A lot of people are interested in crypto today and they want to learn about how to invest in cryptocurrency. In this digital era, where technology rules over, everything has been turned into digital formats or forms. Digital files, digital images, and now we have the so-called digital asset and also digital asset. You can save them, use the, and also utilize them as investment. But before jumping further into real actions, it’s crucial to understand more about cryptocurrency and its function, especially in today’s condition and setting.
More popular as crypto, cryptocurrency is basically a digital asset which can circulate around without the existence or even the need of a central (monetary) authority, like banks or governments. That’s why crypto is also known to use decentralized system, which is the absence of ruler, or observer, or any authoritative figures. Crypto is made or created with cryptographic techniques, enabling people to trade, sell, or buy them safely and privately. That’s why knowing how to invest in cryptocurrency can be a useful insight because the mechanism would be different from the centralized system.
One of the most popular cryptocurrencies is Bitcoin. Bitcoin (and other cryptocurrencies) are running on the technology called blockchain. Blockchain is a new and sophisticated technology maintaining solid transaction records (that are resistant to tampering or altering) so they can keep tracks of who is owning what. Blockchain is created to address some issues related to digital currencies creation: to prevent people from making copies what they have and trying to spend it more (or twice).
If you hear about token or coin, it refers to individual cryptocurrency units. Whether it is tokens or coins, it depends on their functions. Some would be used as exchange units of services and goods, while some would be used to store values. Some are used to take part in (specific) software-related programs, like financial products and games.
There is the so-called NFT crypto, a short for Non Fungible Token. Unlike the regular cryptocurrency, the NFT refers to digital assets about ownership of a digital file’s original copy. They have many similar traits to cryptocurrency, and they can also be sold and bought in many marketplaces. However, whereas NFTs are categorized as non fungible, the crypto is fungible. Fungible means that any unit (of a specific crypto) would be the same as the others. One Bitcoin of mine has just the same value as one Bitcoin of yours. So, you get what non-fungible means: One asset of mine can be in different value from your one asset.
Choosing a Brokerage
One of the first steps in starting out how to invest in cryptocurrency is to choose a crypto broker. Just like stock broker, crypto broker will make the process easier for you, especially if this is your first time doing crypto investment. Not only you don’t have to deal with the fuss of buying (and selling) crypto, but you can also get access to the interface system that is relatively easy to use. The interface system allows you to interact with the exchanges that you want. Some brokers may set high fees, while some may charge you lower. You may want to skip using the brokerage claiming to offer free service because they tend to ‘cheat’ you. They make money from selling info about you (as well as other traders) to big funds or brokerage. They are also known not to execute your trade within the best (and possible) market price.
A word of advice, though. Getting the help of a brokerage can be super convenient, but they have their own restrictions especially related to moving off your crypto holdings from the platform. SoFi and Robinhood are two of the most popular and trusted crypto brokers, but they have their own limitation. You won’t be able to transfer your crypto asset or holding out of your own account. For some people, this isn’t an issue, but for some, it’s a big deal. Some seasoned cryptocurrency investors like to have their coins within crypto wallets for the added security. Some even decide to have hardware crypto wallets that aren’t connected to the net.
Does it mean that you can manage your investment by yourself, without using a brokerage? Yes, it is possible. However, if this is your first time doing crypto investment, you may want to know more about the learning curves. You can set aside only a small number of money for the initial learning and joining brokerage. Once you are comfortable with your knowledge, you can start doing it on your own. There are tons of different platform these days, so you can have limitless options. But as a starting point, joining a brokerage is always a good idea, especially if you want to familiarize yourself about how to invest in cryptocurrency
Making an Account
When you have decided on a brokerage (or exchange), you need to register so you can open an account. You may be required to verify your account and identity, but it depends on the platform as well as the amount of crypto to buy. Verifying your identity is crucial to meet the federal regulatory requirements as well as preventing frauds. What if you don’t want to verify your identity? You won’t be able to buy (or even sell) any crypto. As a part of the process, you may be required to submit your passport or driver license (only the copy) as well as uploading a selfie. It’s done to match your appearance with the submitted documents, making sure that you are legit and trusted.
Depositing the Funds
Just like other investments, you need to have funds to be able to invest. Depositing your funds is one of the steps in how to invest in cryptocurrency. There are different ways to deposit the fund. You can link the bank account to your crypto account so making transfer would be easy. You can even buy the crypto through credit or debit card. In most cases, you need to deposit the funds in your own wallet, but it’s also possible that you have to deposit the money in the exchange of your choice.
If the latter is your options, you may have to wait for several days before finally using the money because each exchange may apply its own regulations and processing time, which can be different from one another. That’s why it’s always advisable (and wise) if you can look into the brokerage and also the exchange that you choose. Make sure that they are reliable and they already have positive reputation.
Here’s what you need to be extremely aware of: It would be safer for you to deposit the money to your own wallet. Depositing money to the broker or exchange account would be risky, and it is also expensive. You see, the credit card companies would process the crypto buying (with the credit card) as cash advances, meaning that they become the subject of higher interest rates when compared to regular purchases. Not to mention that you need to pay the extra fees for the cash advance. For instance, you may deal with 5% transaction amount when making a cash advance. This would be on top of the brokerage or exchange fees charged as they can go up 5% of their own. It means that you would lose up to 10% of the crypto purchase for fees only.
Placing the Order
Another rule of thumb in how to invest in cryptocurrency: When you have enough funds in your wallet, you can place the order. As it was mentioned before, there are tons of crypto to choose, from the super popular Ethereum and Bitcoin to the new ones like Holo or Theta Fuel. Once you have made a decision of which crypto to choose, simply enter the ticker symbol (such as BTC is for Bitcoin or ETH is for Ethereum) along with the number of how many coins you want to have. Most brokers and exchanges allow you to buy crypto’s fractional shares, meaning that you can purchase a sliver of (high prices) tokens without actually having to spend thousands in the process.
Here are some of the examples of the most popular cryptocurrencies, along with their symbols.
- USD Coin, USDC
- Bitcoin, BTC
- Tether, USDT
- Uniswap, UNI
- Ethereum, ETH
- XRP, XRP
- Dogecoin, DOGE
- Polkadot, DOT
- Cardana, ADA
- Binance Coin, BNB
Choosing Storage Method
Being a decentralized system means that crypto exchanges won’t be backed by other protective agencies or institutions, such as FDIC (Federal Deposit Insurance Corp). It means that crypto is prone to risk of hacking and theft. You can even lose the entire investment if you lose (or even forget) the codes to your account. This is one of the reasons why you need to have a safe storage place for your crypto. And this protective measurement is one of the crucial steps on how to invest in cryptocurrency.
As it was mentioned before, if you buy the crypto from a broker, you don’t exactly have any option in choosing how your crypto is stored or kept. However, if you buy the crypto through the exchange, you are given more options:
- Leave the funds. When you purchase a crypto, it would be generally kept in the so-called crypto wallet, which is attached to the exchange. If you want to move your money to a safer location or you dislike the third-party partner that is working with your exchange, you can transfer it to a separate cold or hot wallet. However, there is usually a fee to this, and the amount depends on the transfer’s size and also the exchange you use.
- Hot wallets. It means that the wallets are connected and kept online. They are connected to devices, like phones, computers, or tablets. They are convenient, but there are always higher risks (especially theft) because they are connected to the net.
- Cold wallets. Unlike the hot wallets that are connected to the net, cold wallets aren’t. If you want to have a secure place to store your crypto money, the cold wallets would be the best option. These wallets are typically coming in external devices forms, such as a hard drive or USB drive. Despite their safety, you still need to be careful with this type of wallet. If the device fails or breaks, or you lose the keycode, you won’t be able to get your crypto money back. The same thing also applies to hot wallets, but certain hot wallets have custodians that are able to help you get into your account back in the event you are locked out. Cold wallets don’t have such custodians or whatsoever.
You may need some time to get the hang of everything, especially related to crypto investment. However, once you understand the entire concept and you take baby steps to learn about this type of investment, it can be fruitful. Just be careful of shady brokerage or platform. Now that you already know the early steps in how to invest in cryptocurrency, you may want to start and see it for yourself!