Investing in the cryptocurrency market space can be a bit daunting for the traditional investor, as investing directly in cryptocurrency (CC) requires using new tools and adopting some new concepts. So if you decide to dip your toes into this market, you’ll want to have a very good idea of what to do and what to expect.
Buying and selling CC requires you to choose an exchange that trades the products you want to buy and sell, whether it’s Bitcoin, Litecoin, or any of the over 1,300 other tokens in play. In previous editions, we have briefly described the products and services offered on several exchanges to give you an idea of the different offerings. There are many exchanges to choose from and they all do things their own way. Look for the things that matter to you, for example:
– Deposit policies, methods and costs for each method
– Withdrawal policies and costs
– Which fiat currencies do they work with for deposits and withdrawals
– Products they deal with like crypto coins, gold, silver etc
– Transaction costs
– where is this exchange based? (USA / UK / South Korea / Japan…)
Be prepared for the Exchange setup procedure to be detailed and long, as Exchanges usually want to know a lot about you. This is similar to opening a new bank account in that exchanges are brokers of value and want to be sure that you are who you say you are and that you are a reliable person to work with. “Trust” seems to be earned over time, as exchanges usually only allow small investment amounts to begin with.
Your exchange will store your CCs in a repository for you. Many offer “cold storage”, which simply means that your coins are stored “offline” until you indicate that you want to do something with them. There is a lot of news about exchanges being hacked and many coins being stolen. Think of your coins as being in a sort of bank account on the exchange, but remember that your coins are only digital and that all blockchain transactions are irreversible. Unlike your bank, these exchanges do not have deposit insurance, so keep in mind that hackers are always out there trying to get their hands on your crypto coins and steal them. Exchanges typically offer password-protected accounts, and many offer two-factor authentication schemes—something you should seriously consider to protect your account from hackers.
Considering that hackers like to attack exchanges and your account, we always recommend you to use a digital wallet for your coins. It is relatively easy to move coins between your Exchange account and your wallet. Be sure to choose a wallet that handles all the coins you want to buy and sell. Your wallet is also the device you use to “spend” your coins with merchants that accept CC for payment. The two types of wallets are “hot” and “cold”. Hot wallets are very easy to use, but they leave your coins exposed to the internet, but only on your computer, not on the Exchange server. Cold wallets use offline storage media such as dedicated hardware memories and simple hard copy printouts. Using a cold wallet makes transactions more complicated, but they are the safest.
Your wallet contains a “private” key that authorizes any transactions you wish to initiate. You also have a “public” key that is shared across the network so that all users can identify your account when they engage in a transaction with you. When hackers get your private key, they can move your coins anywhere they want and it’s irreversible.
Despite all the challenges and wild volatility, we are confident that the underlying blockchain technology is a game changer and will revolutionize the way transactions are done in the future.