Bitcoin’s mysterious creator, Satoshi Nakamoto, mined the first cryptocurrency block 11 years ago, on January 3rd 2009. Since then, Bitcoin has become more than a digital currency. It’s reshaped how we define money. It sparked the blockchain revolution. It wrought a new monetary ecosystem that challenges the status quo of centralized banking and reserves.
Historically speaking, Bitcoin is infantile. If you’re on the sidelines wondering if cryptocurrency is a prudent investment, the answer is simple: Nobody knows. Crypto has no precedent; it’s a game without fixed rules. Its novelty and singularity makes it equally exciting and precarious. Cryptocurrency could be the most transformative financial development in modern history, or it could be a trendy, speculative asset without underlying value. Most likely, it’s somewhere in between.
This article won’t explore the existential importance of cryptocurrency, nor explain how blockchain works. You can find a wealth of information about those subjects as you plunge down the rabbit hole. Instead, it will furnish novice investors with practical information about what to do and, more importantly, what not to do.
Cryptocurrency is a casino
Buying and trading crypto is like gambling. That should be your mentality. You might win big, or you might lose it all. The big price bubble seen in 2017 exemplifies the capriciousness of the crypto market. Within two months, Bitcoin plummeted from about $20,000 to $6,000, and cryptocurrencies lost 80% of their value.
Enormous price swings occur without reason, while exit scams, wash trading and pump-and-dump schemes corrupt the market. Judicious investment requires diligence, skepticism and fastidious research. Invest in projects you believe in, but remember that you are a small fish undulated by the currents of an irrational market. When you treat the crypto arena like a casino, you can make shrewder bets.
Find a solid exchange
To begin, you’ll need a fiat (another word for ‘real’ money like the US dollar) exchange to buy your Bitcoin or altcoins (“alternative coins”) using traditional payment methods. Beginners frequently use Coinbase due to its ease of use and competitive fees. Other trustworthy gateways include CEX, Kraken and Bitstamp. Register an account, complete the steps for KYC (‘Know Your Customer’ identity verification), and make your purchase.
From there, you’ll either store or trade your crypto. To store your crypto, you’ll need a wallet, and there are two types: hot wallets and cold wallets. Hot wallets connect to the internet, while cold wallets do not. Cold wallets include hardware wallets like Ledger and Trezor. They are the safest storage method and recommended for anyone with a substantial investment. Hot wallets include web wallets, desktop wallets and mobile wallets. These are perfectly secure but require more vigilance due to their connection to the internet.
Secure your cryptocurrency wallet
A wallet consists of a public address and private key (or a seed phrase). Public addresses are used to transfer funds and can be viewed on the blockchain ledger, like this random Ethereum wallet. We can see the public address, funds and transfers, but we don’t know the owner or private key. Your private key is your wallet’s “password” and principal security mechanism – only you should know it. Always back-up your wallet and private keys. If you lose your private key, you lose your funds.
Hundreds of pure cryptocurrency exchanges exist that let you trade prominent cryptocurrencies (like Bitcoin and Ethereum) for thousands of different altcoins and tokens. Popular, trusted exchanges include Binance, HitBTC and Huobi. Before sending your crypto to an exchange, check their credibility. When you register for an exchange, use two-factor authentication and don’t recycle passwords.
Altcoins are high-risk, high-reward. In a bull market, they can skyrocket; in a bear market, they tank. Crypto enthusiasts prowl exchanges to find the next Bitcoin, looking for cheap, low market-cap projects with promising fundamentals. However, the market generally follows Bitcoin’s lead: when Bitcoin pumps, altcoins follow – when Bitcoin dumps, altcoins dump harder. Altcoins can produce your loftiest gains or most crippling losses. To avoid devastation, structure a diversified, balanced portfolio. Don’t put all of your eggs in one basket.
Crypto won’t make you rich overnight. It took years of patience and foresight for early Bitcoin adopters to earn millions. The beauty of Bitcoin and crypto is that regardless of the fiat value, you solely own the asset. No third party, government or bank can interfere. Twenty years ago, that degree of financial freedom was merely a dream.
6 CRYPTO MANTRAS TO LIVE BY:
1. Forget your keys, forget your crypto
With cryptocurrency, you are your own bank. A decentralized network entitles you to complete control of your funds. An estimated 20% of Bitcoin is out of circulation due to unrecoverable private keys. It can’t be emphasized enough: back up your wallets and keys. Furthermore, try not to keep your crypto on an exchange. With an exchange, you don’t own the private key. Not your keys, not your crypto.
2. DYOR (“Do your own research”)
One might assume the crypto community embraces solidarity because of a shared belief in the technology’s potential. Unfortunately, this couldn’t be further from the truth. Toxic tribalism pollutes the discourse, making it difficult for new investors to distill information. Invest in projects you believe in and have researched meticulously. Read whitepapers to understand what problems the project solves. Gather as much information as you can and use a variety of sources to develop a well-rounded opinion.
3. Never invest more than you can lose
Before you invest, evaluate your financial situation to see if you’re in a position to take risks. Assume that whatever you invest, you can lose. Since nothing is certain in crypto, assuming the worst helps you avoid overexposure.
4. Beware FOMO (“Fear of missing out”) and FUD (“Fear, uncertainty and doubt”)
FOMO and FUD are both psychological traps. FOMO leads to imprudent purchases, and FUD may cause you to haphazardly jump ship. Sometimes FUD is justified, but it’s often manufactured or exaggerated. Don’t make rash decisions based on FOMO and FUD. Investigate first and DYOR.
5. HODL (“Hold”)
Unless you’re a day trader, HODL (crypto slang for holding, not selling) is generally the simplest strategy. It’s a long-term strategy for those who believe in crypto’s ability to change the world. However, HODLing doesn’t mean you shouldn’t take profits when the opportunity arises.
6. DCA (“Dollar-Cost Averaging”)
Constant price gyrations mean you’ll seldom buy at the bottom or top. Dollar-cost averaging, or buying at routine intervals, helps mitigate losses due to volatility. And this, buy the way, is the best strategy with ANY investment.