The post Cryptocurrency Guide 101: Basics for First-Time Investors appeared first on Coinpedia Fintech News

If you’ve heard about Bitcoin, Ethereum, or other digital currencies and want to explore investing in them, you’re in the right place. This guide is specifically designed for first-time investors like you, who want to grasp the fundamentals and take their first steps into the exciting realm of cryptocurrencies.

But what exactly is cryptocurrency? Simply put, it’s a form of digital money that exists solely in the digital world. Unlike traditional currencies issued by governments, cryptocurrencies are decentralized and operate on a technology called blockchain, which ensures transparency, security, and immutability.

In this guide, we’ll cover everything you need to know to get started. We’ll explain different types of cryptocurrencies, guide you through the process of setting up a wallet to store your digital assets, help you choose a reliable cryptocurrency exchange, and provide essential tips for safeguarding your investments.

First of all…What Exactly is Cryptocurrency?

When asked, Rikin Shah, Co-Founder & CEO at GetSure, said, “Cryptocurrency may sound like a fancy term, but it’s actually quite straightforward. It’s a type of digital currency that you can use for online transactions, just like you would use physical money to buy things in the real world.”

So the difference is that cryptocurrencies exist only in the digital realm and don’t have a physical form like coins or notes.

To understand how cryptocurrencies work, you need to understand blockchain technology. When asked, Alison Lancaster, CEO of Pressat.co.uk simplified it for us, “Think of a blockchain as a digital ledger, like a record book that keeps track of all transactions. Each transaction is a “block” that gets added to the “chain” in a secure and permanent way. This chain of blocks forms the blockchain.”

What makes blockchain special is that it’s decentralized. This means that no single person or entity has control over it. Instead, the blockchain is maintained by a network of computers spread all around the world. 

These computers work together to verify and validate transactions, ensuring the security and integrity of the cryptocurrency system.

Bitcoin is the most well-known example of a cryptocurrency. Created in 2009, it was the first cryptocurrency to gain widespread recognition. Bitcoin operates on its own blockchain and has become popular as a store of value and a medium of exchange. Think of it as digital gold.

But Bitcoin isn’t the only cryptocurrency out there. 

There are thousands of other cryptocurrencies, often referred to as “altcoins.” Some popular altcoins include Ethereum, which focuses on smart contracts and decentralized applications, and Ripple, which aims to facilitate fast and low-cost international money transfers.

Another type of cryptocurrency worth mentioning is ‘stablecoins’. These are cryptocurrencies designed to have a stable value, often pegged to a fiat currency like the U.S. dollar. Stablecoins provide a way for crypto investors to hedge against the volatility of other cryptocurrencies.

Let’s Start with Setting Up a Wallet

Now that you have a basic understanding of cryptocurrency, let’s talk about wallets. No, we’re not talking about the kind you keep in your pocket or purse. In the world of cryptocurrency, a wallet is a digital tool that allows you to store, send, and receive your cryptocurrencies securely.

“Think of a wallet as a digital bank account for your digital money. It keeps track of your cryptocurrency balance and provides you with a unique address, like a bank account number, that you can use to receive funds from others.”, shares Sumeer Kaur, Founder of Lashkaraa.com 

Just like you need a physical wallet to hold your cash, you’ll need a digital wallet to store your cryptocurrencies.

There are different types of wallets available, but let’s focus on the three main ones: software wallets, hardware wallets, and paper wallets.

Software Wallets: These are applications that you can download and install on your computer or smartphone. They offer convenience and accessibility, allowing you to access your cryptocurrencies whenever you need them. Examples of popular software wallets include Exodus, Trust Wallet, and Coinbase Wallet.

Hardware Wallets: If you’re looking for extra security, hardware wallets are a great option. They are physical devices, similar to a USB drive, specifically designed to store your cryptocurrencies offline. This makes them less vulnerable to hacking or online threats. Some well-known hardware wallet brands are Ledger and Trezor.

Paper Wallets: If you prefer a more old-school approach, you can create a paper wallet. It’s essentially a physical printout of your cryptocurrency’s public and private keys. The public key is the address where you receive funds, and the private key is like a password that allows you to access and manage your cryptocurrencies. You can generate a paper wallet using websites like bitaddress.org.

When setting up a wallet, you’ll usually be guided through a simple process to create an account, generate your unique wallet address or key, and set up a password or PIN to protect your wallet.

As a beginner, you’re absolutely fine with software or app wallets like Trustwallet. They’re more than enough for you to get started. 

Now…Choose a Cryptocurrency Exchange

Now that you have a wallet to store your cryptocurrencies, the next step is to find a reliable cryptocurrency exchange. But again what exactly is a crypto exchange?

Tom Miller, Director of Marketing at FitnessVolt explains it well, “Think of an exchange as a digital marketplace where you can buy, sell, and trade cryptocurrencies. Just as a stock exchange provides a platform for investors to exchange stocks, a crypto exchange enables individuals to trade digital assets like Bitcoin and Ethereum, offering a secure and transparent environment for transactions.”

When choosing a cryptocurrency exchange, there are a few important factors to consider:

Security: It’s essential to choose an exchange that prioritizes security. Look for exchanges that employ robust security measures such as two-factor authentication (2FA), cold storage for funds, and encryption protocols to protect your account and personal information.

Fees: Different exchanges have different fee structures. Some charge a percentage of the transaction amount, while others have fixed fees. Consider the fees associated with depositing, withdrawing, and trading cryptocurrencies on the exchange. Keep in mind that lower fees may not always indicate better service, so it’s essential to find a balance between cost and reliability.

User Experience: A user-friendly interface and intuitive trading platform can make a significant difference, especially for beginners. Look for exchanges with a clean and easy-to-navigate interface, as well as helpful features like real-time price charts and order books to make your trading experience smoother.

Now, let’s explore a few examples of popular cryptocurrency exchanges suitable for beginners:

Coinbase: Coinbase is one of the most widely recognized and beginner-friendly cryptocurrency exchanges. It offers a user-friendly interface, a range of cryptocurrencies to choose from, and strong security measures. Coinbase is known for its simplicity and is a great option for those just starting their crypto journey.

Binance: Binance is one of the largest cryptocurrency exchanges globally and provides a vast selection of cryptocurrencies to trade. While it offers advanced trading features, it also has a user-friendly interface tailored for beginners. Binance is popular for its competitive fees and extensive range of trading pairs.

Kraken: Kraken is a well-established exchange known for its strong security measures and transparent fee structure. It offers a user-friendly interface and a variety of cryptocurrencies to trade. Kraken also provides advanced trading features for those looking to explore more advanced strategies.

Jeanette Johnson, Co-founder at Cool Chicken Breeds, says, “Remember to do your own research and read user reviews before choosing an exchange. Each exchange has its own strengths and weaknesses, and is suited for different levels of experience, so finding one that aligns with your needs and preferences is crucial.” 

However, these three we’ve discussed, especially Binance, are good for new investors to play around. 

Important: Know Your Customer (KYC) Process

When you sign up for a cryptocurrency exchange, you’ll likely encounter a step called the Know Your Customer (KYC) process. 

We asked Michelle Wells, Director of Marketing at Boiler Cover UK, about it, her response was, “It may sound fancy to newcomers, but it’s a simple procedure that ensures the exchange complies with regulations and helps protect against fraud and illegal activities.”

The KYC process involves verifying your identity by providing certain information and documents. This is to confirm that you are who you say you are and to prevent unauthorized individuals from using the exchange for illicit purposes.

Here’s what you can expect during the KYC process:

Personal Information: You’ll typically be asked to provide your full name, date of birth, residential address, and contact details. This information helps the exchange establish your identity.

Identity Verification: To verify your identity, the exchange may ask you to provide a scanned copy or clear photos of a government-issued identification document, such as a passport or driver’s license. This helps confirm that you are a real person.

Proof of Address: The exchange may also require proof of your residential address. This can be done by providing a utility bill, bank statement, or other official documents that clearly display your name and address.

Once you’ve gathered the necessary information and documents, you’ll usually upload them directly on the exchange’s platform. The exchange’s verification team will review the information provided and, if everything is in order, approve your account.

Examples of popular exchanges that follow the KYC process include Coinbase, Binance, and Kraken. It’s important to note that the exact requirements and process may vary slightly between different exchanges, but the general purpose of the KYC process remains the same.

Add Initial Investment Fund to Your Account

Once you’ve set up your account on a cryptocurrency exchange, it’s time to fund it. Funding your account means adding money or cryptocurrencies to it so that you can start buying, selling, or trading cryptocurrencies.

Here are the basic steps to fund your cryptocurrency exchange account:

Choose a Funding Method: Exchanges typically offer various funding options, such as bank transfers, credit/debit cards, and cryptocurrency transfers. Select the method that works best for you based on factors like convenience, speed, and fees associated with each option.

Bank Transfers: If you choose a bank transfer, you’ll need to link your bank account to your exchange account. Follow the instructions provided by the exchange to initiate the transfer. Keep in mind that bank transfers may take a few days to process, so plan accordingly.

Credit/Debit Cards: Some exchanges allow you to fund your account using a credit or debit card. You’ll need to enter your card information, including the card number, expiration date, and CVV code. The exchange will process the transaction, and the funds will be added to your account instantly or within a short period.

Cryptocurrency Transfers: If you already have cryptocurrencies in another wallet, you can transfer them to your exchange account. To do this, obtain your exchange account’s wallet address (a long string of alphanumeric characters) and use it to send the desired amount of cryptocurrency from your external wallet to your exchange wallet. This process may involve transaction fees and requires a basic understanding of cryptocurrency transfers.

Each funding method may have its own associated fees, processing times, and limits imposed by the exchange. Be sure to review the specific details provided by the exchange regarding funding options to make an informed decision.

Once the funds or cryptocurrencies are successfully added to your exchange account, you’ll be able to see your available balance. You can then use this balance to buy or trade cryptocurrencies on the exchange according to your investment goals and strategy.

Quick Heads Up by Experts: Don’t Forget Your Security Measures

When it comes to investing in cryptocurrencies, ensuring the security of your funds and personal information is of utmost importance. While cryptocurrency exchanges and wallets implement security measures, it’s crucial to take additional steps to protect yourself. Here are some basic security measures to keep in mind:

Strong and Unique Passwords

“Use strong, complex passwords for your exchange account and wallet. Avoid using easily guessable information like your name or birthdate. Include a combination of uppercase and lowercase letters, numbers, and special characters.” – Richard Kennedy, Managing Director at Arken Digital.

Additionally, use a unique password for each platform you use to minimize the risk of multiple accounts being compromised if one password is compromised.

Two-Factor Authentication (2FA)

“Enable two-factor authentication whenever possible. 2FA adds an extra layer of security by requiring a second form of verification, usually a temporary code generated by an authentication app on your smartphone, in addition to your password.” – Ken Jar, Financial Expert at Individual Voluntary Arrangement, IVA.

This helps prevent unauthorized access to your accounts even if your password is compromised.

Be Cautious of Phishing Attempts 

“Be vigilant against phishing attempts, which are fraudulent attempts to obtain your sensitive information. Avoid clicking on suspicious links in emails, messages, or social media.” – Eric Dalius, Executive Chairman of MuzicSwipe. 

Be cautious of unsolicited requests for personal or account information and verify the authenticity of the source before providing any sensitive data.

Keep Software Updated

“Ensure that your computer, smartphone, and any devices you use for cryptocurrency-related activities have the latest software updates installed. These updates often include important security patches that help protect against known vulnerabilities.” – Kenny Kline, President at Barbend.

Backup Your Wallet

“Regularly back up your wallet and store the backup in a safe and secure location. This helps protect your cryptocurrencies in case of device loss, damage, or theft. Follow the backup instructions provided by your wallet provider to ensure a proper backup.” – Bruce Mohr, Vice-President at Fair Credit.

Use Secure Networks

“When accessing your cryptocurrency accounts or making transactions, use secure networks that you trust. Avoid using public Wi-Fi networks, as they may be vulnerable to attacks.” – David Martinez, VP Enterprise & OEM Accounts at Cybernetman.com. 

Consider using a virtual private network (VPN) for an added layer of security when connecting to the internet.

Educate Yourself

“Stay informed about the latest security practices and threats in the cryptocurrency space. Keep up with news and updates from reputable sources to ensure you’re aware of any potential risks and can take appropriate precautions.” – Warren Phillips, Co-Founder of Lantana Recovery. 

By implementing these basic security measures, you can significantly enhance the security of your cryptocurrency investments and reduce the risk of unauthorized access or loss of funds.

The Moment: Make Your First Investment

You’ve reached an exciting milestone in your cryptocurrency journey: making your first investment. Here’s a step-by-step guide to help you get started:

Research and Choose a Cryptocurrency: Begin by researching different cryptocurrencies and understanding their fundamentals, use cases, and potential for growth. Look for projects that align with your investment goals and risk tolerance. Bitcoin and Ethereum are popular choices for beginners, but there are numerous options available.

Set a Budget: Determine how much money you’re comfortable investing. Start with an amount that you’re willing to risk, as cryptocurrency investments can be volatile. Remember, it’s generally recommended to only invest what you can afford to lose.

Select an Exchange: Choose a reputable cryptocurrency exchange that supports the cryptocurrency you wish to invest in. Consider factors such as security, fees, user experience, and available trading pairs. Coinbase, Binance, and Kraken are well-known exchanges suitable for beginners.

Fund Your Account: Follow the previous steps we discussed to fund your exchange account using a suitable funding method, such as a bank transfer or credit/debit card. Ensure that your account is adequately funded before proceeding to the next step.

Place Your Order: Once your account is funded, navigate to the trading section of the exchange platform. Choose the cryptocurrency you wish to invest in and select the type of order you want to place. The two common order types are market orders and limit orders:

Market Order: A market order allows you to buy or sell a cryptocurrency at the current market price. This type of order is executed instantly, but the exact price you receive may vary slightly due to market fluctuations.
Limit Order: A limit order allows you to set a specific price at which you want to buy or sell a cryptocurrency. The order will only be executed if the market price reaches your specified price.

Monitor Your Investment: After making your first investment, keep an eye on the market and the performance of your chosen cryptocurrency. Remember that cryptocurrency prices can be volatile, so it’s important to stay informed and make informed decisions based on your investment strategy.

Consider Long-Term Holding: Cryptocurrency investments can be approached with both short-term trading and long-term holding strategies. Some investors choose to hold their cryptocurrencies for an extended period, anticipating potential future growth. Research different investment strategies and determine what aligns with your goals.

Remember, investing in cryptocurrencies carries risks, and the market can be unpredictable. It’s crucial to stay informed, be patient, and make well-thought-out decisions based on your research and risk tolerance.

As you gain experience and confidence, you can explore more advanced trading strategies and consider diversifying your cryptocurrency portfolio. But for now, take that first step, and enjoy the exciting world of cryptocurrency investment!

Keep Track of Your Investment 

To effectively track and monitor your cryptocurrency portfolio, follow these key steps:

Use portfolio tracking tools like CoinMarketCap or CoinGecko to stay organized and informed about your cryptocurrency holdings, their current values, and price changes over time.
Set realistic investment goals and regularly reassess them to align with your desired timeframe and expected returns.
Stay updated on price movements by regularly checking cryptocurrency exchange platforms or utilizing price-tracking websites and mobile applications.
Stay informed about market news, trends, and developments by following reliable sources that provide insights into the cryptocurrency industry.
Take advantage of price alerts offered by portfolio tracking tools or exchanges to be notified when the market reaches your desired thresholds.
Regularly review your portfolio’s performance and consider rebalancing if necessary to align with your goals and risk tolerance.
Maintain records of your transactions for tax purposes and general reference.

Tracking and monitoring your portfolio is an ongoing process that requires discipline, patience, and a long-term perspective. By staying informed and making informed decisions, you can effectively manage your cryptocurrency investments and work towards your financial goals.

Conclusion

Investing in cryptocurrencies can be an exciting and potentially rewarding venture. However, it’s important to remember that it comes with risks and requires careful consideration.

Andrew Priobrazhenskyi, CEO and Director at Discount Reactor summarizes, “By understanding the basics of cryptocurrencies, choosing a reputable exchange, following the KYC process, funding your account, implementing basic security measures, making your first investment, storing and managing your cryptocurrency securely, and tracking and monitoring your portfolio, you are well-equipped to start your journey as a cryptocurrency investor.”

Always keep in mind that the cryptocurrency market is highly volatile and can experience significant price fluctuations. It’s crucial to conduct thorough research, stay informed about market trends, and make informed decisions based on your own financial situation and risk tolerance.

Lastly, this guide is meant to provide educational information and should not be considered financial or investment advice. Remember to invest responsibly, diversify your portfolio, and consult with a qualified financial advisor if needed.

Best of luck on your cryptocurrency investment journey, and may it bring you success and growth in the exciting world of digital assets!

Disclaimer: This is a guest post. Coinpedia does not endorse or is responsible for any content, accuracy, quality, advertising, products, or other materials on this page. The image used in this article is for informational purposes only and is provided to us by a third party. Coinpedia should not be held responsible for image copyright issues.
Contact us if you have any issues or concerns. Readers should do their own research before taking any actions related to the company.

---

Filed under: Bitcoin - @ May 29, 2023 5:22 am