So you want to get into crypto but don’t know where to start? Well, you’ve come to the right place. I’ll lay out some of the ways to ease yourself into the crypto pool without feeling like you’re in over your head.
We’ll cover these topics:
- How do you research cryptocurrencies?
- Accounts at Centralized Exchanges
- Self-hosted wallets
- Buying crypto
- Trading in Centralized and Decentralized Exchanges
- Crypto Influencers
- Avoiding Scams
First things first. Research!
Research is crucial to your success in crypto investing. You should understand what various cryptos do and why they exist. Learn what problem it solves. Research its competition and see why the crypto you want to invest in is different. Investigate the team that created (or is creating) it to see if you believe they can deliver on their promises. Look at whether the code has been audited or not. Some coins are inflationary, and some are deflationary, meaning that the supply will increase or decrease over time. It may be important to know whether your position will be diluted over time.
You can generally learn some basic information from coin ranking sites like nomics.com, coingecko.com, or coinmarketcap.com. If you click on a specific crypto, you can find out more information about what the coin or token does, its price history, circulating supply, and links to its website, social media accounts, whitepaper, and often their code repository so you can view their code.
Keep in mind that these ranking sites simply rank coins by “market cap,” which is nothing more than the price of the last trade multiplied by the number of coins in circulation. Theoretically, if you created a crypto with a supply of 1 trillion coins, slapped a cute kitten face on it, and sold 10 coins for $1 each, your “market cap” under this calculation would be $1 Trillion. That’s not a useful metric to determine the actual value of your made-up crypto, but it’s exactly how ranking sites work.
You can also subscribe to crypto newsletters from sites like cointelegraph.com, coindesk.com, decrypt.co, or bitcoin.com (which covers more than just bitcoin). TLDR crypto is another newsletter that sends out regular emails with links to various articles about different crypto topics, and you can find them here: https://tldr.tech/crypto
The takeaway should be to do the same research you would do before putting your money in the stock market. You worked hard for that money, and you shouldn’t just throw it at the next coin with a dog’s face on it just because a friend told you he made 80% yesterday. Yes, you will miss some opportunities. But thorough research will probably help you avoid some rug pulls as well, which will hurt your portfolio far more than missing out on a 2x in some “shitcoin”.
TL;DR: If you don't do good research, you shouldn't expect good results.
Accounts at Centralized Exchanges
You will get familiar with the term “on / off ramps” in crypto, which refer to exchanges that will allow you to bring in fiat (I’ll just use USD in this article) and exchange it for various cryptocurrencies. Gemini, Binance, Crypto.com, and other major players in this category are known as Centralized Exchanges or CEXs. In order to open a CEX account, you will need to pass an identity verification known as KYC (Know Your Customer), which is similar to what banks are required to do when you open an account.
- You can move tens or hundreds of thousands in or out in a day once you pass KYC verification.
- You have access to a wide range of cryptos immediately.
- Some CEXs offer staking of some coins, which will allow you to earn additional rewards over time in the form of the same coin. For example, you can see the rewards offered by crypto.com here: https://crypto.com/us/earn
- “Not your keys, not your coins.” You don’t actually own any of your crypto you hold on a CEX. Many people do not realize this.
- CEXs have been hacked and some have refused to release customer funds in the past. This is always a risk you should be aware of. For example, Coinbase was hacked just months ago. Read about it here: https://www.techradar.com/news/coinbase-hack-sees-thousands-of-users-accounts-drained
- There is usually a 7-10 day hold period for new funds, meaning you can’t transfer out any money or crypto until that hold period expires. If you need to buy a crypto right away that isn’t supported by that exchange, you will be out of luck for a week or so.
- CEXs only list a small amount of the cryptos that exist, and the one you want may not be on their list.
Unfortunately, at this point in time, CEXs are more or less necessary evils, because they’re the only method to get larger amounts of fiat in and out of the crypto space. I personally maintain accounts at CEXs, but the moment that my hold period expires, I transfer out my crypto to a hardware wallet, which is far safer than relying on a third-party that can be hacked to hold my crypto for me. Given that there are no FDIC-type guarantees on any crypto accounts, it is up to you to keep your funds safe and secure.
TL;DR: CEXs generally suck, but you pretty much have no other option to on/off ramp fiat at this point in time.
If you’re looking to only initially invest a small amount of money into crypto, a self-hosted wallet may be a good option. Most are free and have no KYC requirements. The term self-hosted simply means that you own the cryptographic “seed phrase” that provides access to your private keys. These are usually 12- or 24-words long.
There are two types: “hot” wallets that are online all the time, and “cold” wallets like hardware wallets that only have access to your crypto holdings when you physically connect those devices to your computer. Examples of hot wallets include Metamask (Metamask.io), which is a browser extension you can set up in just minutes without giving out any personal information, Trust Wallet (trustwallet.com), or Exodus (exodus.com). Most hot wallets have apps you can use on your phone, although I personally would not trust phone apps because that means your seed phrase is stored on your phone, and you never know what kind of spyware is out there or may be out there in the future. “Cold” wallets, otherwise known as hardware wallets, are physical devices that you buy and plug into your computer whenever you need to access your crypto. Two of the most famous are Trezor (trezor.io) and Ledger (ledger.com). I personally prefer the Trezor because I find it easier to use, but DYOR. You can also connect your Trezor to a hot wallet like Metamask to transfer crypto in and out of it.
When you first create a self-hosted wallet, you will be given this seed phrase.
- Treat your seed phrase like it’s the most important secret you know
- Write your seed phrase down on paper
- Put it in a secure location, like a safe or safe deposit box
- Make sure your seed phrase location is safe from fire or water damage
- Lose your seed phrase. It is the ONLY way to recover your accounts. If you lose your seed phrase, you lose access to your crypto. Period.
- Type your seed phrase into a program that has access to the internet, like Microsoft Word, or any program that gets backed up to iCloud.
- Keep your seed phrase in an unsecure location, like on your desk where someone can easily find it.
And most importantly: NEVER GIVE YOUR SEED PHRASE TO ANYONE, EVER, FOR ANY REASON. Many people have been scammed by people pretending to be from a wallet’s support team and have given up their seed phrases to these scammers. YOU WILL LOSE ALL OF YOUR CRYPTO IN YOUR WALLET if you ever give out your seed phrase.
I personally recommend memorizing your seed phrase, especially if it is only 12 words like Metamask or Trust Wallet. Even if your phone, computer, or hardware wallet is stolen or destroyed, you can buy another one and enter your seed phrase and all of your accounts will be recovered. Remember, a crypto wallet doesn’t actually hold any of your crypto – all crypto is stored on the blockchain. All a wallet does is provide access to it using your private keys. Your private keys are derived from your seed phrase. So don’t lose it.
Keep in mind that some self-hosted wallets are EVM (Ethereum Virtual Machine) based and can only support crypto from those chains. In other words, you cannot hold Bitcoin in a Metamask wallet because Metamask only supports EVM chains like Ethereum, Binance Smart Chain, Polygon, and the soon-to-be-launched PulseChain. Similarly, not every chain is supported by every hardware wallet. You will need to research your wallet to see if it supports the crypto you want to buy.
Note: Although rarer, some crypto wallets do not use a regular seed phrase, but instead use a long (multiple page) alphanumeric string that will restore your wallet. And although I earlier stated that you should never keep your seed phrase in any program that could be accessed over the internet, if you have one of these wallets, you may have to put this type of backup string on a flash drive and store it in your safe. I believe Guarda wallet uses this type of backup data, but I haven’t checked in a while. It might be different now.
It’s complicated, I know. But this is where the crypto space is in April 2022. Things will get more user-friendly as crypto moves towards mass adoption, because explaining all of this to the average grandma seems nearly impossible.
TL;DR: NEVER GIVE ANYONE YOUR SEED PHRASE. EVER.
Anyway. Moving on.
Now that you have your wallet, how do you buy crypto? Easy. If you have a CEX account, you simply enter your bank information, connect to your bank, and transfer USD into your account. It will show up almost immediately, and you can swap your USD for any crypto offered by that CEX. Again, it will be trapped there until their hold period is up, but you will get the benefit of any price appreciation from the time you bought it. So just sit back and wait.
If you opened a self-hosted wallet, it’s a little trickier. Metamask integrates with a credit card processor called Wyre, which supposedly allows you to buy $1,000 USD per day worth of Ethereum (since Metamask won’t hold USD, you have to purchase Ethereum to put in the wallet). In my experience and through trying to help onboard some friends into crypto, Wyre works around 50% of the time, and the fees are stupid high. But again, this process isn’t for bringing in large sums of cash, it’s really only for dipping your toe into the crypto pool in a quick, easy, non-KYC fashion.
Once you have your Ethereum in your Metamask wallet, you can head over to Uniswap (a decentralized exchange, or DEX) and swap it for something you really want. Uniswap is Ethereum’s largest DEX, just as CAKE is Binance Smart Chain’s biggest DEX. These DEXs are what is known as Automated Market Makers, or AMMs, and are exactly what they sound like – automated. They are essentially programs that run themselves and facilitate swaps between cryptos on the same chain. Be very careful, though. There is nothing stopping anyone from creating a scam crypto with the same name as the one you want to buy, but has no value at all. DYOR and don’t get scammed. The good news is that because there’s no KYC associated with Metamask or any DEX, you can transfer that crypto immediately into your hardware wallet.
TL;DR: You're a baller? You’ve basically got no choice but to run it through a CEX. Just messing around with a few hundred bucks? You can probably get away with opening a Metamask wallet.
Trading in Centralized and Decentralized Exchanges
If you’ve done your research, and feel good about your investment, I highly recommend HODLing and not trading. Many traders get REKT. The crypto market moves incredibly fast compared to stocks, and is open 24/7 unlike the stock market that is only open for part of the day on weekdays. Trying to chase the new, shiny thing in crypto is exponentially more difficult than day trading stocks. And let’s not forget all of the fees you will incur trading in and out of various cryptos. CEXs know this, and count on it for a good portion of their revenue, not unlike how a casino knows that some people will win, but most will lose. And the casino is the only real winner in the long term.
However, there will be a time when it is necessary to trade in and out of a crypto or to liquidate your gains and withdraw. CEXs make trading easy, which makes sense when you consider that it’s a primary revenue source for them. However, not every trading pair is available on every CEX, meaning you may have to swap out one crypto for another and then swap that crypto out for USD in order to liquidate your position and withdraw your money into your bank account.
DEXs have the same issue, but also show you the route being used to turn one crypto into another. If the DEX needs to route your SHIB through USDC first and then into ETH, it will let you know that’s the route it is taking. This may help you understand why the fees you’re paying to execute that particular trade are so high.
TL;DR: If you want to get REKT, being a crypto trader is a great way to do it.
LOL, just don’t. Almost all influencers get paid to shill a crypto. Then, their subscribers listen to them and run out and buy it which pumps the price, and then they dump their inflated bags on the heads of everyone who was dumb enough to listen to them. Here are 600 examples: https://cryptoslate.com/footprint-analytics-over-600-projects-got-rekt-in-2021-2-2b-lost-annual-report-2021/
You can head over to Twitter and research how much some of these people charge to do a YouTube video, an endorsement tweet or retweet, or otherwise talk about how great some upcoming project is. The amounts they charge are jaw-dropping. But they clean up no matter how much money you lose listening to them.
TL;DR: There are a few really good people in the crypto space that you should listen to. There are literally thousands of people who will pretend to sell you a shiny gold bar when it’s really a painted brick of dog shit. DYOR.
The more you read about crypto, the more it seems that scams are everywhere. And to some extent that’s true. Because crypto is still in the very early stages of adoption, it’s easy to take advantage of people who are just learning about it.
For example, you’ll notice that I talked about never giving out your seed phrase in CAPITAL LETTERS. That’s because it’s the easiest and fastest way to lose all your crypto. Phishing scams are very popular, and for one reason: they work. Don’t click on links on your phone or in emails, because you don’t know if it’s real or not. I just received an email the other day claiming that Metamask needed me to validate some information or my account would be deactivated. It looked real enough, but it’s a scam. Metamask has no personal information. So don’t give them any.
As much as I dislike CEXs, Binance has a feature where you provide an anti-phishing code in your account and they will include it in emails to you as an extra security feature. I still wouldn’t click on any links, though. If I need to, I will simply log into my account and deal with any issues there.
Another common scam is called an ‘exit scam’. This is where a new crypto comes out with an initial coin offering, people throw money at it, and the team steals the money and leaves without delivering a product. Look up what happened with Bitconnect, which is probably the most famous crypto exit scam to date.
You’ll get used to hearing the term ‘rug pull’ as well. This is when a new coin is created, influencers are telling you how awesome it is, and people begin swapping other crypto for it. Once the scammers have collected enough crypto, they liquidate it and leave investors with worthless coins. Rug Pulls are sadly common, accounting for almost 37% of crypto lost to scams in 2021. Research what happened with the $SQUID token if you want a frightening example of how rug pulls work.
Beware of fake apps and websites. It is ridiculously easy to make a website that looks identical to a crypto project’s genuine website, but has a malicious app installed. When you connect your wallet, it obtains permissions that you would never otherwise authorize and can steal your crypto right out of your wallet.
TL;DR: Don’t give out your seed phrase to anyone. Don’t chase shiny things. Don’t connect your wallet to websites you don’t trust.
Everything about the crypto world seems dangerous, and to some extent it is. But it is the fastest growing asset class in the history of civilization, and you’re very early to it. Your chances of turning $100 into $1 Million? Probably low. But even staking some tokens and earning 4-8% beats the hell out of whatever your bank is offering right now. Plus, you get to take the price appreciation when you sell, if any.
NEVER GIVE OUT YOUR SEED PHRASE.
Never invest more than you can afford to lose.
Be wary of someone getting paid to shill a crypto.
And finally, nothing I say is financial advice. I’m just stating my own opinions formed by experiences both good and bad. Your mileage may vary.