A Beginner's Guide To Success In Crypto
Find out how cryptocurrency works and what it takes to invest.
Cryptocurrency (AKA crypto) has been around for many years. It still has a way of making your head scratch due to its many currencies, volatility and the many platforms out there you can use. It’s a form of currency that was designed to one day be used as a common way to pay for goods. But what is it exactly?
Thankfully, we’ve broken everything down to help you get a fast and easy grasp on the world of crypto, so you can give it a try yourself. Our beginner's guide to crypto will dive into what crypto is, how crypto works, how to get started and what to consider before buying, trading and selling.
What is cryptocurrency?
Crypto is a type of payment system that’s totally digital. Known as a “peer-to-peer” system (essentially meaning it allows anyone in the world to send and receive payments), it doesn’t rely on banks to verify transactions. That last part may worry you, but thanks to blockchain technology that’s used to vet all types of transactions, everything is secure.
When you decide to make or receive transactions in the form of crypto, advanced coding is used to encrypt and verify purchases (hence the name). All transactions are recorded and stored in a public ledger.
Because crypto is a digital asset, its value is determined by supply and demand. Many forms of crypto exist, such as Ethereum, XRP, Tether and more. You may have heard of Bitcoin too, which was first launched back in 2008. It was the first crypto that people used to trade for profits.
How does cryptocurrency work?
Crypto is used on an open network and are decentralized virtual currencies, meaning there isn’t one place where it’s controlled. As we mentioned before, transactions are made via a peer-to-peer process, as opposed to a bank or other authority.
This is where blockchain comes into play. It keeps a record of all transactions and ensures they are all legitimate.
In terms of value, think of it as renting or buying a house. The value will be higher if it’s in a desired location. What’s different about crypto is there’s no physical asset. It’s determined by whether people want to buy it or not, meaning costs are volatile due to a variety of factors such as trends, other new cryptoassets and other technologies. Much like in any market, the laws of supply and demand prevail. The more people buy a cryptoasset, the higher the value. The opposite is also true.
How to get started in cryptocurrencies
You’ll need to open an exchange account so you can store crypto in your “digital wallet”.
A digital wallet stores all of your private keys to keep your crypto safe. It’s what allows you to buy, sell and trade. Do not confuse it for storing your actual crypto, it simply holds the keys (passwords) to access your crypto. If you lose your private keys, you lose access to your crypto (and hence your money). That’s why it’s important to keep your wallet safe.
Let’s dive into the exact steps on how to buy, spend and trade crypto:
1. Use a trading platform vs. a crypto exchange
A crypto exchange is a platform where buyers and sellers meet to trade cryptocurrencies. These platforms usually have little to no fees, but some of them are quite intimidating to use and there’s more risk for inexperienced users.
That’s why we recommend a trading, or investment, platform for first-time crypto traders. For instance, eToro is a social investing platform that’s intuitive and easy to navigate, even for beginners in crypto. Trading platforms like this act as a financial intermediary in crypto trading, allowing you to easily and safely purchase a wide range of cryptoasset, as well as trade them for different currencies, including fiat (government issued) currencies such as USD, Euro, or GBP for a small fee.
If you’re new to crypto trading, or trading in large amounts, this kind of trading platform is certainly the safest way to go.
eToro is also unique in that they offer new ways of trading and investing online, based on user responses, such as CopyTrader, a feature that allows users to copy top-performing traders’ portfolios on eToro.
2. Deposit some cash
After following the steps to open your account and verify your details, you’ll want to deposit some cash.
To do this, simply link up your debit card. It is possible to use a credit card, but it can be quite risky due to higher interest rates. Always consult a financial advisor if you’re unsure about how to navigate this step.
3. Choose the cryptocurrency to order
Once the money is in your account, you can now buy crypto! There are tons of options to choose from, so do your research before jumping the gun. Some cost thousands of pounds to own, and some only cost 0.1 of a penny.
4. Store your crypto
Banks usually have a compensation scheme when things go awry. Cryptoassets, unfortunately, are not backed by these protection schemes. This is why it’s important to store crypto safely.
By going with a crypto exchange, you can store it on the platform via its digital wallet. However, cryptoassets exchanges are not backed by compensation schemes, and they’re at risk of theft or hacking if the right measures aren’t in place. You could even lose your investment if you forget or lose the codes to access your account. That’s why it’s so important to have a secure storage place for your cryptocurrencies.
You could use something known as a hot wallet, which is a device or cloud storage that needs the internet to access your crypto, although as with any online storage, this is potentially susceptible to hacking. Or, you can use cold wallets such as a hard drive or USB. If you lose the key to them or break the drive, you could lose your crypto. So weigh up the options that work best for you.
How to choose a cryptoasset
If you want to be successful in crypto buying, selling and trading, you’ll want to keep these three things in mind.
1. Research into what you’re investing in
It goes without saying that you should absolutely research the crypto you’re investing in. If you invest in crypto that’s steadily declining and has been for years with no signs of growth, then you’re very unlikely to make a return.
Other people determine the value of crypto, not a sole proprietor or company driving profits. This makes the crypto market incredibly volatile, so keep this in mind before choosing where to put your money.
What are cryptocurrencies vs cryptoassets?
Every coin has something called a “whitepaper”. A whitepaper is where all the information about a cryptocurrency is stored, including its historical performance and data that differentiates it from other crypto.
This can help you decide which crypto to buy too.
In terms of the differences between cryptocurrencies and cryptoassets, the latter is interchangeable with crypto, but it includes more than one kind of asset. Cryptoassets include not only cryptocurrencies, but also non-currency assets such as governance tokens, NFTs (non-fungible tokens), security tokens, utility tokens and more.
2. Don’t invest more than what you can afford to lose
If you can’t afford to lose your investment, then it’s time to back away. Yes, crypto may be appealing, but if you invest more than you can afford, and then lose it, it’s gone. Think of it like renting a house you can’t afford in a nice place that only leaves you with a small amount to live on, you just wouldn’t do it.
Even if you could afford to lose it, some exchanges or brokers have been attacked by hackers, causing many to inadvertently lose their crypto, and hence their cash. Be aware of the risks involved in investing your money. Sites like eToro has several layers of protection, including free investment insurance up to 1 million Euro, AUD or GBP.
3. Manage risks wisely
Crypto beginners need to assess risks wisely. This will help you deal with any losses and mistakes you make early on while you’re still getting used to things.
It could be that you don’t sell anything for a while, even if there’s a good ROI. It means you stay in the same position and only consider selling until you absolutely feel it’s worth it.
As a new trader, you may just set a portion of trading money aside for investments, and only use a little of it to test the waters. That way, if there’s a loss, you still have some reserves to trade with later.
It can be disheartening to sell a losing position in the crypto space, but it’s all part of learning how to react and where to invest the future, so don’t lose heart so soon!
What investing tool should I use?
We work exclusively with eToro, a social investing platform that lets you invest in assets and connect with people from all over the world. They actively break gender barriers too, by ensuring it’s not an obstacle when it comes to the world of investing.
Sign up to eToro and get a $10 USD bonus when you buy $100 USD worth of crypto!
This article is for educational purposes only. Do not understand it as financial or investment advice. Consult with a financial advisor if you’re ever unsure of how to use crypto or are experiencing financial difficulties.
This is a sponsored post in partnership with eToro.