Cryptocurrencies have revolutionized the world of finance, offering opportunities for everyone, from seasoned investors to beginners exploring digital assets. Navigating the crypto space, however, can seem daunting without proper guidance. So, let’s explore the essentials of purchasing and securely storing cryptocurrencies while avoiding common pitfalls.
The basics should first be understood before venturing into the crypto space. Cryptocurrency is a virtual currency secured with cryptography. It makes sure that online transactions may be done efficiently without any mediators. Examples of the top existing cryptocurrencies include Bitcoin, Ethereum, and Binance Coin. Each crypto has a specific use, from peer-to-peer payments to decentralized finance and non-fungible tokens.
First, the investor needs to decide what they want to achieve with cryptocurrency. Are they investing for long-term growth, exploring decentralized finance, or experimenting with NFTs? The purpose will shape one’s journey. It will also help the buyer determine which assets to buy.
The first and most important step is to select a reliable platform. Centralized exchanges are a good starting point for beginners. They offer easy interfaces, wide selections of cryptocurrencies, and safe trading environments. For example, if someone in the US wants to buy Bitcoin, Coinbase would be a popular choice because it has a very user-friendly app and beginner-friendly resources.
Advanced traders have more tools, lower fees, and a greater variety of digital assets in Binance or Bybit. Compare transaction fees, supported cryptocurrencies, and security features before selecting a platform.
Buying cryptocurrency generally is a fairly simple process. First, one needs to make an account with the exchange on which they choose to buy it. For example, on CoinGeko, the registration process requires only an email and a government ID for verification, then two-factor authentication for security.
Usually, through any crypto exchange, the buyer can fund their account by linking a bank account or credit card. Bank transfers often have lower fees, but they may take a little longer to process. After the funds are ready, a user can navigate to the trading section. The next step is choosing the cryptocurrency they wish to buy. For example, buying Bitcoin is as simple as entering the amount one wishes to spend and clicking ‘Buy.’
Once the transaction is completed, the user will find the crypto in their exchange wallet. It is a short-term storage wallet. However, to enhance security, it is always recommended to transfer funds to a personal crypto wallet.
After buying the cryptocurrency, it is of prime importance to secure the same. Maintaining one’s assets on the exchange may be highly convenient, but they will always be at risk of hacking. The safest option is to shift funds to a private wallet.
Some private wallets are available in the form of mobile applications or browser add-ons. For instance, MetaMask or Trust Wallet, are wonderful for transactions but contain the risk of hacking. On the other hand, cold wallets (Ledger, Trezor, etc.), or hardware wallets, for that matter, store the private keys outside a network, thereby, risking unauthorized access immensely.
Imagine a user has purchased Ethereum and intends to hold it for a few years. Transferring funds to a cold wallet in that case, will ensure maximum security. However, always remember to back up the wallet’s recovery phrase and store it in a secure, physical location, such as a safe deposit box. Losing this phrase could mean losing access to funds forever.
Transactions on cryptocurrencies attract fees that differ with the platform and network congestion. For example, buying Bitcoin through Coinbase attracts fees between 1.49% and 3.99% depending on the payment method used. Additionally, withdrawing funds to wallet incurs network transaction fees.
Taxes also play a critical role in cryptocurrency ownership. Most countries, including the US, treat cryptocurrency as property, meaning capital gains taxes apply. Hence, keeping detailed records of crypto transactions will help a buyer stay compliant and simplify the tax reporting process.
Entering the crypto market is a risky game. Scams, phishing attacks, and fraudulent investment schemes are quite common. Never enter any link without verifying its URL, avoid unsolicited offers, and, above all, never share private keys or recovery phrases. The best way to defend against losing hard-earned assets is through self-education and caution.