How to get started in cryptocurrency investing
Coinpad's Beginner's Guide to Crypto
If you are new to crypto, you probably have a thousand questions. While this guide is not going to answer all of them, it is designed to be a concise starting point with links for further reading.
Before we begin, our disclaimer needs to be noted: The information provided below, as well as on our website does not constitute investment advice, financial advice, trading advice, or any other sort of advice and you should not treat any of the content as such.
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Now let’s start with the basics – what is cryptocurrency?
In short, a cryptocurrency, or crypto, is a digital currency that uses an online ledger (an account or record used to store bookkeeping entries). The underlying technology that allows this is called blockchain. It is fast, it is secure, and typically cheap to transact. Whether one likes it or not, blockchain technology and cryptocurrencies are revolutionizing the financial world – so investing in this new asset class gives you investment exposure to this revolution.
While cryptocurrency can be used for payments of goods and services (a function that is rapidly increasing but still in its nascent phase), they are most widely used as trade-able assets. You may think of them as digital stocks, yet the market is open 24 hours a day, 365 days a year, and there is no central regulator. Critics may bark at the comparison of cryptocurrencies to stocks because there is no fundamental underlying value of a coin that one can easily quantify (compared to a company). While this may be true, the “value” of a cryptocurrency is derived like any other item or asset in the world: according to the laws of supply and demand; cryptos have value because humans give them value. Today, the crypto market is worth well over 1 trillion US dollars and has been one of the most profitable investment markets of human history. If you had bought US$1,000 worth of Bitcoin in May 2011 (when Bitcoin traded for about $3.50) and had the insight (and nerves) to hold that investment for ten years, you would have netted over US$11,000,000 in profit.
If you are reading this, then you are likely somewhat familiar with Bitcoin, yet you may not know that Bitcoin is just one of thousands of cryptocurrencies in circulation today. These are referred to as altcoins, as in alternative coins to Bitcoin (or “alts”). So if you are thinking of investing in crypto, you have a plethora of choices. Yet most newcomers to crypto will start with one of the “blue chips”, such as Bitcoin, Ethereum or Cardano, and then expand their portfolio from there as they become more familiar with the space. Note that you do not have to buy a full Bitcoin, you can buy / own as little as 0.00000001 BTC.
Now, what do you need, or should do, before buying your first Bitcoin or altcoin?
1. Access to a cryptocurrency exchange or a certain type of digital wallet where you can buy (and sell) cryptocurrencies
Similar to stocks, cryptocurrency is typically traded on exchanges. Some of the most popular exchanges are Coinbase, Binance and Crypto.com. Many exchanges, as well as digital wallets (see Point 2 below), have the option of buying with a credit card. Otherwise you can register with an exchange that allows linkage with your bank account to transfer funds in and out. All of this really depends on where you live, as countries have varying degrees of cryptocurrency regulations. Coinpad recommends Crypto.com, which is available in over 90 countries, and the digital wallet Atomic Wallet as the best starting places for buying and storing crypto.
Suggested further reading:
2. A secure cryptocurrency wallet to store your cryptocurrencies
As the name suggests, a cryptocurrency (or digital) wallet is where you hold your crypto. Think of this as akin to your bank account, yet only you have access (or anyone who has your username and password). There are many different types of crypto wallets, but typically these are apps that you download onto your computer, smartphone or tablet. The most secure, but arguably the most inconvenient, is a hardware wallet that stores the user’s private keys in a secure hardware device that resembles a computer thumb drive. Ledger and Trezor are the most common, while newcomer SafePal has a sleek looking model called the S1. They can be somewhat inconvenient and difficult to use for someone new to crypto, however. Therefore, we recommend the next best secure option, which is a computer desktop wallet. A desktop wallet is downloaded and installed onto your computer, storing your private keys on your hard drive. They are more secure than online and mobile wallets, as they don’t rely on third parties for their data. We recommend Atomic Wallet and Exodus in this category.
When you download a desktop wallet, make sure you are downloading it from the wallet’s official site. For Atomic Wallet and Exodus (and most other desktop wallets), once you open the wallet after it has been downloaded and installed onto your hard-drive, you will be given three choices: Open Wallet, Restore Wallet or Create Wallet. A new user will select Create Wallet and then be asked to set a password. While this should be a strong and secure password, the most important item to remember and save will be a backup-phrase (also called a recovery phrase, seed phrase or Mnemonic phrase). The phrase is a series or randomly generated words and are typically provided to you by the wallet after you set your password. If you forget your password, or lose access to your wallet, you will need your back-up phrase (or private key) to restore the wallet and regain access to your funds. Therefore it is paramount to write down the back-up phrase and store it in a safe place, such as a physical safe or in a secure password manager such as 1password. As long as you have the back-up phrase or private key, you can recover your wallet should you ever forget your username or password or lose access to your device. Our modus operandi at Coinpad is that we keep back-up phrases / private keys it at least two separate places and conduct regular checks to make sure they are still readable (ink can fade).Importantly, if you lose your back-up phrase or private key but still have access to your wallet, you can view the phrase or private key in the security setting of your wallet.
Also take note that anyone could “recover” your wallet if they have your back-up phrase or private key – so do not share these with anyone other than your trusted loved ones. One of the most common crypto scams or ways that people get hacked or their funds stolen is that a perpetrator gets access to the back-up phrase or private key. This could be from a vengeful former partner or a scammer who poses as a support staff. Wallet support will never ask for your recovery phrase. Anyone who asks for it is trying to scam you. Never share your recovery phrases and private keys.
Another popular type of wallet is a chrome extension wallet, such as MetaMask, Tronlink and Binance Chain Wallet. Such wallets allow you to connect with selective crypto websites. This is necessary when trading or interacting on decentralized exchanges or applications such as Uniswap (and something a desktop wallet cannot do). Yet this is typically not in the realm of a beginner crypto investor.
Suggested further reading:
3. A sound investment strategy tailored to your risk tolerance
A common piece of advice that anyone new to crypto should follow is this: Never invest more than you can afford to lose, and you need to be prepared to potentially lose your entire investment. Crypto is a high-risk high-reward investment play; price changes can be life-changing (either way). Importantly, the market is highly volatile – price changes of 20 – 50% in one day are not uncommon. So you need to have a different mind-set when investing in crypto compared to what you are likely used to investing in stocks or other traditional assets; high volatility is part of the landscape. Unlike stocks, coins trade 24 / 7, while there is no central authority or regulator. As one commentator explained:
“Crypto markets are volatile because there’s no central authority to stop them from being so. Crypto asset prices, therefore, can be assumed to represent investor sentiment more fairly. This hints at what a “pure” market could look like.”
In short, crypto’s unique characteristics that have spawned its astounding growth make the market volatile by nature. Thus, any new investor needs to be prepared to accept such volatility. “If you can’t handle my 20% drops, you don’t deserve my 600% gains.” - Bitcoin.
Suggested further reading:
4. Learn the lingo
Any newcomer to crypto (or “noob”) will soon find out that the crypto space comes with its own unique set of acronyms and slang, derived from generational demographics and the vast use of social media, internet forums and messaging apps amongst the predominantly young and digital savvy generation of crypto investors. Among the most popular of these terms is HODL, which is the crypto term for “hold”, legendarily coined by an early user of an online Bitcoin forum who misspelled the word “hold” and subsequently interpreted as an acronym for “hold on for dear life”.
Moreover, cryptocurrency lingo is also packed with an abundance of technical or industry-specific terms that will likely get your head spinning. Fortunately, there are a number of concise A-Z crypto glossaries:
Meanwhile, Coinpad has an abridged list (DeFine) but with some more detailed explanations of certain key terms.