To store your small cryptocurrencies safely, consider the following best practices:

• Use a combination of hot and cold wallets to balance security and usability.
• Only keep the amount of crypto you plan to use in your hot wallet. Move the rest to cold storage.
• Back up your crypto wallet early and often to prevent loss due to computer failure.
• Keep your software up to date to patch security vulnerabilities.
• Use two-factor authentication for added security.
• Don't share your private keys or recovery phrase with anyone, and don't store them online or on your computer.
• Physically record your recovery phrase and store it in a secure location that only you can access.
• Diversify your storage methods to reduce the risk of losing everything if one storage option is compromised.

Common Hazards to Avoid

To keep your small cryptocurrencies safe, it is essential to be aware of common hazards and scams in the crypto world. Here are some tips to avoid potential pitfalls:

• Be wary of phishing sites and always check that you are logging into the correct address.
• Only log in to secure websites with a valid HTTPS certificate.
• Use a secure Wi-Fi connection and avoid public Wi-Fi when accessing your crypto accounts.
• Don't keep all your crypto assets in one place. Use multiple cold and hot storages to diversify your holdings.
• Double-check crypto addresses before sending transactions to prevent your funds from being redirected to attackers.
• Be cautious when using security measures to avoid overcomplicating your system and potentially losing access to your accounts.

By following these instructions and staying informed about evolving security practices, you can effectively store your small cryptocurrencies and protect your holdings from theft, loss, and unauthorised access.

How to assess the risk of small cryptocurrencies

Small cryptocurrencies are a risky investment due to their high volatility and low liquidity. Before investing, it is essential to understand the potential risks and how to mitigate them. Here are some key factors to consider when assessing the risk of small cryptocurrencies:

Volatility

Small cryptocurrencies are often highly volatile, with extreme price fluctuations over short periods. This volatility can be driven by various factors, including news and events, market manipulation, and speculative trading. It's important to monitor price movements and be prepared for potential losses.

Regulatory Risk

The regulatory landscape for cryptocurrencies is constantly evolving. Governments and regulatory bodies worldwide are actively discussing and implementing rules and policies that impact cryptocurrencies. Changes in regulations, such as taxation policies or restrictions on trading and usage, can significantly affect the value and accessibility of small cryptocurrencies.

Liquidity Risk

Small cryptocurrencies may have lower trading volumes, making it challenging to buy or sell large amounts without significantly impacting the market price. Investors should consider the ease of entering and exiting positions when assessing the liquidity risk of a particular cryptocurrency.

Security Risks

The security of cryptocurrency wallets and transactions is a significant concern. The irreversible nature of blockchain-based transactions means that any breach or incorrect transfer of assets can result in permanent loss. Additionally, crypto scams, theft, and fraud are prevalent, posing a significant risk to investors.

Business Risk

Some small cryptocurrencies are issued by blockchain-related companies, and their value may be tied to the performance and financial health of these companies. Due diligence is necessary to understand the business model, financial stability, and potential risks associated with the issuer.

Diversification

To mitigate the risks associated with small cryptocurrencies, investors should consider diversifying their portfolio. This can be achieved by investing in multiple cryptocurrencies or allocating only a small portion of their overall investment funds to this asset class. Diversification helps reduce the impact of potential losses.

Due Diligence

Conducting thorough research and due diligence is essential when assessing the risk of small cryptocurrencies. Investors should understand the technology, team, and business model behind the cryptocurrency. Reading whitepapers, analysing roadmaps, and reviewing independent audits can provide valuable insights into the risks and potential of an investment.

Investor Education

Educating yourself about the risks and dynamics of the cryptocurrency market is crucial. Reputable news sources, books, and educational resources can help investors make more informed decisions and manage their risk exposure effectively.

How to sell small cryptocurrencies

Selling small cryptocurrencies can be a tricky process, but there are several methods to choose from. Here are the steps to follow:

Get a Cryptocurrency Wallet:

Think of a cryptocurrency wallet as a digital purse that securely stores, receives, and sends cryptocurrencies. It also plays a pivotal role in verifying and recording transactions on the blockchain. You can choose from software applications or physical hardware devices, each with its own security features. Ensure your wallet is compatible with multiple cryptocurrencies for seamless trades.

Choose a Blockchain Platform:

Blockchain technology underpins all cryptocurrencies and provides secure, transparent, and tamper-proof transactions. However, different blockchain platforms have distinct features, transaction speeds, and fees. Understand the nuances of various platforms like Ethereum or Binance Smart Chain to maximize returns and ensure smooth transactions.

Choose Your Currency:

The cryptocurrency ecosystem has thousands of options beyond Bitcoin, including major players like Ethereum, Litecoin, and Ripple. Research the background, technological framework, team, and community support of each currency to make informed choices and mitigate risks.

Add Your Cryptocurrency to Your Wallet:

After setting up your wallet, procure your chosen cryptocurrency through established exchanges or by receiving payments for goods or services. Transfer the crypto assets to your wallet to ensure direct control and mitigate risks associated with exchange hacks or downtimes. Familiarize yourself with the process of sending and receiving, including public and private keys.

Decide How You Want to Sell:

There are several ways to sell your small cryptocurrencies:

• Cryptocurrency Exchange: Crypto exchanges or apps offer advanced analytics, robust security, user-friendly features, and relatively lower fees. However, they require account setup and verification.
• Bitcoin ATMs: These kiosks allow you to sell Bitcoin by logging into your account, indicating the amount and wallet address. Once verified, you can withdraw cash.
• Peer-to-Peer Exchanges: P2P exchanges allow users to privately exchange crypto without intermediaries. They require identity verification and account creation.
• Brokerages: Brokerages act as intermediaries and simplify the process, but they often charge higher commission fees.
• Face-to-face Transactions: You can choose to meet a buyer in person or use online platforms to connect with them. After verifying your identity and connecting your bank account, send the specified amount of crypto to the buyer's address and receive cash in your bank account.

Develop a Selling Strategy:

Whether you're selling for potential growth or regularly trading to maximize profits, you need a strategy. Consider what to buy (cryptocurrency, digital assets, or NFTs), when to buy, how much to invest, and when to sell.

Complete the Transaction:

In the crypto world, transactions use a private key to authorize and initiate the transfer. The process is then propagated across the network for confirmation by nodes, ensuring integrity and irreversibility. Be aware of network fees paid to miners or validators, and plan transactions accordingly.

Withdraw to Your Bank Account:

After selling your crypto, you can convert your digital assets back into fiat currency. Various platforms offer direct transfers to linked bank accounts, acting as intermediaries and converting crypto into your local fiat currency. Be mindful of potential withdrawal fees, which differ across platforms. For more immediate access, some platforms offer transfers to debit cards.

When choosing a selling method, consider the pros and cons of each option, such as fees, privacy, convenience, and availability. Prioritize security and be aware of any associated costs when converting crypto holdings into cash.

Frequently asked questions