A Safe Guide To Cryptocurrency Investment

Investing in cryptocurrency is risky, but there are ways to do it more safely. The first step is to choose a platform, either a traditional broker or a dedicated cryptocurrency exchange. Next, you need to fund your account so you can start trading. Most exchanges allow users to purchase crypto using fiat currencies, such as the US dollar, via their debit or credit cards. It's important to note that crypto purchases with credit cards are considered risky, and some exchanges and credit card companies don't support them. The third step is to place an order via your broker's or exchange's web or mobile platform.

Once you've purchased cryptocurrency, you need to store it safely to protect it from hacks or theft. This is usually done through a crypto wallet, which can be a physical device or online software used to store the private keys to your cryptocurrencies securely. Some exchanges provide wallet services, but not all do, so it's important to research your options before investing.

There are also other ways to invest in crypto without holding any coins yourself, such as investing in companies that hold bitcoin or have cryptocurrency-related services, or investing in funds that hold bitcoin and other cryptocurrencies.

Understand the different wallet options

When investing in cryptocurrency, it is important to understand the different wallet options available to you. The two main types of wallets are "hot wallets" and "cold wallets".

Hot wallets are connected to the internet at all times, making them a more convenient option for traders who want easier access and the ability to trade and buy other cryptocurrencies. Examples of hot wallets include Coinbase and PayPal. However, it is important to note that hot wallets are less secure than cold wallets, as they are more susceptible to hacking. If the security of your wallet is compromised, you may lose your funds. Therefore, it is crucial to have strong passwords and enable two-factor authentication on your hot wallet.

Cold wallets, on the other hand, are entirely offline and do not require an internet connection. They are considered to be the most secure way to store your cryptocurrencies, as they are not connected to the internet and are therefore less likely to be hacked. Cold wallets can be in the form of hardware wallets, which are physical devices that store your private keys and other relevant details. Another type of cold wallet is a paper wallet, where both public and private keys are printed on a piece of paper, which can then be stored in a safe place. While cold wallets offer greater security, they may not be as convenient for active traders due to the time required to transfer funds between an exchange and the cold wallet, which can also incur repetitive withdrawal fees.

In addition to hot and cold wallets, there are also wallets hosted by providers. However, these are generally not recommended, as they give the provider control over your private key, which is stored on their servers. This puts your private key at risk in the event of a breach or if the provider goes out of business.

When choosing a wallet, it is important to consider your own needs and risk tolerance. If you are an active trader who prioritises convenience and ease of access, a hot wallet may be more suitable. On the other hand, if you are looking for a more secure option to store your cryptocurrencies, a cold wallet could be the better choice.

Research platforms and their security features

When choosing a platform to invest in cryptocurrency, it is important to carefully research each platform's security features to understand how your data and assets will be protected.

Firstly, it is important to understand the difference between traditional brokers and cryptocurrency exchanges. Traditional brokers are online brokers that offer ways to buy and sell cryptocurrency, as well as other financial assets like stocks, bonds, and ETFs. These platforms tend to offer lower trading costs but fewer crypto features. On the other hand, cryptocurrency exchanges offer a breadth of features and more cryptocurrencies for trading. Exchanges also enable investors to buy, sell, and hold cryptocurrency and allow users to transfer crypto to their online wallets for safekeeping.

When comparing different platforms, consider which cryptocurrencies are on offer, what fees they charge, their security features, storage and withdrawal options, and any educational resources they offer.

Some security features to look out for include:

• Two-factor authentication
• SSL/TLS encryption
• Air-gapped devices that are kept offline when storing cryptocurrency
• Strong password requirements
• Password rotation

It is also important to note that some platforms may charge fees for storage and withdrawals, as well as trading fees. These fees can vary depending on the platform and payment method, so it is important to research this beforehand.

Additionally, it is worth considering the use of a digital wallet to store your cryptocurrency. There are two main types of digital wallets: hot wallets and cold wallets. Hot wallets are connected to the internet and offer more convenience for traders, but come with greater security risks. Cold wallets, on the other hand, are entirely offline and are considered more secure, but may be less convenient for active traders due to the time required to transfer funds.

Learn about storage options

When it comes to storing your cryptocurrency, there are several options available, each with its own advantages and disadvantages. Here are some detailed instructions on how to learn about the various storage options:

Understanding the Basics:

Start by understanding the two main categories of cryptocurrency storage: third-party custodians and local storage. Third-party custodians, such as cryptocurrency exchanges, are similar to banks or brokerages, where your assets are held and managed by a licensed institution. Local storage, on the other hand, refers to self-storage options where you have full control over your cryptocurrency.

Hot Wallets vs. Cold Wallets:

Another important distinction is between hot wallets and cold wallets. Hot wallets are connected to the internet, making them easily accessible but potentially less secure. These include web-based, desktop, and mobile wallets. Cold wallets, on the other hand, are offline and considered more secure. Examples include hardware wallets and paper wallets.

Third-Party Custodian Options:

If you choose to store your cryptocurrency with a third-party custodian, research reputable exchanges such as Coinbase, Kraken, Gemini, and Binance. These platforms offer various security features, including two-factor authentication and encryption. Compare their user terms, fee structures, and transaction workflows to find the best fit for your needs.

Local Storage Options:

If you prefer to store your cryptocurrency yourself, you can choose from software wallets, hardware wallets, or paper wallets. Software wallets are web-based, desktop, or mobile apps that provide convenience but may be less secure due to their connection to the internet. Hardware wallets, like Ledger Nano X or Trezor Model T, are offline devices similar to USB drives, offering a high level of security but requiring technical knowledge to set up. Paper wallets, while secure from hacking, are physical pieces of paper that can be easily misplaced or stolen.

Hybrid Solutions:

Keep in mind that you don't have to choose just one storage option. You can use a combination of third-party custodians and self-storage solutions. For example, you could use a third-party custodian for larger amounts of crypto and a self-storage wallet for smaller amounts that you want to trade frequently.

Security Measures:

Regardless of the storage option you choose, always prioritise security. Use strong passwords, enable two-factor authentication, regularly back up your wallet, and keep your software up to date. Avoid reusing passwords across accounts, and be cautious of mobile phishing attempts and malicious apps.

Research and Education:

Take the time to research and understand the pros and cons of each storage option before making a decision. Consider joining online communities or forums where experienced cryptocurrency users share their knowledge and best practices. Stay informed about the latest security measures and industry developments to make informed choices about protecting your investments.

Remember, there is no one-size-fits-all solution for cryptocurrency storage. The right approach depends on your personal preferences, risk tolerance, and level of technical expertise. By learning about the various storage options, you can make a more informed decision to safeguard your investments.

Diversify your investments

Diversifying your crypto portfolio is a crucial step in managing your investments and reducing the risk of overexposure to a single investment or asset class. Here are some detailed strategies to help you diversify your investments in the cryptocurrency market:

Review Your Current Crypto Portfolio

Start by evaluating your current crypto holdings. Identify the types of cryptocurrencies you own and the sectors or blockchain ecosystems they belong to. This initial assessment will help you recognize areas where you can diversify. For example, if your portfolio is heavily focused on Ethereum DeFi coins, you may want to consider investing in other blockchain ecosystems to reduce correlated risks.

Compare it to the Digital Economy

To effectively diversify, you need to understand the broader crypto space. Familiarize yourself with the different blockchain ecosystems and the various sectors within the digital economy. Identify the main sectors, such as smart contract platforms, blockchain ecosystems, and decentralised platforms. By doing so, you can pinpoint the gaps in your portfolio and determine which areas you should explore to diversify your investments.

Identify Gaps in Your Portfolio

After gaining a comprehensive overview of the crypto space, it's time to compare your portfolio with the overall digital economy. Ask yourself questions like: Are you heavily invested in a single blockchain ecosystem? Which major coins are you missing? Are there sectors you haven't explored yet? By answering these questions, you can identify the sectors, coins, or ecosystems that are lacking in your portfolio.

Reallocate Your Investments

Once you've identified the gaps, it's time to reallocate your investments. This may involve selling a portion of the coins that dominate your portfolio and using the funds to invest in new areas. For instance, if you've primarily invested in Bitcoin, you might consider converting a portion of it into other cryptocurrencies like Ethereum, Solana, Cardano, or Avalanche. Diversifying across different blockchain ecosystems and sectors will help reduce your risk.

Diversify by Coins and Tokens

One of the most straightforward diversification strategies is to spread your investments across different coins and tokens. There are several types of crypto coins to choose from:

• Payment tokens: Cryptocurrencies like Bitcoin and Ethereum, which can be used for transactions.
• Security tokens: Tokens backed by underlying securities, such as real estate.
• Utility tokens: Tokens with specific use cases within a blockchain or crypto ecosystem, like Filecoin for decentralised data storage.
• Governance tokens: Tokens that enable users to participate in blockchain governance, such as Uniswap and Compound.
• Basic attention tokens: Tokens that pay users for their attention, often in the context of digital advertising.
• Gaming tokens: Coins with in-game value and tradable on third-party exchanges, like Decentraland's MANA.
• Non-fungible tokens (NFTs): Digital tokens signifying ownership of unique assets.

Diversify by Industry Focus

Another way to diversify is to invest in cryptocurrency projects focused on different industries. Blockchain technology is disrupting multiple sectors, and you can take advantage of this by investing in a range of industries. Consider sectors such as healthcare, supply chain, transportation, entertainment, climate change, and real estate. Each of these sectors offers unique opportunities for growth and innovation.

Diversify by Asset Class

Crypto investors also have the option to diversify across various asset classes. Here are some options:

• Stocks: Invest in companies focused on the crypto sector or those with large cryptocurrency holdings, like Microstrategy.
• Bonds: Explore blockchain-based bonds or invest in bonds that focus on cryptocurrencies, issued by entities like the World Bank or the Singapore Exchange.
• Real estate: Consider blockchain-based real estate tokens, which provide exposure to the real estate market, through platforms like HoneyBricks.

Diversify by Investment Vehicle

If you're concerned about portfolio security, you can also diversify your crypto holdings across different investment vehicles and account types:

• Digital wallets: Facilitate direct ownership of digital coins, including special-purpose coins like NFTs and real estate tokens.
• Taxable brokerage account: Hold crypto-focused securities investments in a taxable brokerage account, such as Robinhood.
• Cryptocurrency IRA: Establish a self-directed individual retirement account (IRA) dedicated to investing in digital assets.
• Decentralized financial products: Utilize blockchain-based decentralized finance (DeFi) platforms to access decentralized savings accounts, staking platforms, and other investment vehicles.

Rebalance Your Portfolio Periodically

Diversification is an ongoing process. To maintain a well-diversified portfolio, you'll need to rebalance it periodically. As some cryptocurrencies in your portfolio rise in value while others may fall, it's important to adjust your holdings to stay aligned with your desired asset allocation. This may involve converting some of your top-performing coins into other sectors or ecosystems to maintain a healthy balance.

Prepare for volatility

The cryptocurrency market is highly volatile, so be prepared for dramatic swings in prices. If your investment portfolio or mental wellbeing can't handle that, cryptocurrency might not be a wise choice for you.

Cryptocurrency is all the rage right now, but it's still in its relative infancy and is considered highly speculative. Investing in something new comes with challenges, so be prepared. If you plan to participate, do your research, and invest conservatively to start.

One of the best ways to stay safe is to use a comprehensive antivirus. For example, Kaspersky Internet Security defends against malware infections, spyware, and data theft, and it protects your online payments using bank-grade encryption.

If you would like to invest directly in bitcoin or another cryptocurrency, experts recommend learning as much as possible first, only investing an amount you're comfortable losing, and holding for the long term.

Frequently asked questions