This blog post is the beginners guide on how to safely buy cryptocurrency. If you’re like most people, you’ve probably heard of Bitcoin, Ethereum, Cardano and more. It is starting to appear in the mainstream media which means Wall Street money is pouring into not only Bitcoin but other cryptocurrency investments.
Currently, CoinMarketCap lists 17, 238 cryptocurrencies, 458 exchanges with over US$1.69 Trillion sloshing around in this space.
Things can get scary and confusing what with so many cryptocurrencies you could spend your hard earned cash on. There are no guarantees on the future performance of these crypto assets. You need to do your due diligence and you need to manage your risks.
Then there’s the question of how to store your crypto assets safely. Don’t stress; we will walk through the differences between software wallets (hot wallets) and cold wallets (also known as hardware wallets). We will discuss the best hardware wallets that are on the market. We will also give you an overview of what to look for when choosing a reputable Bitcoin exchange to start your journey into the world of crypto.
Cryptocurrency can be a great investment, but it’s important to be aware of the risks and take the necessary precautions when buying it. Click here to read about 5 Best Cryptocurrency Books For Beginners (Even In 2022).
This article does not provide financial advice.
One of the most common questions you will read on cryptocurrency-related forums is whether or not cryptocurrency is a good investment. Inevitably, this leads to a long and heated debate about the merits of digital assets.
So, here’s the best way forward. Educate yourself and Do Your Own Research (DYOR)
Do Your Own Research (DYOR)
Ultimately, we believe that everyone should make their own decisions when it comes to investing. However, we want to provide you with some information to help you make an informed decision. With that in mind, here are a couple of things you should know before investing in cryptocurrency.
1) Cryptocurrency is volatile
Cryptocurrency prices can change dramatically in just a few minutes. As a result, it’s important to only invest what you’re willing to lose. If cryptocurrency volatility puts you off, then we suggest that you stick to traditional investments.
If cryptocurrency is right for you, then make sure to keep an eye on prices.
Write down your strategy and decide before you purchase bitcoin or any other cryptocurrencies whether you HODL or sell when it goes below a floor price you have set for yourself.
2) Cryptocurrency is an unregulated industry
For example, cryptocurrency exchanges do not have to comply with Know Your Customer/Anti Money Laundering (KYC/AML) laws and can operate in many countries without much or if any governmental oversight.
Depending on your country of residence, regulations governing cryptocurrencies vary although governments are now taking steps to regulate cryptocurrency exchanges.
Shady cryptocurrency exchanges like Quadriga CX have lost customer funds with the founder having conveniently gone missing or “died”.
In contrast, banks are regulated and have to have funds put aside to compensate their customers who have had their money stolen when accounts have been hacked. Not so in crypto.
Banks are also legally obliged to provide detailed information on the financial products they sell. The fancy term is the Product Disclosure Statement that you get when you buy a bank’s product. Not so in crypto.
Now that you know, let’s move on to how to set up your crypto wallet and safely purchase bitcoin or any other crypto asset that catches your eye.
When buying bitcoin, your cryptocurrency wallet is used to store your bitcoin and other digital assets. Cryptocurrency wallets provide a solution for interacting with blockchain networks. They’re different than traditional bank accounts because they don’t use banks as intermediaries.
Instead, blockchain technology acts as the go-between between you and what’s stored in your wallet.
Your crypto wallet has a private key and a public key. The public key is the digital address you share with other people to receive payments. The private key is like your password that is used to access your crypto assets.
Do not ever, ever, ever allow a third party to hold your private keys.
1) Software wallets
Software (or web/hot) wallets run on an Internet-based device and this includes phones, laptops, and smartphones. The advantage of using a software wallet is the ease and convenience of accessing your crypto instantly. The disadvantage of having your software wallet is that always connected to the internet which makes it more vulnerable to hacking.
If you must use a software wallet, choose a desktop wallet. It is an app you download onto your laptop or desktop. When you first create this wallet, you are prompted to generate a password (write this down on a piece of paper, make multiple copies and stash it in different places).
A wallet.dat file is also generated. This file holds information about your private key. Make backups of this wallet.dat file on a USB.
You will need both your password and wallet.dat file to access your desktop wallet.
2) How to set up a MetaMask wallet on your laptop or PC
We have selected MetaMask as the setup process is straightforward and great for the beginner crypto purchaser. It works on both the Ethereum and Polygon networks and is supported on Chrome, Edge, Brave and Firefox browsers.
i) Open your Chrome browser. Go to https://metamask.io/ and download the MetaMask extension. Bookmark the web address and always return to this address if you need to create the wallet again.
ii) Follow the instructions to install the MetaMask Extension
iii) You will get to the step where you see “Secret Recovery Phrase”. This is very important. It is your seed phrase. The Secret Recovery Phrase is what you will need to recover your wallet if your PC/laptop dies on you or is stolen.
iv) Write down your Secret Recovery Phrase on paper and make multiple copies that you store in a couple of different places. Double-check the spelling. You will be asked to confirm your Secret Recovery Phrase, so pay attention when recording this information as you will need to enter it in the order it has been shown to you.
v) Read the Terms and Conditions and understand what it means before you click “I Agree”.
vi) You will be prompted to create a password. Be smart about this and make sure it has alphanumeric with upper and lowercase letters. Again, write this down on paper and make copies to be stored in, you guessed it, different places.
What’s The Big Deal About Your Secret Recovery Phrase
The seed phrase is used to recover your cryptocurrency if you lose your password or hardware wallet or your software wallet becomes corrupted. Sometimes you will hear the term “mnemonic phrase” used in place of seed phrase or seed words.
You must write down your recovery phrase, make multiple copies on paper and store them in more than one safe place. Did we mention that?
Do not take a photo of your paper copy of your recovery phrase; you do not want to create a digital copy (ever!).
Storage of your recovery phrase via online or on cloud servers etc increases the chances of your very precious information being stolen and your cryptocurrency drained from your wallet.
3) Hardware wallets
Hardware wallets are used for long-term storage (HODL-ing) of your crypto assets. Your hardware wallet is a physical device that functions like a USB that stores your private key.
While the public key from private keys is used for creating public cryptocurrencies addresses and sharing them to receive the cryptocurrency the private key is used to confirm the ownership of the corresponding cryptocurrencies.
It requires a PIN to unlock the USB and must be connected to your PC or laptop before you can interact with the blockchain. As cold wallets are seldom linked to the internet, the chances of your account being hacked are greatly reduced. It may be the safest and most secure way to store cryptocurrency offline and in cold storage.
Top 4 Hardware Wallets
Pro tip: Buy your hardware wallet directly from the manufacturer. Do not bargain hunt online from sellers on sites such as Amazon or Ebay. Some dishonest operators tamper with the hardware wallet and will sell you ledger hardware wallets together with the Recovery Seed Phrase.
This is a big red flag. If they have a copy of your Recovery Seed Phrase, they have access to your bitcoin wallet.
Be aware of phishing attacks
Bad actors claiming to be from hardware wallet companies will email you asking you to enter your seed phrase on what looks like a legitimate website. They are highly sophisticated scams so please check closely that the url is legitimate.
- Ledger Nano S
Ledger hardware wallets are very popular and affordable. The Ledger Nano S is arguably a best-selling hardware wallet for cryptocurrency and is suitable for people looking for robust security at a reasonable price. Ledger Nano S supports almost 1000 cryptocurrencies and is equipped with integrated security features.
The new firmware will make the onboarding procedure more efficient and will allow for four options if you confirm your recovery statement, instead of requiring you to cycle through every 24 words.
- Ledger Nano X
Ledger Nano X derived from a systolic wallet designed for Ledger (later called Ledger Nano S). It offers more storage with blockchain apps installable up to a hundred times and a bigger screen that works on phones thanks to a Bluetooth connection. Ledger Nano X works on MACOS, Linux OS X.
It can be hooked to the PC via the USB cable while it is connected via Bluetooth connection and OTG cable. This system supports more than 6,000 coins or tokens. It is simple to use as all navigation is done via two buttons (left-right) enabling the confirmation of transactions.
- Trezor Model One
Originally launched by SatoshiLabs in 2014, Trezor wallets have a solid reputation as one of the safest digital wallets available.
The Trezor Model One retains an outstanding level of protection and support is available today at an attractive price and remains among the most popular.
It is a favorite with HODL-ers as it is water-resistant and has a large display. This makes the job of confirming transactions easier to read.
Model One also enjoys the flexibility of employing Trezor Suite as a desktop wallet application. This is an added safety measure as you will not need to use your browser to access your crypto assets.
- Ellipal Titan
Ellipal Titan specializes in hardware security solutions for storing data. The air-gapped state separates your Ellipal wallet physically and electronically from any network. Typically, hardware wallets use USB and Bluetooth. Ellipal Titan with its Ellipal app uses just codes to enter a transaction. Ellipal Titan was not designed for Wifi Bluetooth or cell phone connectivity, thus preventing any physical connectivity.
This protects your system against network and remote attacks and has an anti tamper self-destruction mechanism to prevent offline attacks. First, you’ll need to create a strong password and seed phrase. Make sure your password is at least 12 characters long, contains a mix of letters, numbers, and symbols, and isn’t something that can easily be guessed.
To purchase cryptocurrency you need to set up a crypto account. Typically this will be with exchanges and platforms to buy Bitcoin, Ethereum, and other altcoins. These cryptocurrency exchanges offer an enormous variety of services and more cryptocurrency options to trade.
If you sign up for a cryptocurrency exchange, you can buy, sell or hold crypto. In general best practice, select a cryptocurrency exchange that lets users transfer cryptocurrency into a personal online bank account for security reasons.
Some crytpo exchanges have a limited list of crypto for purchase whereas exchanges like Binance will offer several cryptocurrencies options. They are offered at different rates and have different levels of protection for customer funds that are hacked, so take care if you decide to choose them.
How to find reputable exchanges or brokerage services to make your first purchase.
Pro tip: Check out customer reviews from past customers. Look for exchanges that have good security practises and offer two-factor authentication (2FA) to protect your account.
Make sure you do your research before choosing an exchange and never store more cryptocurrency on an exchange than you are willing to lose.
Know Your Customer (KYC)
Know Your Customer- this is becoming standard practice for most exchanges. You are required to provide photographic proof of identity usually in the form of a passport, driver’s licence, or other government issued identity papers.
Connect your exchange to a payment option
The steps follow similar steps to opening an ordinary brokerage account. During this process, you can verify your identity and select a payment method eg linking your crypto account on the exchange with your bank account or credit card.
Centralized versus decentralized exchanges
- Faster transaction times as the company holds the private keys of the customer
- Transaction fees are generally a bit higher
- Helpdesk available to solve technical problems
- Susceptible to hacking as the exchange is operated by a company that holds the private keys of customer wallets
- Active traders want to factor in any connection issues to the platform that may occur during hectic trading sessions
- Some of the more reputable and secure cryptocurrency exchanges include:
Decentralized (Dex) exchanges:
- No intermediaries are involved in the trade as it is a peer-to-peer exchange
- Lower transaction fees
- User is in full control of their funds as they hold the private keys to their wallet
- Self-executing smart contracts are used to buy/sell crypto assets
- The downside may be a lack of liquidity in the market
- Some of the more popular decentralized exchanges:
Remember: never store your cryptocurrency on an exchange for longer than you need to!
Following these tips will help you safely buy cryptocurrency and protect your investment. Happy trading!