What is Cryptocurrency?
Cryptocurrency is a type of digital currency that is typically used to purchase goods or services. What distinguishes crypto from traditional money (such as the dollar) is that crypto uses an online ledger (also known as a blockchain) that is extremely secure and un-hackable.
Where Can You Buy Cryptocurrency?
The crypto topic has exploded (not just in the world, but also in my household–mainly my partner trying to convince me to buy cryptocurrency!).
And that’s where this question comes into play: Where can you buy crypto?
You can buy crypto in a cryptocurrency exchange.
You just have to figure out which one is the best for your situation.
A cryptocurrency exchange is a platform that allows crypto investors to buy and/or sell cryptocurrencies for other assets such as regular dollars or other forms of digital currencies.
Coinbase is a cryptocurrency exchange.
If you want to buy the most popular crypto, Coinbase is one of the most secure and popular options available.
Coinbase is arguably one of the world’s best and most established crypto exchanges. Coinbase lets you store, buy, and sell over 30 different cryptocurrencies.
- Provides a digital wallet (a place to store your crypto)
- Provides FDIC protection for any USD held in your account.
- Provides insurance if the website is hacked.
- Only $2 is required to open an account.
- Provides over 30 cryptocurrencies.
One thing to keep in mind is that the trading fees may be slightly higher than those charged by other crypto exchanges, ranging from 0.5 percent to 4.5 percent depending on how you pay for your crypto (cash vs. credit vs. debit, etc.).
Gemini, like Coinbase, provides a safe exchange for buying, selling, and storing crypto.
Gemini is also known for
- Provides over 20 cryptocurrencies
- Commission fees range from 0.50 percent to 1.49 percent.
- Provides FDIC protection for any USD held in your account.
Binance, like Coinbase and Gemini, is a safe cryptocurrency exchange that offers security and the ability to buy, trade, and hold your cryptocurrencies.
However, it should be noted that in 2019, Binance experienced a major hack, causing investors to lose 7,000 Bitcoin (worth approximately 422,072,000 million as of March 2021).
How to Make a Cryptocurrency Investment (Step-by-Step Framework for Beginners)
Let’s look at how you can get started investing in cryptocurrency.
1. Register with a Cryptocurrency Exchange
To begin, open an account with a cryptocurrency exchange. I opened my first Coinbase account in less than 10 to 15 minutes. In most cases, opening an account is free and simple.
2. Verify Your Identity
The following are some items you will typically need to open an account:
- Photo identification (typically a driver’s license)
- Name (first and last)
- Contact information via email
Many people, including myself, wonder why you need a photo ID to buy cryptocurrency, particularly Bitcoin.
The answer is, typically, because, in order to purchase Bitcoin, some cryptocurrency exchanges require the customer’s identification to discourage fraud and get personal information in the event of theft.
3. Purchase Your Cryptocurrency
Typically, you can purchase cryptocurrency in US dollars through:
- Cash, debit cards, and credit cards are all acceptable forms of payment.
Other cryptocurrencies will require you to buy their currency in bitcoin.
If you purchase cryptocurrency through Coinbase, it will be stored in a “digital wallet.”
Typically, digital wallets provide some of the following features:
- The ability to keep cryptocurrency
- Possibility of selling other cryptocurrencies
- Possibility of storing personal information Possibility of purchasing other cryptocurrencies
Coinbase is arguably the most popular cryptocurrency digital wallet.
How to Keep Your Cryptocurrency Safe
Now that you’ve set up your account and are ready to trade your cryptocurrency, it’s time to think about how to store it safely.
Because cryptocurrency is digital, your money may be vulnerable to hackers – and believe me, if your account information is not secure, people will try to steal it.
I’ve listed three methods for storing cryptocurrency that are typically safe below.
1. Hardware Wallet (Offline Wallet)
A hardware wallet is one of the most secure ways to store your cryptocurrency.
A hardware wallet, also known as a cold wallet or off-line wallet, is typically a USB stick that stores all of your personal user information, passwords to access your cryptocurrency, and so on. The advantage of hardware wallets is that they are un-hackable because they are not connected to the internet.
What is the purpose of a Hardware Wallet?
Your private user information is stored in a hardware wallet. This information includes storing your crypto account passwords, also known as “keys.”
This way, no other hacker will get your passwords and “open” your cryptocurrency accounts.
You would lose your investments if they cracked your passwords to your crypto accounts. My preference for securely storing my information is a hardware wallet.
2. Crypto Savings Account with a High Yield
Have you heard of regular emergency savings accounts?
BlockFi is the best high-yield crypto savings account.
BlockFi functions similarly to a digital wallet (storing your crypto online), but it also allows you to earn interest on your crypto, similar to a traditional savings account.
The more money you deposit into your BlockFi account, the more interest you will receive.
Let’s look at the interest rates you could earn on your cryptocurrency with BlockFi.
The disadvantage of BlockFi is that it only provides interest rates for a subset of the crypto.
There are some fees associated with withdrawing your currencies from BlockFi, but you can withdraw your currency for free once per month.
3. Exchange of Cryptocurrency (Digital Wallet)
Similar to storing your crypto information in an offline hardware wallet, you could also store your crypto information (including your crypto account password) in a digital wallet.
What exactly is a digital wallet?
A digital wallet is software that stores your personal information, passwords, and cryptocurrency securely. A digital wallet can store the same information as a traditional leather wallet, only in electronic form: a driver’s license, money, credit card information, and so on.
Digital wallets come in a variety of shapes and sizes.
Among them are:
- The Allied Wallet
- Exchanges for Amazon Pay
- Venmo Apple Pay
A digital wallet is not the most secure way to store your crypto.
That is why, if you prefer to be on the safe side, I would recommend a hardware wallet such as the Ledger Nano X (offline storage).
Before you begin investing in crypto, there is only one thing I want you to remember: Remember that cryptocurrency is still in its infancy, so its value is extremely volatile and fluctuates almost daily.
What is the bare minimum for investing in crypto?
There is no minimum investment amount in crypto. The minimum investment amount is usually specified by the investment platform you use.
Coinbase, for example, requires users to purchase crypto for a minimum of $2.
The amount you invest in crypto is determined by the following factors:
- Your financial resources
- Your willingness to take risks and your ability to do so
- Your level of comfort when investing in crypto
Before you start investing in crypto, I recommend that you do your research and think about your financial goals.
Is it possible to become wealthy by investing in crypto?
Investing in bitcoin is similar to investing in stocks and bonds.
The main difference is that cryptocurrency is still in its infancy—we don’t know much about it and it’s extremely complex.
As a result of the astronomical return on investment opportunity crypto provides, if you invest in crypto today, you could become a very wealthy man tomorrow.
This is my recommendation…
If you have a little extra cash after having:
- A fully-funded emergency savings account;
- Maximum amount invested in IRAs and/or 401(k)s;
- Paid off all credit card bills,
then it may be time to consider investing your spare cash in crypto exchanges, such as Coinbase.
Here’s how prices typically fluctuate:
- Tomorrow’s prices will skyrocket.
- Plunge the following day
- The following day, soar above all other prices.
We don’t know what will happen to cryptocurrency prices in the future.
You have no idea how it will perform in a month, let alone a year.
Will I now invest all of my net worth in Bitcoin or another crypto? Never. But I’m willing to experiment with cryptocurrency and make a small investment. And I’m perfectly fine with losing that money.
I would not recommend using your crypto investments as a retirement fund. Instead, think of your cryptocurrency investments as a way to potentially increase your net worth. Read first, learn now, and then invest when you’re ready.