Welcome back to another series! In this series I will share my basic crypto knowledge, to help people who just got into the crypto market.
Which coin should I buy?
Most of the time when people ask me about cryptocurrencies, they always ask which coin will go to the moon the fastest, but honestly nobody knows. That’s the magical effect of the market, sometimes it goes up, sometimes it goes down, but in the end only those coins survive, which have a real value to their users.
The key to success is diversification.
Buying only one coin has great risks, as you can either win or lose. Bitcoin for example could go up to 100.000$ or down to 1$, nobody knows.
By buying more than one coin you diversify your risk. If you got 2 coins, one is going up the other one is going down, you may end up with a small profit or a small loss.
When I started investing into crypto, I bought way too many coins, 29 to be exact. I thought that I found 29 big projects which are going to moon soon. Some of them did really well in performance, others didn’t.
I some research on all the coins again and decided to reorganize my portfolio. After 2 weeks of researching and comparing, I decided to sell 12 of my coins, to build up a bigger position on my remaining 17 coins. But I still think 17 is a bit too much, my desired portfolio goal is to have around 10 coins.
To understand a bit in what you can invest through cryptocurrencies here is an article providing information about the various types of cryptocurrencies.
Why do I need an exchange?
The easiest way to buy cryptocurrencies with fiat money is via an exchange.
You can always look for other ways to buy crypto, but in most cases you get either a really bad price, or you don’t get your cryptocurrencies at all.
Finding an exchange and verifying your account takes up most of the time when you buy crypto for the first time.
Here is a list of the most used exchanges.
I have been using https://www.kraken.com/ for depositing fiat money, and
It is important to have different verified accounts on different exchanges, to be able to buy all cryptocurrencies. In my case Kraken has many great coins, but a lot of my favorite ones are missing, for example Tron(TRX), Neo(NEO) or Tierion(TNT).
That’s why I got my second verified account on Binance, as they got every other coin I wanted to buy until now! I have been using both exchanges for over 2 years now and I never had any major problems.
Public Key, Private Key and the mnemonic phrase
The public key is your public address, you can post your public key anywhere you want, as people can only send crypto to your public key.
The mnemonic phrase, sometimes called the backup phrase, generates your private key. They private key is used to authorize the management of digital assets, that means that anyone who has the private key, can transfer funds from the wallet.
To be able to login to your wallet from anywhere of the world, you have to write down the mnemonic phrase. I always print out the wallet name with the corresponding mnemonic phrase and put it into a safe spot at home.
Be sure to never expose your mnemonic phrase or private key on your pc or smartphone, as it can always get hacked, and the mnemonic phrase is everything the hacker needs to withdraw all your coins!
What are the different wallets?
- Hardware Wallet
- Paper Wallet
- Desktop Wallet
- Project Wallet
- Multi Coin Wallet
- Exchange Wallet
First of all you have to understand what you can and cannot do with your wallets. When you buy your first cryptocurrency, your coins will be stored on your Exchange wallet. Having your coins on an Exchange wallet gives you the ability to react as fast as possible to the market, as you don’t have to transfer your coins to the Exchange wallet first. The biggest problem with Exchange wallets is the fact that an exchange can get hacked, in that case you may lose some coins from your Exchange wallet.
Being able to store cryptocurrency safely is one of the main reasons people want to use crypto. To secure your coins from exchange hacks, it is necessary to transfer your coins from your Exchange wallet to another wallet where only you have the private key.
It always depends on which coin you want to transfer. In many cases there already exists a wallet from the developer team, just check the website of the coin! Here are a few examples:
If you want one wallet for many coins you should definitely check out various desktop versions and browser extensions.
I use the Jaxx desktop wallet for most of my coins and Metamask for the remaining ones.
Here is a list of different wallets:
Metamask is one of the most used Ethereum browser extensions, you can store all ERC-20 tokens on it.
Don’t forget to write down your mnemonic phrase in case you lose your hardware wallet or in case it breaks, only with your mnemonic phrase you will be able to retrieve your coins!
Hot and Cold wallet
In a technical sense there are no differences between a hot and a cold wallet. The idea is to have one wallet which you use daily (the hot wallet) and to have another one (the cold wallet) where your assets are stored. This is mainly used for security reasons.
For example you can have a wallet on your mobile phone and load it up with 100$ worth of crypto, to use afterwards. If you lose your phone and the associated mnemonic phrase, it’s not such a great deal, as you only lost 100$.