Step 1: Understand why you want to invest in crypto
Why are you considering investing in Bitcoin and other cryptos?
If the answer to this question is unclear, or anything remotely close to “dunno, but I heard it can make you rich”, then there’s a lot more research you need to do before making the leap into crypto.
Now I’m not saying that your motivation for getting into the market to gain monetary wealth is unworthy. There are plenty of people in this space who have this as their primary drive, and that’s totally fine.
Others, on the other hand, are excited by the prospect of blockchain technology and believe in the transformative effects it may have in the future.
Whatever the reason is; the most important thing is to be perfectly honest with yourself, and understand your motivations for investing in crypto.
What some fail to understand is that investing in the market is a gamble, and you shouldn’t be spending money that you actually need. If you’re struggling to pay day-to-day bills, then come back to this space at a later stage when you have some more disposable income.
And if you’re in a state of incredible FOMO (fear of missing out) then chill out! This space is still very, very new and it’s likely to be around for a long time, so you haven’t missed the boat.
In fact, the boat is still being built.
We’re still in the very early days of the technology (think of the internet in the mid ‘90’s), so there are still many gains to be had.
Ask yourself these questions before diving into the crypto world in order to figure out why you’re doing this, and then arm yourself with as much knowledge as you see fit to make justified decisions.
Step 2: Do Some Research
“Knowledge is Power”
– Francis Bacon
Your aim should be to develop an adequate amount of knowledge so that you’re able to make informed decisions.
Doing some fundamental research to find the cryptos you’re willing to invest in will go a long way towards ensuring that you’re allocating your money wisely.
You should be able to answer the following questions before investing in any crypto:
- What is it used for?
- What problem is it aiming to solve?
- What technology is being used to solve the problem?
- What kind of team and/or backing does it have?
- What are the future applications and does the current technology allow it to be scalable?
- Is the crypto a coin, utility token or a tokenized security?
For example: coins (cryptocurrencies) are here to disrupt the way we currently make currency transactions and do banking. Utility tokens are services that can be purchased by those holding the respective crypto, andtokenized securities are treated more like shares in a company.
Answering the above questions should provide you with a general overview on what the crypto is, how its technology could be used in the future and whether or not the team has the technical skill to solve the claimed real world problems.
In addition, understanding what kind of category your crypto falls into allows you to make decisions on how you will treat you crypto investments in the future, or what regulations may be imposed on it in years to come.
It is possible that there will come a time when regulatory authorities change how they treat these cryptos. The implications could mean that certain individuals are unable to invest in them unless licensed to do so.
So, where should you start sourcing your information?
I like to categorise information in two ways:
- Subjective information (opinions, interpretations and other people’s judgement)
- Objective information (fact based, measurable and observable)
Subjective information — discussion forums, blog articles, twitter posts and comments — can be useful in assessing the general vibe surrounding a particular crypto. However, you should also be aware of the caveats that exist when sourcing your information from such places.
There are people in this space who have vested interests and rely on the hype of ignorant individuals to make money. Be very wary of these kinds of individuals. They will try and artificially pump up the price of a coin in order to sell at the top.
There are also people commenting on and recommending things that they are probably not qualified to speak about.
So take this kind of information with a grain of salt.
Objective information found in company/organisation websites, white papers and reliable news sources will provide you with a good starting point.
This will allow you to investigate what the technology behind the crypto is, how the crypto has performed in the market (note that past performance should never be taken as indicator of future performance), what support or team is built up around the crypto, and if the team are meeting their targets.
In summary, make sure that the information you are absorbing comes from a reliable source.
A few general sources are listed below:
- Wikipedia — Wikipedia can be a great tool to gather an overview on pretty much any topic. So when in doubt, Wikipedia that that shit and see where it takes you! However it is not a complete resource so don’t just stop here.
- Coinmarketcap — The website allows you to view every publicly listed crypto. It ranks them according to their market capitalization and provides other useful information such as where you can purchase and trade specific cryptos, historical data and more.
- Cryptobeginners — Crypto Beginners is the most comprehensive resource for beginners to learn about the crypto space. Find easy to understand explainers, tutorials, resources and more.
- Company/organisation websites — These websites are run by the organisations that have either founded the particular crypto or are at the forefront in developing the crypto. Such websites include bitcoin.org, etheruem.org, litecoin.org/litcoin.com. Many of these are opens source projects where anybody can contribute. These organisations can often be viewed as the key figures respective to that crypto.
- Podcasts — There are several podcasts out there such as The Bad Crypto Podcast, Unchained, Coin Mastery, Coin Talk and many more. Go have a listen on your commute to work, and hear different perspectives from experts in the space.
- Blog posts — Whilst anyone can publish a blog article, it can be a convenient way of following what’s happening in the crypto scene. Over time you should develop a following of reliable sources that you feel you can trust or that you can relate to who have proven to be experts in the field. For me these include authors like James Altucher, Naval Ravikant, Daniel Jeffries and many more.
Step 3: Sign up to a reputable exchange (or two) and get verified
Now that you’ve done your research and you’re ready to make your first crypto investment, you need to sign yourself up to an exchange.
There are thousands of exchanges to choose from, but which one is right for you?
The truth is, there isn’t a single ‘right’ exchange to purchase crypto from. Not all exchanges offer every crypto, so you may need to sign up to more than one exchange to purchase the ones you want.
For example, Coinbase, the world’s largest crypto exchange offers only Bitcoin, Litecoin, Ether, and Bitcoin Cash, where as another popular exchange, Binance, offers almost 300.
A reliable way to find a reputable exchange is to head to coinmarketcap.com, clicking the crypto you want to buy, then looking at the ‘markets’ tab. The ‘source’ column shows the exchanges trading the largest volumes of this crypto, so you can be reasonably confident that the exchanges that appear here are legitimate.
A list of some trusted and popular exchanges are:
It’s also important to consider is ease of use. A lot of exchanges are built for traders, and will therefore be incredibly confusing and intimidating for somebody who isn’t used to candlesticks and stop limits. Some might allow you to switch to a simple view, but in general it’s best to find an exchange where you know what the hell is going on.
Keep in mind that the price of cryptos can vary greatly even between exchanges. This is unlike the traditional stock exchange where every market will offer the same price per trading option. It is possible that this will change in the future, but for now it’s a more of an open market.
Consider the following before signing up to any exchange:
This means two things:
- How secure is your account? You should look for exchanges that enable features such as two factor authentication, login notifications and have a thorough Know Your Customer (KYC) process when getting verified.
- How secure is the exchange? Look for exchanges that have had a good track record and haven’t been hacked before. If they have been hacked before then it’s worth doing some more research to see what the outcome has been following the hack. What was their response? Do they have improved security measures since the hack?
You should be aware of the transaction fees associated with buying and trading cryptos.
You will generally incur a fee (anywhere from 0.1–3%) when buying cryptos on a exchange, which is essentially their fee for providing you the service.
However when you send crypto to a different address, you will incur a fee which rewards the miners validating the transactions. These are dependent on the crypto you’re sending, as well as how busy the network is. You will generally pay a few cents for certain cryptos, and up to $5–10 or more for Bitcoin.
Daily buy/sell limits:
Buy and sell limits will also vary from exchange to exchange. They will often be dictated by the level of verification on your account, as the exchanges need to be sure that you are who you say you are, and will limit how much you can trade if you haven’t been verified.
This involves you submitting identification such as a driver’s licence or passport, which can feel pretty intimidating. Exchanges also lack solid customer service, so at times of high demand it could take up to a couple of weeks to get verified.
After all the above is completed and you have passed the initial verification you should be able to deposit money into your account using at least one of the available payment methods below.
Most exchanges will offer the following options:
- Bank account transfer
- Debit card transfer
- Wire transfer
- Credit card transfer
Some credit card providers have halted all new and existing credit card accounts to be used in purchasing cryptocurrency. This is probably for good reason as you’re playing an even riskier game investing in crypto and not using YOUR own money.
The quickest methods available to you will be bank account and debit card transfers, so it makes sense to go via these avenues.
Please keep in mind that some exchanges don’t allow fiat deposits, and are ‘trade only’. This means that you can’t actually buy or sell cryptos to regular currency, only trade between cryptos. So if you want to reap those sweet sweet crypto gains, you’ll have to transfer out to another exchange that allows crypto -> dollars, euros etc. Popular ‘trade only’ exchanges include Bittrex and Binance.
Step 4: Make your first purchase
Okay, now that you’ve signed up to an exchange it can seem pretty daunting making your first purchase.
You’re probably worried about sending through your money and not actually receiving the crypto you asked for.
It’s not particularly obvious how to actually make a purchase. The user experience for most of these exchanges is, to be blunt, crap!
Rest assured, things will start looking better in the future, but for now this is what you’ll have to deal with. That is, an un-user friendly space where any good customer support is hard to come by.
I’ll run you through some of the basics that should apply to all major exchanges.
When buying your first cryptos, it’s incredibly important to start by selecting an exchange that you understand, trust, and that is used by a large number of others.
Find an exchange that you’re comfortable with, sign up and get ready to buy some of that magical internet money.
Buying the cryptos themselves is generally pretty straightforward. Just find the crypto you want to purchase and then hit the ‘buy’ button. Some exchanges may require you to deposit money before purchasing, and others will ask for your money once confirming purchase.
The cryptos should appear in your account pretty much instantly, since the exchange generates an wallet for you, and it’s not being sent from somebody else.
To view what you have just purchased you will need to access the wallet specific for that crypto. Most exchanges will also have an overall summary or net position on the home page showing you all the cryptos that you’ve invested in. Your net position will also likely be converted to the currency selected (default is typically USD).
The tricky part is what comes next: when you buy on an exchange, you don’t actually control the wallet that the cryptos have been deposited into. You have access to the address, but the wallet is technically controlled by the exchange, so if something goes wrong (e.g. they get hacked) you essentially have no recourse.
It’s highly advisable that once your purchase is complete, you send your cryptos to a wallet you control, and don’t leave them on the exchange.
I recommend starting small with your first ever purchase. Deposit anywhere up to $50 (or what you’re comfortable losing if you make a mistake!) and use that to begin with. Losing $50 is hardly life threatening.
Once the deposit has been confirmed, you can use the transaction history to populate a spreadsheet of your own that monitors your investments. You never know when the tax man may come knocking if you don’t declare your investments, so it’s worth being legitimate and declaring it all up front.
So there you have it.
Step 5: Move your crypto out of an exchange and into a safe wallet
When it comes to keeping your cryptos safe against hackers the first step you need to take is to move them away from the exchange and into a safe wallet that you control.
As I mentioned earlier, when your cryptos are held on an exchange, you don’t have full control over them, and you risk losing them if the exchange gets hacked. This is exactly what happened when $450 million was lost in the Mt. Gox hack in 2014.
A wallet essentially stores the keys that access your cryptos. Every address comes with a public and private key. Your public key can be thought of like an email address; it is the address that your cryptos are stored.
Anyone can see your public key and are able to send cryptos to it.
The private key is like the password to your email account. Only you (should) have it, and only the owner of the key can access the funds at that address. If anyone else knows your private key, your account can be compromised and you could lose all your funds at that address.
Public and private keys are stored in a crypto wallet, and there are many different types of wallets out there.
The different types of wallets are:
- Online wallets, such as browser extensions, as well as mobile and desktop apps
- Offline wallets such as hardware wallets (Ledger Nano S and Trezor) or paper storage
Wallet security is incredibly important, and it’s well worth understanding the pros and cons of each type of wallet before you choose one. I won’t go into detail here on the specifics on each of these wallet types, as we’ll all be here for another 3 hours.
However, in short, online wallets are easier to access, but are inherently less secure as they are almost always connected to the internet. Offline wallets are the opposite; they are rarely — if ever — connected to the internet, but are much less easy to use.
Finding wallets for the major cryptos such as bitcoin, ether, litecoin etc, are easy and you will have plenty of options. However, for some of the rest, the wallets will be hard to come by, and if you do find them, the user interface is likely to be very frustrating.
Don’t get discouraged by this. The ease of use for a lot of these applications has a long way to go, and if you’re diving into it now you’re a part of the very early stages.
A key thing to remember about cryptos that have been built on the Ethereum blockchain is that they are able to be stored on an ether wallet. These tokens need to meet a specific standard, and are referred to as ERC20 tokens, and are all able to be stored on an ether wallet.
Controlling your own wallet allows you to be in charge of your own crypto. Never ever divulge the private key for any of the wallets you own, as this is like giving a stranger the keys to your car and hoping it’s still there the next day.
Step 6: Use different passwords and enable 2FA on your exchanges, wallets and email address
Don’t keep reusing the same shitty, 6-letter password that you’ve been using for years, or a variation of it. Just because you add an additional digit to the end of it doesn’t mean you’ve made some sort of extra effort in protecting your accounts. Stop lying to yourself.
I know that we all have these, but please refrain from using these kind of passwords with anything email, phone or anything crypto related. You’re setting yourself up to get hacked.
Computers are getting more powerful, and technology is getting more sophisticated each and every day so you should really consider using a password that’ll take some considerable time to crack.
Remember the days when you were asked to make 6–8 character passwords using at least one number and one uppercase letter. Well guess what? These days, that would take about 2 hours for a computer to crack.
Whereas a random string of characters, or a phrase (the longer the better, and preferably not personal or linked to you in any way) should take some time to crack. For example a phrase such as IPracticeSafeCrypto should take 318 trillion years to crack.
You can use websites such as howsecureismypassword.net yourself and try a few examples to get a rough gauge on the type of password you should be using. Try and make it even more diverse than the example I gave above.
You can then use a password manager like LastPass or 1Password that is capable generating and storing long, secure passwords for all your accounts. This greatly reduces the risk of your passwords being compromised, either through losing them, or having weak passwords hacked. Highly recommended.
In today’s interconnected web, it’s simply not enough to have password protection. No matter how unbreakable you think your password is, there are always other ways that hackers can access your accounts, mostly through social engineering. This is where two-factor authentication (2FA) comes in.
What is 2FA and how does it work?
2FA is an essential additional layer of protection on top of your password.
2FA requires you to verify who you are before logging into your account, by using both your password and a time sensitive code that is linked to your account.
This means you will be less vulnerable to attacks via email account phishing, and social engineering, as the hacker physically needs to be near you, and obtain this code in order to log in to your account.
In fact, some exchanges force you to set this feature up and will not allow you to remove cryptos from the exchange otherwise.
So, this decision should be really straightforward. Download an authenticator app and set it up on all your accounts.
This includes your exchange accounts, wallets and especially the email addresses you use for both personal accounts and the email accounts linked to your exchanges (note that you should probably be using different email accounts for your cryptos and your personal everyday accounts, particularly social media).
Three of the best authenticator apps on the market are:
- Google Authenticator
- LastPass Authenticator
Further to this you should also activate login notifications for all your exchanges. This’ll send you an email each time you log into your given exchange account with a time a stamp of when the account was accessed.
Now you’ve added another layer of protection to protect your crypto assets and your personal accounts. Hackers will find it extremely difficult to get into any of your exchanges, online wallets, email addresses without having direct access to your phone.
So the logical next step is to protect your phone right? This is in case the unthinkable happens and you lose your phone. Keep reading on.
Step 7: Lock your phone using pins/fingerprint/face recognition
Most people have EVERYTHING on their phones these days.
Let’s face it, the mobile phone has made life very easy and convenient for the majority of us. We don’t just make phone calls; we send texts, go online, make purchases, send emails, take photos, do our banking etc.
It’s highly likely that your mobile phone has a ton of your personal information stored on it, so it only makes sense to secure it.
Imagine your worst nightmare comes true and you actually lose your phone. Someone may access this personal information and either use it against you or simply wipe you clean.
Securing your phone has never been easier, so it’s well advised for you to lock your phone.
For most phones it’s as easy as assigning a 4–6 digit pin. In fact, new phones these days have facial recognition software or fingerprint ID that you can use to lock your phone or particular apps so there’s really no excuse.
…and if you’re worried about your thumb being chopped off so that someone can access your beloved crypto then it’s likely that you’ve probably made some really bad decisions somewhere in your life and have much bigger problems to deal with than losing your crypto. Just saying…
In addition to the above you can also do a few little extra things to make your phone and accounts less hackable.
- Turn off Bluetooth unless you’re using a bluetooth device. You’re more vulnerable being hacked by another device with your bluetooth on.
- Switch off your personal hotspot unless you really need to use it.
- DO NOT log in to any crypto exchange or wallet using a public wifi account.
Step 8: Keep a spreadsheet of all your crypto transactions
‘The hardest thing to understand in the world is the income tax’
– Albert Einstein
Everybody pays taxes (unless you reside in Monaco…). It’s how the government can pay for roads & infrastructure, healthcare, national defence and education.
It’s likely that if you’re reading this, your country has some sort of taxation law and if you’re making any sort of living, you’ve been paying it for a while now.
Money made from trading bitcoins or other cryptos is no different. I can’t give you an in-depth overview on exactly how your country is dealing with taxing the profits made from crypto because every country is still trying to figure this out.
As an example, Belarus is not imposing any tax on crypto profits for the next 5 years. Germany applies tax on earnings if you cash out within a year. Crypto is considered property in Australia, which means it is subject to capital gains tax. China views cryptos as securities, and has cracked down on the space until regulations are put in place. And in the US, cryptos are — at the time of writing this — treated as commodities, and are taxed as such.
So… what to do?
Whilst i’m not a financial advisor of any sort, I think it’s highly sensible to start a spreadsheet to record all your purchases and crypto to crypto exchanges. Not only will this give you proper insight into whether you’re making good investments, but come tax time you’ve kept track of your activity.
This should be done irrespective of where you live, as this space is moving so quickly that things can change in a matter months.
However, don’t simply rely on these spreadsheets. Like I said, every country treats crypto differently so if you do download one then make sure to take full responsibility. They’re not certified accounting tools that are guaranteed to hold up against your country’s tax department, but they’re a good starting point in keeping track of your crypto activities.
The best thing you can do is a have a chat with an accountant that is familiar with crypto in your country. It’s likely that this will be hard to find, as the majority of the world is still incredibly new to cryptos, accountants included. Don’t be surprised if, when you show your crypto spreadsheet to your accountant, they react like Frodo trying to read the language of Mordor.
Step 9: Keep track of your entire crypto portfolio using an app
By now you will have noticed that logging into a wallet or an exchange is a bit of a time consuming process.
Logging into an online wallet or exchange will require you to key in your email or username, type in a password, often confirm a Captcha image verifying that you’re not a computer and then adding in your 2FA code allowing you to view your crypto.
Doing this can be such a pain. But there is relief I promise.
You can keep track of all your crypto assets using an app.
The best thing about it is that it’s not linked to any of your public or private keys.
By downloading apps like Blockfolio or Coincap you can keep track of all the assets you simply have by recording what crypto you’ve purchased, how much and when it was purchased.
It’s easy to get sucked in to checking your crypto gains every 3 minutes, especially when the market is booming. However, this can be risky if you log into the exchange or wallet where your cryptos are stored. You open yourself up to getting hacked, or even leaving your account logged in on an unattended or insecure computer.
By checking your balance on an app that isn’t tied to your wallets, you don’t incur any of this risk, and it’s also generally a lot easier. They generally have additional features such as price alerts, real time charts, news and analysis.
So using an app to keep track of your cryptos makes sense.
Step 10: Develop a Strategy
I can’t tell you what to do with your crypto.
You’ll have to decide what to do with it yourself or get some professional financial advice elsewhere. I’m not referring to your friends or family members. I’m talking about an actual qualified financial advisor who is well versed with crypto investing.
If you’re not ready to seek proper financial advice and are just testing the waters, that’s okay. This space is so new that there are few advisors out there that can give advice confidently, and if they do exist, they’re more than likely to be astronomically expensive.
Hence why I believe that self-education is the most important step you can take. So long as you gather the information from reliable sources, question everything, and allow yourself to be questioned.
You must be willing to take accountability for your own decisions.
The two main strategies you can use for crypto investing are, broadly, frequent trading or hodling.
Trading involves buying and selling cryptos over the course of hours or days, in order to take advantage of swings in the market. There’s the potential to make large gains through this strategy, as cryptos frequently move 20–30% per day. However, predicting market movements is incredibly difficult, and you’re just as likely to lose all your money as you are to make more. This strategy is essentially gambling, and if you’re interested in pursuing trading, then make sure you do as much research as you possibly can before risking any of your hard-earned money.
On the flip side of trading is hodling, which stems from the belief that cryptos will have more use and value in the future, so you hold onto them with the intention of selling at a date in the future after they have increased in value. Hodling is a long-term game, so don’t be surprised if it takes anywhere up to 5+ years to see strong gains, if at all.
Also make sure to have an exit strategy if you can’t deal with things going south, because there’s every chance that all cryptos could go to zero tomorrow.
None of this is black and white, however, and you may find yourself utilising a mix of both of these strategies.
You may find yourself hodling a certain portion of your assets and trading the other. You may choose to stop this after a while or swing from one to the other. Just make sure that whatever you decide to do, be accountable for your own actions.
Like I mentioned at the start of this article; only invest what you’re willing to lose. Nobody has a crystal ball that can predict the future. The truth is, nobody knows exactly what’s going to happen.
Regardless of what your strategy is, if your research indicates to you there is real merit in this technology then sit back, relax and enjoy the ride.