Table of Content
- 1 What is a Cryptocurrency?
- 2 Coins
- 3 Tokens
- 4 Why is it Necessary to have many Cryptocurrencies?
- 5 Improvements to the Idea around Bitcoin
- 6 Improving on Bitcoin Blockchain’s Design
- 7 Finding the Right Crypto to Buy and Trade
- 8 What do you need to start?
- 9 Identify the Right Wallet(s)
- 10 Identify your Preferred Exchanges or Broker
- 11 Popular Exchanges
- 12 What’s next after buying your portfolio?
- 13 Day Trading
- 14 Long-Term Holding
- 15 CFD Trading
- 16 Avoiding Ponzi Schemes and Other Scams
- 17 Final Thoughts
The Fear Of Missing Out. It’s the world’s foremost phobia, the driving force behind every viral trend and most of our social interactions, and everyone’s got FOMO about crypto. You hear it being talked about all the time – Bitcoin, Litecoin, Ripple, Monero – but it’s brand new, unprecedented technology in the cryptocurrency world. It’s been around for less than ten years and it’s only gotten big within the last five. It can be confusing for newcomers to understand especially if they aren’t particularly tech-savvy.
What exactly is it? How does it work? Is it safe to buy and hold it without any institutional backing? How do I actually get it? How do I cash it out? Most articles are heavy on the tech-talk when answering those questions, but once you get the simple explanation you’ll realize that it isn’t very difficult to understand at all. Cryptocurrency is an asset, its value is determined by supply and demand just like anything else, and buying some is as simple as placing an Amazon order for novelty Christmas tree ornaments.
The first step to enter the world of cryptocurrency is to have a thorough understanding of it, so let’s take a look at what currencies are available, how to get them, and how to trade them.
What is a Cryptocurrency?
Simply put, a cryptocurrency is a form of digital money that exists as a balance in digital software and is traded as an asset for other products and services by people who attach value to it.
Cryptocurrencies have two main categories:
These are coins that have been developed primarily to keep or transfer money cheaply, safely and quickly across the world. This was the original idea behind the blockchain innovation.
Blockchain technology soon attracted people who came up with other uses for it, such as smart contracts and applications.
This means that it is now possible to have consensus-based agreements and applications running on a blockchain.
Each application develops a token that allows people to operate the application.
Tokens are also the blockchain’s answer to stocks and shares. They allow individuals to have a stake in the underlying company.
Why is it Necessary to have many Cryptocurrencies?
Ever since Bitcoin was created in January 2009 people have come up with numerous alternatives called altcoins that emerged as a result of two main factors:
Improvements to the Idea around Bitcoin
Most of the early altcoins were made by people who either directly participated in the formative stages of the Bitcoin blockchain or were aware of it and knew of ways of improving the technology to create a wider appeal in a particular field.
Ethereum, for example, brought the idea of smart contracts and applications, allowing the world to have immutable records for contracts, digital assets like title deeds and decentralized ledgers for things like medical records, criminal records, family lineage, etc.
Since Ethereum is run on a blockchain it appeals to those who want to use blockchain technology to run their businesses or affairs differently.
Improving on Bitcoin Blockchain’s Design
Any innovation is truly realized once it is improved upon and Bitcoin is not an exception. By studying its nature developers were able to make several changes and therefore improve on Bitcoin:
- Increase in block sizes, which makes transaction confirmations faster.
- Regulation of mining difficulty, which reduces the specificity, speed and therefore cost of computers used to mine
- Introduction of other consensus mechanisms like proof of stake to eliminate mining.
- Creation of lightning networks to improve on transaction speed.
- Management of price increase through inflationary supply to keep the currencies affordable.
Finding the Right Crypto to Buy and Trade
The crypto world is bursting at the seams with a variety of coins and tokens that have been floated to the world for one reason or another. Numerous currencies that have emerged over the years since 2009 have risen in market share, price, and popularity.
Built by the Ethereum foundation as a fuel to run their blockchain. The Ethereum blockchain is designed to run smart contracts which are automatic, executable and inalterable and that can be used to run databases for banks, hospitals, libraries, legal registries, and even whole countries.
The blockchain also allows applications to be run on it, and since each application traditionally operates on its token, Ethereum has hosted hundreds of the world’s tokens.
Bitcoin Cash (BCH)
Due to long transaction confirmation times on Bitcoin Core, the community decided to initiate a user activated hard fork (UAHF), dubbed SegWit, to increase the block size. This effectively created a new blockchain with a new coin known as Bitcoin Cash (BCH).
This hard fork happened on August 1, 2017. Anyone who had Bitcoin in their private wallets received a similar number of BCH as a result. The coin has become a major altcoin, sitting in the top five in market capitalization.
Litecoin was released on October 7, 2011 by Charlie Lee, a former Google Employee. This altcoin is an improvement of Bitcoin, boasting almost free transactions, use of SegWit, more coin availability, and a ‘lightening network.’
Dash is reputed to be first ever truly decentralized autonomous network. It is run by the community with no central authority. It offers all the features of Bitcoin and also has improved features like InstantSend, PrivateSend and Decentralized Governance.
Created in April 2014, Monero is an open-source cryptocurrency that focuses on privacy, decentralization, and scalability. It runs on Windows, MacOS, Linux, Android, and FreeBSD.
Ripple was developed by Ripple Labs Inc. to enable quick and cheap bank transfers across the world.
It fuels the Ripple transaction protocol, which also allows for the transfer of any currency between any two entities.
And there are many more currencies like Neo, Nem, Dogecoin, Qtum, IOTA, Ethereum Classic, etc. To choose which one to buy, you need to look out for their trading volumes, ease of buying, storing and selling the altcoin, volatility, and design.
You can check out the popular coins by how they are traded and listed on coinmarketcap.com or Cryptocoincharts.info. It is prudent to study a coin from its inception to the time you want to buy it and understand its price history, availability, what has contributed to its current situation, the white paper behind it, the developers behind it and what the future holds for it.
What do you need to start?
After you decide what crypto to buy, you will need to arm yourself with several things:
Know your available trading options
You need to know your position concerning the options offered by cryptocurrency exchanges in the following areas:
- Country: You will need to ensure that the exchange you chose operates in your country.
- Currency: The fiat currency you will use needs to be supported by the exchange
- Payment method: If you are using direct transfer, mobile money, Visa, MasterCard, Bank transfers, etc., they have to be supported by the exchange you choose.
Identify the Right Wallet(s)
You will need to learn how to get and install a wallet (or two) that supports the coin of your choice.
It is possible to buy Bitcoin directly with fiat currency. Other major cryptocurrencies like Bitcoin Cash, Ethereum, Litecoin, and Dash can also be bought directly using fiat from some exchanges as we shall see later.
The best route to owning most cryptocurrencies is to first buy Bitcoin and then change the Bitcoin to your preferred crypto. Sometimes you have to do two exchanges to get the crypto of your choice.
Always buy enough Bitcoin to exchange for the quantity of altcoin you want to buy and to cover transaction fees.
Identify your Preferred Exchanges or Broker
There are several things to consider when selecting your ideal exchange. These include reputation, location, cost of transactions, what verification methods are needed, trading limits and whether the exchange allows trades from your country.
You also need to select between trading platforms, brokers and peer to peer platforms. While trading platforms give you a cheaper alternative to the other two the setup and confirmation is usually more complex and can be confusing for beginners. Brokers sell crypto to you directly for a profit and peer to peer exchanges are marketplaces where you buy from anonymous people using some form of platform protection like escrow.
Let us see how you can use several of these exchanges for your preferred trades.
Type: Cryptocurrency Broker. It has recently introduced GDAX, a p2p bitcoin exchange.
When Established: June 20, 2012.
Based in: San Francisco, California, US
Allows fiat trades from 32 countries
Operates in: 190 countries for bitcoin transactions and storage.
Cryptos available: Bitcoin, Litecoin, Ethereum
Modes of Payment and Fees: US Bank account (1-2%, $0.15 minimum), Debit/Credit Card (3.75%), Deposit (and PayPal in the US at 3.75%) and Bank transfers (Free to deposit, €0.15 to cash out).
Other Features: It allows for instant exchange from Bitcoin to your fiat wallet (at 1%).
Wallet Requirement: Coins can be stored on Coinbase or exported to other wallets.
Type: Cryptocurrency Broker.
When Established: 2013.
Based in: London, United Kingdom.
Allows fiat trades from USD, EUR, GBP, RUB.
Restricted countries: Afghanistan, Bosnia and Herzegovina, Burundi, the Democratic Republic of the Congo, Central African Republic, Cuba, Ethiopia, Iceland, Iran, Iraq, North Korea, Laos, Lebanon, Libya, Somalia, South Sudan, Sudan, Syria, Uganda, Vietnam, Vanuatu, Yemen, Zimbabwe.
Cryptos available: Bitcoin, Ether, Bitcoin Cash, Dash, ZCash, and Bitcoin Gold
Modes of Payment and Fees: Visa/MasterCard (3.5% + $ 0.25) and Free bank transfer.
Other Features: Mandatory ID verification for deposits.
Wallet Requirement: You need to have a crypto wallet to trade on Cex.io
Review: Read our full CEX.IO review here
Type: Cryptocurrency Broker
When Established: 2013
Based in: Ra’nana, Israel
Allows fiat trades from: All over the world, as the primary payment methods are credit and debit cards.
Operates: Globally in 226 countries
Cryptos available: Bitcoin, Ethereum
Modes of Payment and Fees: MasterCard and Visa credit and debit cards (6%)
Other Features: It is a buy only broker. The sell option is coming soon.
Wallet Requirement: You need a separate wallet as Coinmama doesn’t provide wallets.
Type: Cryptocurrency Broker
When Established: October 2014
Based in: Austria
Allows fiat trades from: anywhere, as it is mostly through bank transfer payment systems.
Operating in (countries): Global, but big in Europe
Cryptos available: Bitcoin, Ethereum, Litecoin, Dash
Modes of Payment and Fees: Neteller, Skrill, Sofortüberweisung, Giropay, Sepa, Amazon, Visa, MasterCard and online bank transfer. Fees depend on the method used, but are on average low, ranging from 2% -4%.
Other Features: The platform adopts a cautious approach to hard forks, but allowed Bitcoin portfolio owners who had their Bitcoin with them before the SegWit hard fork to get their Bitcoin Cash.
Wallet Requirement: They provide a free crypto wallet.
Type: Cryptocurrency Broker.
When Established: July 28, 2011.
Based in: San Francisco, California, US.
Allows fiat trades from: Canadian Dollars, US Dollars, Euro, GBP, Japanese Yen.
Restricted countries: No restrictions.
Cryptos available: Bitcoin
Modes of Payment and Fees: Wire transfer. Fees range from 0 – 0.26% depending on level and amount of trading.
Other Features: It is the biggest Euro/BTC exchange platform on the planet. They have different levels of verification depending on the size of trading required.
Wallet Requirement: Kraken has a free online wallet for all account holders.
Type: Peer to Peer Exchange
When Established: June 2012
Based in: Helsinki, Finland
Allows fiat trades from: all countries. You buy and sell Bitcoin using any currency available to you.
Restricted countries: Germany, State of New York. Otherwise global
Cryptos available: Only Bitcoin
Modes of Payment and Fees: Mode of payment is as used in your country or location. Fees are a flat 1% on all trades.
Other Features: Local Bitcoin acts as an escrow service, allowing the holding of the Bitcoins awaiting confirmation of payment before releasing the Bitcoin to the buyer.
Wallet Requirement: Has a customized bitcoin wallet.
Type: Peer to Peer exchange.
When Established: Properly constituted on 12th April 2016.
Based in: Prague.
Does not allow fiat. Changelly is exclusively a crypto-to-crypto exchange.
Restricted countries: N/A.
Cryptos available: Practically all cryptocurrencies
Modes of Payment and Fees: Payment is crypto-to-crypto, and the fee is a flat 0.5% of any trade. They allow credit/debit card payments but the rates are very high.
Other Features: No private information required. Only an email address.
Wallet Requirement: Changelly holds your portfolio for a very short time, allowing you to export your crypto to a wallet of your choice once the trade is carried out.
It is advisable to read about an exchange, especially its reviews, from prior users to get a grip on what works for you and what doesn’t.
But there is a caveat;
What’s next after buying your portfolio?
When you buy your crypto, you now might want to use it for several purposes, like day trading and long-term speculative holding.
For tech-savvy cyber world people, day trading can provide an interesting source of income. This is short-term trading of a currency based on analysis of a possible increase or drop in price due to a known factor.
This trading is recommended for experienced traders and sky-diving crypto daredevils who have info on their minds and fingers on their ‘buy’ or ‘sell’ button. When doing it, volatility is your best friend, and coins like Bitcoin are good for day trading (for now).
This option is currently mainly used for Bitcoin. Instead of allowing third parties to keep and use your money, you can just convert it into Bitcoin and then hold the Bitcoin in a cold wallet for long-term speculation.
We are still very early in the crypto game and it will be interesting to see how other cryptocurrencies squeeze into this space.
Contracts for Difference.
Heck, what is that? You may ask.
Well, put simply, it is a way of allowing you to open an order for speculating on the increase or decrease of an asset you don’t purchase by leveraging a percentage of the price.
A speculation of a price increase is called a buy order, and for a decrease, you place a sell order. This means you can make money if you predict a fall in prices and it happens!
For example, you could put 10% of Bitcoin price and execute a buy order, which means that you expect the price to go up. If you are right, given certain conditions, you will earn a similar amount to a person who owned the Bitcoin.
But the stinker is that you lose by the same margin if you are wrong.
CFD trading is mostly available for certain top 5 cryptocurrencies, including Bitcoin, Ethereum, Litecoin, and Dash. This kind of trading is available on eToro, City Index, CMC Markets, 3D Markets, etc.
Avoiding Ponzi Schemes and Other Scams
So how do you avoid getting scammed? You will find that reading widely goes a long way to understanding those exchanges and cryptocurrencies that could possibly be scams.
Most of them have very serious business relationships with the movers and shakers of the corporate world, including governments, banks, business conglomerates and reputable individuals around the world.
The crypto world is getting rather adept at smoking out, naming and shaming Ponzi schemes. All you need to have is a good knack to find core information for each entity you are interested in before you get in.
Do not go by word of mouth. People are known to bloat expectations to get an opportunity to defraud.
Buying and trading in cryptocurrencies is a viable, tricky, risky and exhilarating endeavour.
Nowadays, there is a far more extensive choice of altcoins for you to trade.
What you need is to understand the dynamics and design of the altcoin, the wallets you intend to use, exchanges and the types of trading you can execute.
Learning the business idea behind a digital currency can assist in understanding whether it will survive the market in the coming years.
Learning when to cash out is a critical aspect of cryptocurrency trading. It is important to note that currently Bitcoin is the entry and exit point from fiat to cryptocurrency for many exchanges, so it is advisable to understand how your money will move from fiat to your preferred crypto and how much it will cost in fees and time.
Remember: None of this is investment advice, and never invest in cryptocurrency with any money you cannot afford to lose.