How to Invest in Cryptocurrencies?

DISCLAIMER: All investment strategies and investments involve risk of loss. Nothing contained in this article should be construed as investment advice. Any reference to an investment's past or potential performance is not, and should not be construed as, a recommendation or as a guarantee of any specific outcome or profit. Every investment and trading move involves risk. You should conduct your own research when making a decision.

Understand How Crypto Works

By definition, “cryptocurrency” is a digital or virtual currency that is secured by cryptography, which makes it almost impossible to counterfeit or double-spend. Almost all cryptocurrencies that currently exist on the market are based on blockchain technology which help it to achieve decentralization, transparency, and immutability.

Cryptocurrency was the inadvertent byproduct of bitcoin, the very first cryptocurrency. Unfortunately, when bitcoin first started to get its name around, it was in a negative light. Ever heard of The Silk Road? This was the “Amazon” for drugs, weapons, anything...on the dark web. And to maintain complete anonymity, Ross Ulbricht, its creator, implemented bitcoin as the payment mechanism. For more information on The Silk Road, we suggest you check out Nick Bolton’s book “American Kingpin”.

A Brief Intro to Bitcoin and Altcoins

Launched in 2009, Bitcoin was created by an individual or group known only by the pseudonym, ‘Satoshi Nakamoto’, and shared a whitepaper explaining the concept on SourceForge.

Now, bitcoin wasn’t the first attempt at creating such a system. But it was the only successful system that persevered. Over the years, closer to a decade, there had been many attempts to create digital money, but they all failed. Previously, all the (failed) systems utilized a Trusted Third Party approach, where the companies behind those systems both verify and facilitate the transaction.

So what made bitcoin different? Satoshi added the element of “decentralization”.

Today, the true identity of Nakamoto remains a mystery, although over the years, individuals have come forward claiming to be the “real” Nakamoto, including Dorian Nakamoto, Craig Wright, and Nick Szabo.

Nakamoto’s vision behind bitcoin was to create a peer-to-peer (P2P) electronic cash system that was completely decentralized. Of course, it was never his/her/their intention to have it used for illicit/illegal purposes (The Silk Road), but welcome to the nature of the beast.
These are every other digital currency that has been created after bitcoin. The most notable examples include, but aren’t limited to Litecoin, Ethereum, Cardano, and the list goes on. As of today, there are over 5,000 altcoins in existence. Let the buyer beware!

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Don’t Put All Your Eggs in One Basket

All investing is ruled by a combination of greed and fear, and it may be hard to keep the greed part under control given the advances cryptos have shown in recent years. For context, it’s smart to look to the Bitcoin Fear and Greed Index.

Like any traditional investment, don’t put all your eggs in one basket. A piece of advice would be to only invest as much as you are willing to lose. For this reason, investing more than 10% or even 5% is risky.

Do Your Research: Follow Crypto

Cryptocurrencies weren’t designed to be investments. Rather, they are mediums of exchange whose value is determined strictly by the market (as opposed to manipulation that sovereign currencies bring).

Before investing in any particular cryptocurrency, it is important to read as much as you can, from a variety of news sources, including but not limited to Coin Market Cap, CoinDesk, CoinTelegraph, Bitcoin Magazine, and watching the millennials news network, Cheddar TV, which operates directly from the floor of the NYSE.

There are over 5,000 coins which all serve different functions and provide a unique benefit to the communities, so there’s no rush!

Do Your Research: Choose a Platform/Exchange

What makes the world of buying cryptocurrencies both exciting and extremely frustrating, is that you can’t get them in all the usual financial places--meaning that some coins require you to go through multiple steps or conversions on exchanges to get the coin you want. And of course, banks don’t offer them nor do investment brokerage firms.

The exception to this is Robinhood, one of the only brokers that makes cryptocurrencies available. For those unfamiliar with Robinhood, it is a certified disruptor in the investment broker space, beginning with commissions--there are none. The platform allows you to buy stocks, options, exchange-traded funds (ETFs), and cryptocurrencies--all without commission fees.

Some of the largest exchanges on the market include, but aren’t limited to:

  • Binance
  • Kava
  • Coinbase
  • CoinDesk
  • Kraken

Do Your Research:
Choose a Wallet to Store Your Crypto

Finding the appropriate wallet for you is also a benefit. A crypto wallet is an online wallet or software program that stores the private and public keys that connect you to the blockchain where your cryptocurrency exists.

Remember, these wallets don’t actually store your cryptocurrency, but simply allow you to access your reserve on the blockchain via your public key (your cryptocurrency address which the other party to the transaction sees) and a private key (known only to you--your wallet’s social security number). In order to complete a transaction, you must have both to unlock the crypto on the blockchain.

There are different types of wallets, depending on how you are choosing to invest your funds:

Desktop Wallets

These types of wallets are installed on your personal computer--Windows, MAC, Linux. Since the storage itself is on your own personal computer, the information is more secure here than online, which is susceptible to cybersecurity attacks.

Online Wallets

These are wallets on the cloud, and can be accessed from any computer. While more convenient to use, it’s risky because your private key is also stored online and controlled by a third party, making them less secure. Take caution

Mobile Wallets

These types of wallets are accessible via an app on your smart device--phone or tablet.

Hardware Wallets

These are wallets on the cloud, and can be accessed from any computer. While more convenient to use, it’s risky because your private key is also stored online and controlled by a third party, making them less secure. Take caution

Hot (internet-connected)

Hot wallets are comparable to your bank’s checking account—where they are used for the everyday spending of cryptocurrencies, typically holding only small amounts of any fund(s).

It’s similar to the physical wallet we carry on us on a daily basis.

The biggest feature to know about these types of wallets is that they are almost invariably connected to the Internet in order to be readily usable.

You can see where this may cause concern when it comes to security and vulnerabilities.

Cold (offline/USB)

On the other hand, “cold wallets” are comparable to your average savings account, used for long-term secure storage of your cryptocurrencies, typically holding larger sums of monies that are not intended to be touched or used very frequently.

Unlike hot wallets, cold wallets are not actively connected to the Internet. By actively, I mean that there may be some battery or Wi-Fi enabled feature that could allow it to connect to the internet.

For security purposes, it is smarter to keep the majority of your assets in a cold wallet, while a smaller portion of your funds are kept in the hot wallet for purchasing and sales transactions.

Why? A cold wallet makes it much more difficult for hackers to steal your funds, because it’s not connected to the Internet, or any Wi-Fi enabled services. While the current wallets out there are functional, they are still difficult to use, as many of the features leave the user exposed to hacking attempts.

Welcome to the Jungle!

But remember, no matter where or how you decide to buy, sell, and store your crypto--be prepared to lose everything you put in. Think of it as you walking into a Las Vegas casino.

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