Investing in the cryptocurrency market can be a little scary for the traditional investor, as investing directly in Cryptocurrency (CC) requires the use of new tools and the adoption of some new concepts. So if you decide to dip your toes into this market, you’ll want to have a very good idea of what to do and what to expect.
Trading CCs requires you to select an Exchange that deals in the products you want to buy and sell, be it Bitcoin, Litecoin, or any of the 1,300+ other tokens in play. In previous publications, we have briefly described the products and services available on several exchanges to give you an idea of the different offerings. There are many Exchanges to choose from and they all do things their way. Look for things that are important to you, such as:
– Deposit policy, methods and costs of each method
– Withdrawal policy and costs
– Which fiat currencies do they deal with for deposits and withdrawals
– The products they deal in, such as crypto coins, gold, silver, etc
– Expenses for operations
– Where is this Exchange located? (USA / UK / South Korea / Japan…)
Be prepared for the Exchange setup process to be detailed and lengthy, as Exchanges want to know a lot about you. It’s like opening a new bank account because Exchanges are brokers of valuables and they want to make sure that you are who you say you are and that you are a trustworthy person to deal with. Apparently “trust” is gained over time, as Exchanges usually only allow starting with small investment amounts.
Your exchange will store your CCs for you. Many offer “cold storage”, which simply means keeping your coins “offline” until you say you want to do something with them. There have been several reports of exchanges being hacked and many coins being stolen. Think of your coins as being in something like a bank account on the Exchange, but remember that coins are digital only and all blockchain transactions are irreversible. Unlike your bank, these Exchanges do not have deposit insurance, so keep in mind that hackers are always trying their best to get your crypto and steal it. Exchanges generally offer Password-protected accounts, and many offer 2-factor authentication schemes – something you should seriously consider to protect your account from hackers.
Given that hackers love to prey on Exchanges and your account, we always recommend using a digital wallet for your coins. Transferring coins between your Exchange account and your wallet is relatively easy. Make sure you choose a wallet that handles all the coins you want to buy and sell. Your wallet is also the device you use to “spend” your money with merchants that accept CCs for payment. The two types of wallets are “hot” and “cold”. Hot wallets are very easy to use, but they leave your money exposed to the internet, but only on your computer, not on the Exchange server. Cold wallets use offline storage media such as dedicated hardware memory sticks and simple printed hard copies. Using a cold wallet makes transactions more complicated, but they are the most secure.
Your wallet contains a “private” key that authorizes all the transactions you want to initiate. You also have a “public” key that is shared across the network so that all users can identify your account when they transact with you. Once hackers get your private key, they can move your coins anywhere they want, and it’s irreversible.
Despite all the challenges and wild volatility, we are convinced that the underlying blockchain technology is a game changer and will revolutionize how transactions are done in the future.