Newbie's Guide To Crypto - Basics of Getting Started

Newbie's Guide To Crypto - Basics of Getting Started


Just a few years ago, being a cryptocurrency investor was like being part of a secret club. It was something that was mysterious, and not a lot of people seemed to be interested in it or understand it. Now, cryptocurrency is in the mainstream, and its nearly impossible for me to go to the gym or hang out with my friends without being asked for cryptocurrency advice. Don't get me wrong, I love sharing information and helping people get started in crypto, but I wanted to write this article as a more formal way of introducing people to cryptocurrency and providing better resources than I can during a mid-bench press gym session. In this post, I'll provide a very basic beginners guide that will explain what cryptocurrency is, how to screen coins for investing, and where to buy cryptocurrency.

What Is Cryptocurrency?


When someone asks me about cryptocurrency for the first time, the question that I usually get is "What should I invest in?" By the time someone has made up their mind to invest in crypto, they usually have a general idea of what cryptocurrency is, but in the interest of completeness, I will borrow a definition that a cryptocurrency is a form of digital asset that exists outside the control of any single entity or government. There's a lot more to it than that, but as a beginner, the main takeaway is that cryptocurrency is

  • 1) not controlled by a government
  • 2) exists ONLY as a digital asset - you can't go to the bank and withdraw a Bitcoin
  • 3) has a number of security and privacy benefits compared to other financial assets

"What Cryptocurrency Should I Invest In?"

This is a well-meaning question, and I really do appreciate when people ask me for investment advice. But I am always clear to state that I am NOT an investment advisor nor do I give advice. Many people become interested in crypto after they see HUGE price gains (such as DOGE appreciating more than 16,000) this year. Although I do believe in the long term potential of cryptocurrencies, I am always quick to tell enthusiastic newbies that it is also possible for cryptos to experience DRAMATIC drops, and point out that there have been times when Bitcoin has dropped 20%  and lost over $10,000 dollars in a single weekend. I never try to discourage enthusiastic new cryptocurrency converts, but I do try to point out that volatility is a fact of life for crypto traders, and there is no guarantee that cryptocurrency prices will go up. 

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Although I don't give specific cryptocurrency advice, there are a few general principles that I think that are important for newbies and veterans alike. Far and away, the most important thing that I can say is that it is incredibly important to Do Your Research and know why you are investing in a certain cryptocurrency, what its value proposition is, where you can trade the coin, and so on. 

What Does The Coin Do?

One of the best resources I have found for starting initial research is CoinGecko. When I consider investing in a coin, the first thing that I do is go to CoinGecko and search for the coin to find some basic info. The first thing I will look at is the coin's description. In other words, what does the coin do? As an investor, I think it is important to only invest in projects that you understand, and even reading a brief paragraph summary of the coin will help you decide if its something you're interested in. My biggest piece of non-advice is that if  you can't explain the basics of what a coin does, you don't need to be invested in it. If you don't understand what you're getting into or why the coin is valuable, you're likely to treat it as a price gamble instead of an investment. 

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CoinGecko isn't the only place to find this information, but I think it is a great place to start as it is very objective and presents the facts for you to consider. However, I consider this a starting point, and I'd also encourage you to read the project whitepaper as well as watching a few videos on the coin by a variety of different creators. Look for both positive and negative reviews of the coin and decide if the strengths outweigh the benefits. 

Up to this point, we have been considering a coin at face value, but remember that anyone can write an amazing white paper. However, there is a world of difference between a good pitch and an actual product. As a beginner, you want to look for coins that have some track history behind them. Have they met the milestones on their roadmap? What exchanges are they listed on? Does the project have a lot of bugs or unresolved issues? Later on, it's fine to consider pre-ICO coins, but for right now, lets stick with coins with an established record that we can trust. 

Will I Be Able To Buy / Sell The Coin?

Once you have a general understanding of what the coin does, it can be helpful to look at actual performance metrics. That being said, always remember that a coin's past performance is no guarantee of what it will do in the future. One specific metric that I think is useful is 24 hour trading volume. I higher trading volume implies more liquidity which means that you will be able to buy and sell the coin more easily.

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In an extreme scenario, consider that the coin you want to purchase has only $100 of 24 hour liquidity. It will likely be difficult for you to sell $1,000 worth of the coin if the price goes up as you simply wouldn't be able to find a buyer. Continuing with the same example, lets suppose that you only wanted to sell $25 worth of the coin. Even though there would be enough liquidity to support your sale, your single order represents a significant portion of the day's total trade volume and you are likely to push the market price down ensuring that you don't get the full value for your trade. The main point as a beginner is to make sure that your coin has adequate liquidity. As you become more advanced and are willing to take more risks, its fine to look at low market cap, low liquidity moonshots, but you can set yourself up for a disappointment if you aren't 100% sure what you're looking for. 

How To Buy

Once you have decided what coin you want to buy, you have a few options. One option is by purchasing on a centralized exchange such as Coinbase, KuCoin, or Bittrex . If you live outside the US, you have many more choices including Binance. Purchasing cryptocurrency on an exchange will require you to verify your identity with a passport, driver's license, or some other documentation, so be prepared for that. When you purchase crypto on an exchange, the exchange will store your cryptocurrency for you until you request to withdrawal it.

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One advantage of buying cryptocurrency from an exchange like Coinabse is that there is a verification process that coins must go through to be listed on the exchange. This is by no means a guarantee that it is a good cryptocurrency to invest in, but the fact that the coin must pass a few basic requirements and be accepted can be reassuring to some buyers. 

Although exchanges will store your crypto for you, it is generally recommended to store it yourself on your own wallet. Some wallets, such as Trust Wallet, even have the ability for you to buy cryptocurrency right within the wallet using a debit/credit card. Although this option may have a more limited selection of coins, it can also be easier for some people as the coins immediately arrive right there in your own wallet without the need to transfer from an exchange. 

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Summary

Cryptocurrency investing can be an exciting, as well as potentially lucrative, venture. Although there is a potential for great profit, there is also the potential for huge losses, and its always important to never invest more than you can afford to loose. Doing your own research is important, but it can also be helpful to follow and listen to content creators that you trust. It is also important to be prepared for extreme volatility, and remember that there is no guarantee of making money or even breaking even. That being said, cryptocurrency has been an incredibly rewarding journey for me, I hope you will also have a similarly positive experience. Good luck!

Thanks for reading, not financial advice. 

References

https://www.investopedia.com/terms/c/cryptocurrency.asp#:~:text=A%20cryptocurrency%20is%20a%20digital,a%20disparate%20network%20of%20computers.

https://www.coingecko.com/en/coins/dogecoin

https://pro.coinbase.com/static/digital-asset-framework-2017-11.pdf

https://www.publish0x.com/the-part-time-economist/what-is-a-whitepaper-crypto-whiteboard-101-xllrzzm

Image Credits

https://unsplash.com/photos/fiXLQXAhCfk

https://unsplash.com/photos/pfmKvWLDGoc

https://www.coinbase.com/

https://trustwallet.com/

 

 

 

 

 

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The Part Time Economist
The Part Time Economist

Hi everyone. I'm just a simple man trying to make my way in the universe. I am passionate about cryptocurrency and hope that I can make at least some small contribution towards promoting wider crypto adoption and understanding.


The Part Time Economist
The Part Time Economist

Hi everyone. This is just a place for me to post some of my thoughts and analysis. I hope that someone finds them useful.

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