You might have heard the buzz around cryptocurrency early January 2018. Everyone was talking about these new digital currencies that have taken the whole world by storm.
You might have even heard about all the early adopters that got in first and are now swimming in cash. Sounds too good to be true right?
However, you can't help but think what if? What if I had bought some bitcoin at the start, then maybe I could have enough money to retire early and live a life of luxury.
It's hard to shake that feeling that maybe if you learn a little trick or two about this magical world, you too might be able to strike it big and become the next major investor.
Well, let us get you past the first hurdle and into buying your first coin.
What is cryptocurrency?
First of all, you need to know exactly what it is you will be buying.
Cryptocurrency, often called crypto for short, is a virtual currency that utilises blockchain technology adding an extra layer of security to payments. This currency is decentralised, meaning that there is no central authority that controls it, reducing interference from the government. They also dislike it for the fact that they are unable to collect tax from it.*
On top of this, there is an increased level of privacy. Due to the nature of the technology your transactions are highly confidential and anonymous.*
The word cryptocurrency is a combination of the words cryptography and currency. Cryptography is what allows you to store data and encrypt it and also create public and private keys and wallet address.
A wallet address is the location of your wallet and is needed in order for outside funds to be sent within. A public key is a code that allows you to see funds inside your wallet and private keys work like a secure password that allows users to access and spend their funds.*
If you want to learn a bit more about cryptocurrency itself, the purpose of its creation and how they came into the limelight, read our other guide here.
There are hundreds of different coins which are referred to as altcoins, that each represents a different element and provide differing utilities. Some of the more popular ones are Ethereum, XRP and Litecoin.
However, before you even think of buying any currency, there is one major thing you need to do first.
Get a wallet
So, you have a bunch of cash but where do you put it? In your wallet. It works the same way with cryptocurrency, except that this time, you store your digital money in a digital wallet. Therefore, the first thing you should probably do is get yourself a cryptocurrency wallet.
There are many different kinds of wallets you can get, but how do you know which one is best for you?
You first need to decide whether you would like a hot wallet or a cold one. This is a scale representing how connected you are to the internet.
Hot wallets are ones you store your money on that connect to the internet. These tend to have the advantage of being more easier to use and accessible, however, run the risk of being less secure as you open yourself up to the internet, potentially compromising your privacy and security.
Cold wallets, on the other hand, are offline wallets that are more secure as they are not connected to the internet but are also less user-friendly and require more technical understanding.*
Currently, there are 5 main types of crypto wallets you can buy in order of hot to cold:
This is on the hotter end of the wallet types and is considered very practical and convenient.
Your cryptos are stored in a web wallet that you are able to access via a web browser when you connect to the internet. The company that provides the wallet, stores your private key online in a cloud server.
Pros of an online wallet:
- Allows fast transactions
- Great for storing small amounts of cryptocurrency.
- Beginner friendly and one of the easier wallets to use
- Can be used anywhere as long as you are connected to the internet
Cons of an online wallet:
- Considered the least secure wallet type
- There is a risk of a breach in online security.
- You are exposed to computer viruses
- You are not the one storing your crypto, a third party controls it.
Then comes the mobile wallet, which is available on your phone using an app. With the app, you would be able to manage the storage of your coins and also be able to shop in stores using cryptocurrency. For example, the Zeux app will allow you to spend your Bitcoin SV (BSV) and Qtum in thousands of stores.
Pros of a mobile wallet:
- Considered safer than online wallets
- accessible anywhere as long as you have a phone
- Also allows features such as QR scanning
Cons of a mobile wallet:
- You can lose your cryptocurrency if you lose your phone or it gets damaged.
- Your phone can also be subject to viruses and malware.
These types of wallets are right in the middle of the hot and cold scale as it depends on whether you are connected to the internet or not. These are wallets that you download via an application on your laptop or PC.*
Pros of a desktop wallet:
- Considered safer than mobile wallets especially if you do not connect to the internet.
- One of the more easier to use types of wallet.
- Your private keys are yours and are not stored on a third party software.
Cons of a desktop wallet:
- If you connect to the internet, it reduces security.
- Crypto can be lost if your device becomes damaged (remember to back-up regularly).
- If you have your crypto stored on a PC as opposed to a laptop, you will be unable to manage your crypto on the go.
With this wallet, you store your private keys in an external storage device, typically a flash pen drive (USB). Due to the nature of the wallet and the fact that it is not an online device, it is considered cold storage. They work by plugging them into an Internet-based device and logging in, allowing you to send and receive cryptocurrencies.
Pros of a hardware wallet:
- Considered safer than desktop wallets.
- Better for storing large amounts of cryptocurrencies that you do not use regularly.
- Even more secure if the device has a screen
Cons of a hardware wallet:
- You can lose your crypto if you lose your USB.
- The most expensive type of wallet available.
- Not beginner friendly.
- Extremely popular, making them harder to get a hold of.
- You might have to wait to manage your crypto till your USB arrives (if you get it delivered).
The paper wallet is the coldest wallet type as it is a physical copy of your digital assets. In order to use it, you need to print out both your public and private keys. When using it, send your money to the wallets public address and then if you need to withdraw your funds, either scan the QR code on the paper or enter your private key manually.*
Pros of a paper wallet:
- Considered one of the safest, most hacker-proof wallets available.
- Your crypto is not on any devices.
- You have complete control as your keys are not stored on a third party software.
Cons of a paper wallet:
- Requires a very technical understanding.
- Harder to shift cryptocurrencies around.
- If you want to exchange crypto, you will need to carry it around with you.
- Susceptible to water spillages, fire damage and other household accidents.
As you can see, there are various options that you can try out and ultimately the decision is down to personal preference. However, it is very important to ensure that the option you go for is compatible with the cryptocurrency you are planning to buy.
Purchasing from an exchange
The next step is to find a place where you are able to purchase your cryptocurrency. These are trading platforms and are also known as exchanges.
An exchange can be defined as a trading platform that allows you to buy, sell and exchange cryptocurrencies into other currencies or fiat currencies (GBP, dollars, yen etc.).
They work by bringing buyers and sellers together and giving them away to trade crypto between each other. The exchange determines the rates of the cryptocurrency by monitoring the demand and supply in the market, the total number of coins and tokens in circulation and other factors affecting the price. There are 4 simple steps* to the process:
- Register with your chosen exchange. For example, you can choose to sign up with COBINHOOD, a great user-friendly exchange with zero trading fees.
- Deposit the amount of crypto or fiat currency you would like to trade with. Make sure that the currency you are putting in is supported by the trading platform.
- Set the maximum price you wish to purchase the coin at and wait for the software to match you to a seller for your purchase.
- Enjoy your newly acquired coin.
Transferring crypto to your wallet address
Don't celebrate too hard yet, your money is just sitting in the exchange and will need to be sent into your wallet in order to be kept safe.
This stage is important as it is risky to leave a large amount of crypto on the exchange after you have purchased it. The only time you should leave crypto there is if it's a small amount that you are planning to trade with soon.
The reason for this is that exchanges are susceptible to being hacked. In 2014, a hacker was able to drain more than 750,000 BTCs (around $350 million) from an exchange called Mt. Gox causing the company to file bankruptcy and investors to lose their funds. *
Transferring your crypto* can be done in a few simple steps :
- Find out the public wallet address of the wallet you want to send your crypto to.
- Go into the exchange you want to transfer out of and add the address.
- Enter the amount you wish to transfer out.
- Withdraw the amount and confirm the transaction.
- Triple check your wallet to see if the funds have been transferred correctly. The addresses are long and you don’t want to make the mistake of sending money elsewhere as once its been sent, its gone.
Well done, you are now the proud owner of your very own cryptocurrency.
If you want to take things to the next level you can hunt for new projects to support that you believe in, make a withdrawal from an atm or even head over to your local coffee shop to purchase your morning coffee.
The world is your oyster. Time to set forth and experiment.
As always, if you found this article interesting, be sure to share the news with a friend and comment your thoughts down below.