The US treasury department recently declared that it didn’t plan to treat crypto investors and stakers the same way as brokers since they are not included in the existing regulations. You might have understood that cryptocurrencies gather many advantages in terms of investments and could tend to become part of the world’s financial system in the coming years. So yes it’s still time to get into cryptos and 2022 could be the perfect year to do so because of the growing maturity of this market. So tell me my friend ? Why are you still not into cryptocurrencies ? Maybe you’re afraid to make some mistakes, you think you don’t know how to start or it could be that you’re only starting to get interested in this hopeful ecosystem ? Whatever reasons you might have, you are in a good place ! Here is a full beginner’s guide to teach you how to invest safely in crypto-currencies.
What is a cryptocurrency ?
A quick recap for real novices, cryptocurrencies are digital and virtual currencies secured by powerful cryptographic principles. But something makes them special compared to classic currencies : cryptocurrencies are digital, encrypted and decentralized assets. Unlike other kinds of currencies (ex : US Dollar …), they are not managed or maintained to a certain value by any central authority. Beyond this, another interesting aspect is that they are supported by a peculiar technology : the blockchain.
Don’t worry, it’s not that complicated … All you need to understand is that blockchain is a computer technology ensuring full transparency and security for all transactions. To make it quick, a blockchain is an open and distributed ledger recording transactions on computers like a global checkbook accessible by any user. All these transactions are linked thanks to a “chain of blocks” (it’s computer informal meaning so don’t worry if you don’t get it) ensuring that nobody could actually steal or modify anything without being seen by anybody. According to a famous cryptocurrency CEO, a blockchain is like “a book where you write down everything you spend money on each day”. Basically on a blockchain, everyone using a so-called cryptocurrency owns a copy of the book related, enabling them to record any updated transaction. I won’t go much into details but that’s a passionate topic on which you can find a lot of great content on the web…
And know that I’m sure about what a crypto is, what can I use them for ? Basically everything … you can use cryptocurrencies to buy services and goods or to invest your money as any other asset like stocks for instance. But since this technology remains quite new, I strongly advise you to make sure to deeply understand how this ecosystem works before investing any money and that’s what we’re just about to do together !
| Key Takeaways :
| - A cryptocurrency is a decentralized digital asset secured by cryptographic ways and | implemented on a blockchain.
You might have heard of this weird term “mining”, what could it mean to mine cryptocurrencies ? That’s actually one way to invest indirectly into crypto by supported the functioning of a blockchain.
Basically, the process of mining is related to creating / releasing a new cryptocurrency in the real world by achieving the validation of new transactions. In a more concrete way, theoretically everybody can mine a cryptocurrency. To do this, you need to buy computer equipment that can provide energy to the system and enables you to validate transactions. The reward for this effort is an amount of the cryptocurrency proportional to the energy given. While it seems pretty easy, it’s actually very difficult to earn significant amounts of cryptocurrencies through mining because their proof of work requires huge amounts of energy that very few people can afford to provide. For instance the global electricity needed to power Bitcoin farms approximates the annual power used in Switzerland… So the best way to earn money with cryptocurrencies remains investing and we’re about to see how this works…
Where and how to trade, exchange and buy cryptocurrencies ?
The main way to invest in cryptos is peer-to-peer networks and centralized exchanges. Some of them are Coinbase, Gemini and Binance for instance. These platforms act as a third party checking transactions and ensuring users they get what they are paying for. The process is simple, you just need to create an account, check all the important legal information and you can then directly buy your favorite tokens with your credit card. Just pay attention to the fees on transactions. Indeed, every transaction is associated with a fee for the money conversion and the transaction process, generally covering less than 1% of your purchase and an additional few dollars. These fees can become annoying regarding low amounts transfers so you have better make global bigger purchases.
One can also use decentralized exchanges like PancakeSwap or Uniswap, when you have a few more experiences with the DeFi ecosystem. These are exchange platforms built on a certain blockchain (Binance Smart Chain and Ethereum are the most common) and allow users to swap tokens implemented on this platform easily. The interest is to enable users to swap between crypto assets by tapping into generated liquidity pools in order to exchange tokens quickly. The fees are generally lower than centralized exchanges but are a bit more difficult to know so be sure you really understand the core of transactions. A quick tip : avoid unknown platforms with few reviews one the web, we strongly advise you to stay on the marked path and to use common platforms with strong communities.
The last common way consists in using a few brokerage platforms such as E-Toro to invest in crypto and trade the most common cryptocurrencies pretty easily the same way as stocks.
Now that you have chosen your platform, you might have to fund your account depending on your paiement choice before being able to purchase a crypto. Regarding fiat currencies, debits or bank transfers is the most common use. If you already own cryptocurrencies, you can transfer them from a wallet to the platform of your choice to trade it directly. Just pay attention that the trade between your chosen assets is possible. Indeed, some cryptocurrencies can’t be directly swapped on certain platforms.
Finally you only need to choose the cryptocurrency you want to buy or trade and that’s the biggest issue most times. As a crypto investor, there are a lot of possibilities mainly depending on your personal goals, the reason you’re investing … Just make sure to gather enough intel on the cryptocurrencies you’re planning to invest in, check the community, the team if possible, the goals or features of the token and a few elements we’ll focus on a bit later. Make sure you know why you are investing : are you willing to make profit, do you want to practice short term trading, do you want to use decentralized apps, buy NFTs later … To answer those goals, the choice is wide : security tokens, equity tokens, utility tokens, even meme tokens … If you’re really new to all this, here are just a few examples to start your research : Bitcoin, Ethereum, Cardano, Solana, Dogecoin, ShibaInu, Binance Coin …
How to secure my digital assets ?
Now let’s deal with a very important part, sometimes neglected, how can I secure my cryptocurrencies ? Once you buy your first digital assets, it’s important to avoid being stolen. First let’s start with the basics. You need to decide how to store your assets, this will lead to a private key, proving your ownership and necessary to exchange your assets and carry transactions. Losing your private key is a synonym for the loss of all your cryptocurrencies. To keep their belongings safe, crypto owners use so-called digital wallets.
The first way is to store your crypto directly on a trading platform. Most of the exchanges propose storage services to keep your holdings safe and use them easily to trade them whenever you need to. The main advantage is the reactivity offered by this kind of platform where you can directly store your assets with all your logging information and trade easily and quickly.
The second common practice is to use a more secure wallet to avoid leaving large balances of crypto on exchanges for too long since they could be regularly targeted by hackers. To do this, you can use a hot wallet which is basically an online wallet. For instance Metamask is a browser extension where you can store all your assets and connect with DeFi platforms within 2 clicks to use them.
Then, it’s also possible to store your assets on a cold wallet, a physical hardware wallet, for instance if you have massive amounts of some assets that you don’t want to trade in the near future and want them to remain safe. If you’re interested in this kind of wallet, Ledger is the current leader. This ensures maximal security since these wallets are offline and can’t be reached unless you materially possess it.
How to avoid scams ?
There are a few common practices before investing in a token. Since the crypto market is still quite new and unregulated, you could face many scams and quickly lose important amounts of money if you’re not careful.
But the good news is that there are lots of tools to check the solidity of a token project. For instance, StaySAFU is the most secure way to invest in DeFi. This tools gives you the opportunity to scan a token and analyze its scam degree for free. If you’re interested in this topic, I strongly advise you to give a look at our recent articles about common types of scams (link). Here are a few elements …
The first thing you can check is if you token is listed on common analysis platforms such as CoinMarketCap or CoinGecko … You’ll have access to many charts and financial information about the token and its price evolution at different time scales.
You can then check if the token owns a KYC or audits which basically ensure that the project was verified by a third party expert checking the basic elements that make a token at least professional. This doesn’t guarantees that the token will increase its value in the future but it proves that the project is serious and born by a qualified team
A good piece of evidence can be found looking at the community and digital supports of the project. Is there a constructed website with a roadmap, is the project structured ? You can check the features or vision of the token … The effervescence of the community around the project on social media such as Twitter is also a good sign that a project has a certain legitimacy.
A few tips before investing
The DeFi ecosystem is a good opportunity for tech enthusiasts but remains a risky investment. So make sure you deeply understand this new mindset and all the basics of the market. Spend all the time that necessary to gather information of the cryptocurrencies you’re interested in using tools like StaySAFU, analyzing the communities, get into the metrics and features … Now it’s time for me to wish you good luck for this wonderful adventure !