If you’re reading this, chances are you’ve heard about Bitcoin and other cryptocurrencies and want to know more about them. Maybe you’re thinking about investing in them, or maybe you’ve already made some investments but aren’t sure how to keep track of everything. Either way, we’re here to help!
We’ve compiled 5 quick tips for new crypto investors.
Understand Cryptocurrency Exchanges
If you’re just getting started in crypto, chances are you’ll be using a cryptocurrency exchange. But what is a cryptocurrency exchange? What different kinds of exchanges are there? And how do they compare to a wallet?
A cryptocurrency exchange is simply a platform that allows users to trade one kind of digital asset for another or for fiat currency (USD, EUR, etc.). There are over 200 exchanges on the market today, with the most popular being Binance and Coinbase.
The major difference between an exchange and other types of platforms (e.g., wallets) is that you don’t store your money with them. With an exchange, your funds reside in your own “wallet” within the platform’s system—but they’re not stored by the company behind it as they would be at a wallet provider.
So whether you need to convert some BTC into ETH or send GBP from your bank account to buy XRP—the process involves registering on an exchange and connecting it to the external source of funds (your bank account). You can then use the funds on the platform: transfer them from one wallet address to another or make trades according to your trading strategy.
Exchanges fall into two broad categories: centralized and decentralized. A centralized one is run by an individual or organization that has direct control over the storage of user funds, execution of trades, etc.
A decentralized exchange does not require user registration (they’re often called DEXs) and offers more privacy and security than its counterpart but has lower trading volumes. They also have higher risks associated with unknown developers behind it since there’s no regulated entity responsible for their operation in case something goes wrong.
Last but not least: fiat exchanges can be used by teenagers while non-fiat ones are reserved only for adults due to legal restrictions
Get To Know the Different Coins
Bitcoin and Ethereum are the two hottest coins these days, but there are many other types of cryptocurrencies that can be invested in to get a different set of benefits. Each coin is unique and brings something to the table, which means it’s important to know what they can do.
Beyond Bitcoin and Ethereum, there are different “altcoins” that have certain advantages over them (as well as their own disadvantages).
- Altcoins that function as currencies: Litecoin and Ripple both aim to be alternatives to Bitcoin with faster transaction times than Bitcoin’s network can provide.
- Altcoins that aim for anonymity: Monero was created by a group of developers who wanted more privacy options within cryptocurrency. With Monero, transactions between users cannot be traced back to any single identity — instead of seeing “Joe purchased 1 MXR” on the blockchain, it would look like “User A purchased 1 MXR from User B.” This makes it much more difficult for anyone scanning the blockchain from outside to figure out who is making each purchase or transfer and why.
- Altcoins that focus on smart contracts: Ethereum is currently far superior in this field compared with its competitors due to its higher market cap and longer time being live. However, Tronix (TRX) aims to create an entire ecosystem based on decentralized file sharing through blockchain technology, similar to how Ethereum operates today.
Learn How to Transfer Between Wallets
The next thing you absolutely must learn is how to transfer between wallets. This involves moving cryptocurrency from a “hot wallet” to a “cold wallet” and vice versa. A hot wallet is anything connected to the internet, including desktop wallets, mobile wallets, and exchanges. A cold wallet refers to an offline storage device, like a USB drive or paper wallet (literally just a piece of paper with your private keys printed on it).
The reason you want to keep money in cold storage is that if you have it connected to the internet at all times, then it’s vulnerable. So if I’m going for a long-term strategy, I’ll transfer some of my cryptos into a hardware wallet that can be taken offline once transferred. You can read more about whether you should use hot or cold storage here.
There are tons of different types of cryptocurrency wallets out there—I’ve only used 2 or 3, but there are dozens. So make sure you do research into whether the one someone is recommending has had any security breaches in the past (not always easy!) and what kind of reputation it has among users. In general, though, most wallets are safe places for people who understand how they work properly.
Diversify Your Portfolio
You don’t have to put all your money into the top coin (like Bitcoin) or only invest in new coins. You can diversify by type and market cap. For example, you could buy one or two new coins and invest in one or two established coins like Bitcoin or Ethereum, which are bigger than newer coins but still have high potential as well.
If you’re not sure where to start, try using a portfolio tracker like Delta Direct to scan the market for you. A portfolio tracker gives you access to information about the cryptocurrencies that interest you based on metrics around the market cap, price action, and volume.
Delta Direct also offers a great overview of how many people are following different projects on Twitter and Reddit. Finally, if you want help diversifying your portfolio but don’t want to do all the research yourself, consider investing in cryptocurrency funds that make decisions for you based on an algorithm.
There are a variety of factors that you should keep in mind when investing in crypto. One of the most crucial is patience. It can be difficult to be patient, especially for new investors who are constantly tempted to make trades and check the prices of cryptocurrencies, but it’s important to take your time and not panic about sudden drops in prices. Just like with any other market or investment, there will be ups and downs. Be patient, stay calm, and don’t rush into making decisions.
The cryptocurrency market is open 24/7, which can feel great as an investor since you can look at prices at any time of day or night. However, this also has its downsides since some hours may be better than others to make trades, depending on the volume of activity taking place on exchanges currently.
So while it can be tempting to use that 24/7 access to check up on your portfolio every few minutes or even hours, try not to do so unless you’re planning on making a trade or need something specific from it right then and there. Otherwise, if you’re just casually checking for no real reason except boredom, it may not really help you out much (it also might drive you crazy). Remember—patience is key!
Don’t put in more than you can afford to lose. If you understand cryptocurrency exchanges and have enough time to get to know the various coins, you can make a reasonable return investing in cryptocurrency.