So you, like Neo from The Matrix, have taken the red pill and now you either want to learn how to use cryptocurrency? and how to invest in it or have already started doing it.
With the growth of the cryptocurrency market to over $1 trillion, the space is becoming more and more popular and is approaching mass adoption.
But where should you start? There are currently over 2,000 cryptocurrencies registered on coinmarketcap.com, hundreds of exchanges, and a plethora of technologies to understand.
The crypto world can be quite complicated for beginners and it takes a lot of time and research to understand how to operate in it and how to avoid costly mistakes.
We will try to analyze all the basic and main points that every investor should understand.
In doing so, we will look at what cryptocurrency wallets are and how to use them, how and where to trade cryptocurrency.
In addition, we will share with you some of the intricacies that we personally learned about while investing in the crypto market.
Wallets are like crypto-currency bank accounts, and different wallets hold different tokens.
To trade any cryptocurrency, you, first of all, need a wallet to store it, that is: to store bitcoins you need a bitcoin wallet.
How to get a cryptocurrency wallet?
The easiest way is to register on an exchange that allows you to buy, exchange or sell cryptocurrencies.
On such exchanges, you can generate a wallet for each token traded on it, even if you do not have one.
For example, Binance provides a wallet for Bitcoin, Ethereum, Litecoin and Bitcoin Cash, and hundreds of other cryptocurrencies.
In fact, crypto wallets do not contain anything, unlike physical wallets.
It is important to understand that wallets are simply a secure “window” on the blockchain that allows you to view your records and transactions.
Think of it like Gmail, where your wallet is your username and password, but you don’t actually store the emails yourself, you just access them.
Your tokens and transactions are stored on the blockchain, which is distributed over a vast network. So they always stay there even if you lose your wallet.
Without a wallet, you simply cannot access the tokens and do anything with them.
How to send tokens from wallet to wallet?
Each wallet has its own unique address, so if you trade on three different exchanges, you will have a separate wallet and address for each exchange and each token.
They can be thought of as different website addresses (URLs).
Wallet addresses currently look like a very long string of characters called a hash.
To send tokens from wallet to wallet, you will need to first copy the recipient address and then enter this address in the recipient field.
Wallets for one crypto currency
Wallets allow you to send and receive only the tokens for which they are intended. This is very important to understand.
In the cryptocurrency world, you cannot send different coins to different wallets (although there are exceptions), as you will simply lose your money in doing so.
Let’s dive a little deeper: there are certain tokens based on the ERC-20 protocol (generated on the Ethereum blockchain) that can be stored in the same ERC-20-compatible wallet.
For example, if you have two ERC-20 tokens such as Apple Coin and Orange Coin, you can send them to one ERC-20 wallet such as MyEtherWallet.com.
Always double-check that the link you are following is correct as there are many sites with very similar spellings of addresses trying to trick users into logging in for the purpose of “phishing” or identity theft! Try not to enter the site through Google, but enter the address directly or go through a bookmark!
Always pay attention to the presence of a secure connection and double-check that the website address is correct.
Different types of wallets
Online wallets are generally considered the least secure, although the most convenient for trading. If you have tokens on the exchange, you can start trading them at any time.
There are several main types of wallets
Desktop wallets: Usually, these are wallets that are created by token developers. For example, if you need an officially supported Bitcoin wallet, you can download it from bitcoin.org.
Mobile wallets: These are app-based wallets that you can download and install on your phone, more common on Android phones. An example is the Blockchain mobile wallet for Android, which is a great option if you are thinking about how to use cryptocurrency through your phone.
Online wallets: All exchanges offer online wallets to their customers so they can send and receive tokens. For example, Binance or MyEtherWallet.com. It is highly recommended to store tokens offline to reduce the risk of hacks, phishing attacks, and loss of money due to the collapse of exchanges. Although most exchanges use security protocols, there have been disasters in the history of cryptocurrencies such as the infamous Mt Gox hack in 2014, when $460 million worth of Bitcoin was stolen.
Paper wallets: Such wallets are usually a printout of your wallet’s public and private keys, as well as a QR code that you can scan. A private key is usually a sequence of letters and numbers (much like a long password) that only you and no one else need to know. It is used to unlock the wallet and gain access to tokens.
Hardware wallets: This is the most secure way to store your tokens. Hardware wallets are completely self-contained (which is why they are often referred to as cold storage). Not all tokens are supported by hardware wallets, so before purchasing, you will need to find out if the model you choose supports the tokens you intend to store. Popular options are the Ledger Nano S and Trezor.
Unlike traditional stock markets, cryptocurrency exchanges never sleep, they operate around the world 24/7.
To start trading cryptocurrencies, you need to learn a few key points:
- Not all exchanges allow you to buy bitcoins with fiat currency (your local currency or, for example, US dollars).
- Currently, Bitcoin and stablecoins (cryptocurrencies pegged to the US dollar) are the most common coins in trading pairs. That is, in order to invest in other tokens or projects, you will most likely need to buy bitcoins or stablecoins. Ethereum is also quite often used as a component of trading pairs, so you can trade some tokens against this coin as well.
- Most exchanges are not regulated, so you invest at your own risk.
- Unlike traditional stock exchanges, crypto exchanges do not have opening and closing hours, they operate around the clock, seven days a week, all year round, all over the world.
So, you have cryptocurrency. How to use it, and how to earn from it?
Now that you’ve learned how wallets work and found exchanges to trade on, it’s time to find out how trading mechanisms work in the crypto world, as well as learn some tricks and common mistakes to avoid.
Trading Pairs – Understanding How to Trade BTC
Most of the trading interfaces are the same on all exchanges: you need to understand a few basic concepts and they are very similar to those of traditional stock exchanges.
The only key difference is that most tokens are traded against bitcoin, ether, or a stablecoin.
Bitcoin and most tokens are not indivisible. BTC is divided into 10 million units. You don’t have to buy or sell a whole bitcoin.
This will take some time to get used to, but it is a good habit that allows you to conduct your trades based not only on your native fiat currency but also on the value of bitcoin or ether.
For example, today for 1 USD you can buy 0.000049 BTC (or Bitcoin).
All exchanges that trade tokens in pairs with Bitcoin accept orders to buy and sell these tokens against Bitcoin.
One bitcoin is divided into 100 million units, and satoshi is the name of one hundred millionth of 1 BTC.
There are three ways to make a deal:
By limit: A limit order allows you to set the price at which you want to buy or sell a token and specify how many tokens you require. This is a good way if you need to automatically fill an order to buy or sell in the future when the price of the token reaches the target level.
By market: Many exchanges, such as Binance, allow you to buy tokens at the market price. This price is also called Ask, that is, the asking price. This is the fastest way and can be useful if you want to buy or sell a token immediately.
Stop limit: This order type allows you to automatically activate a trade when the set price is reached. For example, if you set a stop limit at $5, then you will automatically start buying an asset up to the set limit when the price is $5 or lower. And vice versa if you set a sell-stop limit.
Now that we have learned how to use and trade cryptocurrency exchanges, let’s move on to portfolio management.
In the current cryptocurrency ecosystem, you may find that your assets are scattered across various exchanges and dozens of wallets.
Remembering which tokens you invested in, how much you bought, and at what price, with a multitude of addresses and locations, can be frankly a daunting task.
One approach is to set up an Excel spreadsheet, but synchronizing with real-time data is a challenge.
Luckily, there are several apps that will help you record all trades to show you your profits/losses at a glance.
General Tips and Tricks
Invest only what you can afford to lose: Cryptocurrencies are a completely new asset class and also a relatively new market. This is a very risky investment, and when investing, you must remember that the money you invest may well depreciate at some point. So don’t invest more than you can afford to lose.
Lost profit syndrome and coin buying are on the rise: Quite often, when a coin rises in price, many people want to buy it and “catch the wave”. We strongly advise you not to rush, because by the time you make a purchase, the price will most likely start to correct and you will be at a loss.
Don’t try to guess the best time to trade in the market: The cryptocurrency market is not only much more volatile than traditional markets (where fluctuations of 20-50% per day are common) but also much more unpredictable. You won’t always be able to sell at the top and buy at the bottom. A safer and more profitable strategy is to invest time in the market rather than trying to catch the right time for a trade.
HODL: The more you trade cryptocurrencies, the more often you will notice people saying they are “hodling”. This was originally a typo on a Bitcoin forum but has now become a meme and the most common trading strategy that involves the long-term holding of coins. This is sound advice, we personally follow it and find it effective. Just keep your investments at all highs and lows and avoid day trading. As markets grow over time, so will your investments, don’t get greedy and try to increase them too quickly.
Buy during downturns: Over time, you will begin to notice patterns in the crypto market: usually, these are periods of a bullish trend (strong price growth), followed by a correction. These corrections (or dips) are the perfect time to build positions and put more money into the portfolio.
Diversify your portfolio: Some categories of projects have natural synergies and a short-term connection to blockchain technology, while others have longer-term growth potential.
In addition to reducing risk, portfolio diversification also allows you to form a wider betting network across different categories so you don’t miss any opportunities. Personally, we recommend looking at the following categories: BTC, smart contracts (ETH, BNB, AVAX), DeFi (UNI, MKR, RUNE), NFT (APE, GALA), blockchains (SOL, NEAR).
Always do your own research (DYOR): Since the cryptocurrency market is currently unregulated, there are many scam projects that just want to collect money from people. This is the true “Wild West” and you should always do due diligence on every project before investing your hard-earned money. When evaluating whether a token/project is a good investment option, you have to consider many different factors, and here are some of them:
Team – Do team members have experience and authority in this area? Are they real individuals?
Technology – are they creating real technology that solves a particular problem? How is their approach different? How active are they? Do they have their own blockchain? Is the project a clone of another project?
Token – some projects may have a good concept, but this does not necessarily mean that the investment in them will be successful. It is important to understand whether the token you are purchasing has properties that will increase its value over time. You are investing in the hope that the price will go up, so the token must have the incentive to do so, and it must be of real value.
Development timeline – does the project have a roadmap? Do they have realistic, clearly defined goals? Do they have a working product? What goals have they set for themselves, and when will they start working? Studying the development timeline helps determine if the time is right for investing. If no innovations are planned until next year, in the short term it would be wiser to invest in another project.
Blockchain and cryptocurrencies are still in their stages of development today and you will have to take the time to fully understand this technology.
Personally, we enjoy the opportunity to witness this explosion of wealth, innovation, and technology very much, and even inspires awe.
It’s reminiscent of the early days of the internet and now is the best time to invest in projects you believe in for a return on investment that can change your life.
So fasten your seat belts and go ahead, place your bets, get informed about various projects, and watch the industry reach mainstream adoption in the coming years. Good luck!