Cryptocurrencies have emerged as an asset class that provides you with a chance to invest and earn substantial returns. Despite the lack of government backing, this asset class, has garnered massive popularity in recent years.
The obvious questions that we face specific to cryptocurrencies as a beginner are:
“How” to buy?
“Where” to buy it from?
“How” to store them properly?
Talking about buying, selling, and holding crypto. The first thing to know is that cryptos are very different from other stuff that you invest in. When you buy gold, you actually get coins (or bricks) of the shiny metal. You can keep these coins safe in a safe! When you buy a house, you actually get physical “possession” of it. Crypto is very different. You start by generating a “wallet”.
Cryptocurrency – meaning and definition
Cryptocurrency, sometimes called crypto-currency or crypto, is any form of currency that exists digitally or virtually and uses cryptography to secure transactions. Cryptocurrencies don’t have a central issuing or regulating authority, instead using a decentralized system to record transactions and issue new units.
Simply put, a cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Many cryptocurrencies are decentralized networks based on blockchain technology—a distributed ledger enforced by a network of computers.
How do I buy cryptocurrency?
A crypto exchange is a platform that brings buyers and sellers together in order to trade cryptocurrency. Most exchanges support multiple currencies ranging from highly popular ones in the crypto community that you may not already know about, like Cardano, Ripple, and Tether, to Bitcoin, the oldest, best known, and most valuable cryptocurrency.
One can buy or sell cryptocurrencies through cryptocurrency exchanges. There are various online exchanges which often work similar to a stockbroker, giving you the tools to buy and sell digital currencies like bitcoin, ethereum, and dogecoin. Coinbase, Coinbase Pro, Krenken, Gemeni, Cash App, Binance1 are some of the top rated cryptocurrency exchanges. These crypto exchanges make it easy to buy and sell the currencies you want with low fees and strong security features. While these companies’ standard trading interfaces may overwhelm beginners, particularly those without a background trading stocks, they also offer user-friendly easy purchase options.
How to store cryptocurrency?
Once you have purchased cryptocurrency, you need to store it safely to protect it from hacks or theft. Usually, cryptocurrency is stored in crypto wallets, which are physical devices or online software used to store the private keys to your cryptocurrencies securely. Some exchanges provide wallet services, making it easy for you to store directly through the platform. However, not all exchanges or brokers automatically provide wallet services for you.
There are different wallet providers to choose from. The terms “hot wallet” and “cold wallet” are used:
– A hot wallet is connected to the internet and can be accessed at any time. It refers to crypto storage that uses online software to protect the private keys to your assets.
– A cold wallet also known as hardware wallets is not connected to the internet and allows to store your funds offline. You can still receive funds at any time, but no-one can transfer them out.
Best practices for storing cryptocurrencies
Here are a few tips to help you store your cryptocurrency safely:
• Store the bulk of your crypto in a cold wallet since that’s the most secure option.
• Use a hot wallet for smaller amounts of crypto that you want available for trading.
• Physically record the recovery phrases for your crypto wallets. You can write them down, and there are also steel tools designed for recording crypto recovery phrases.
• Save recovery phrases in a secure location that only you can access.
• Never share your crypto wallet’s recovery phrase or private keys with anyone, and don’t save them to your computer.
Is cryptocurrency safe?
The basic aim of a cryptocurrency being to provide security and safety, this system uses end to end encryption to verify the transactions. This system uses high end cryptography technologies, its impossible to counterfeit any transactions. Hence the name, “Crypto-currency”.
Cryptocurrencies are usually built using blockchain technology. Blockchain describes the way transactions are recorded into “blocks” and time stamped. It’s a fairly complex, technical process, but the result is a digital ledger of cryptocurrency transactions that’s hard for hackers to tamper with.
Are cryptocurrencies taxed?
Holding a crypto does not have any tax implications, but the following do:
• Selling of or gifting cryptocurrency
• Trading or exchanging even for other forms of cryptocurrency
• Buying goods or services with cryptocurrency
• Conversion of cryptocurrency to government issued currency
As with any investment, make sure you consider your investment goals and current financial situation before investing in cryptocurrency or individual companies that have a heavy stake in it. Cryptocurrency can be extremely volatile—a single tweet can make its price plummet—and it’s still a very speculative investment. This means you should invest carefully and with caution.