November 4, 2021 10:15 pm

5 Tips for Getting Started with Cryptocurrency

5 Tips for Getting Started with Cryptocurrency

What began as an abstract concept documented in an online white paper has arguably become the most exciting development in currency—ever. But excitement and ease don’t always go hand-in-hand—especially when it comes to getting started with cryptocurrency. Whether you’ve invested minimally in digital currency or not at all, navigating the nuances of this world for the first time can be intimidating. Taking time to understand the basics of how to invest in cryptocurrency will give you confidence to move forward. While early adopters have evolved along with the fast-paced world of crypto, it’s never too late to get started on your own journey.

How to Invest in Cryptocurrency: 5 Tips for Getting Started

Before you can start making a return on your crypto investments, there are a few steps you need to take to get started. 

1. Lay the Groundwork for Safety

Like any other type of investment, cryptocurrency buying, selling and trading comes with risk. While blockchain—the technology that powers crypto—is very secure, hackers and scammers are common players in this digital landscape, preying on those who are uneducated in the space. Before getting started with cryptocurrency, it’s important to follow these basic safety tips:

  • Install antivirus software on your computer. Avast is a solid option, especially if you have an Apple computer. While this added layer of protection does come with an added price tag, the minimal cost will be worth the peace of mind.  
  • Head on over to Gmail or another secure email platform to set up a new account. Starting your crypto trading journey with a fresh email address will help prevent your information from getting in the wrong hands.
  • Set up two-factor authentication (2FA) on any accounts related back to your crypto trading. Google Authenticator is an easy and fast way to set up 2FAs. Whichever app you end up using, this is a step you don’t want to skip. Google Authenticator is available in both the Google Play Store and the Apple App Store.
  • Set up a virtual private network (VPN) for online privacy and anonymity. VPNs hide your IP address and encrypt your online data, making it difficult to pinpoint your exact location. Many people reading this article may already be familiar with VPN’s as many companies require you log-in to a company-controlled VPN to access a secure network when one works out of the office vs. going online via a publicly accessible network.

Once you lay the groundwork for safety, you’re ready to get started with cryptocurrency.

2. Open a Cryptocurrency Wallet

Cryptocurrency is a digital asset, which means it is not a physical commodity. Unlike fiat money, which can be physically held and stored, cryptocurrency is stored in a digital wallet. Before you start investing (or spending), it’s important to have a safe place to store your digital currency. You can think of a cryptocurrency wallet like you would a traditional bank account—with a few important distinctions. Instead of storing actual money, your crypto wallet will store the public and private keys you can use to receive and spend cryptocurrency. The actual cryptocurrency is stored on the blockchain, not in the wallet. 

There are different types of wallets offering varying degrees of functionality, but for those new to crypto, a universal or multi-asset wallet may be a good choice. These types of crypto wallets will allow you to use and/or invest in many different coins, not just a single one.

3. Acquire Cryptocurrency

Bitcoin was introduced just over a decade ago, ushering in a new way to think about, interact with, and use money. In a relatively short amount of time, cryptocurrency has gone from an obscure, out-of-reach concept, to a legitimate currency that’s bought, sold, and traded in countries around the world. 

 The following outlines ways to acquire cryptocurrency for those starting out.

Exchanges

To buy cryptocurrency as a beginner, you’ll need to set up an account with an exchange platform. There are countless options available, so it’s important to do research and find an exchange that meets your specific digital trading needs

When you use an exchange to buy, sell, or trade cryptocurrency, certain fees will apply. It’s important to note that aside from network fees (which are used to incentivize miners, and are typically the same across the board), each exchange will have a different fee structure.

Here is a rundown of various types of exchange fees you will encounter:

  • Deposit Fees: Usually a percentage that an exchange charges when funds are deposited into a wallet.
  • Withdrawal Fees: When fees are moved from an exchange to an external destination, a withdrawal fee may apply.
  • Trading Fees (Maker/Taker): These fees are assessed when a trader either adds (maker) or takes away (taker) liquidity from the market. Compared to the stock market, crypto maker/taker fees are substantially less.
  • Premium Service Fees: Some exchange platforms charge traders extra money to use premium services, which result in additional fees.

Along with these key components, you’ll also want to look into how long it will take for an exchange to approve your membership. Certain platforms do take longer to approve applications than others, so don’t expect to start trading right away. 

Let’s take a brief look at the two types of cryptocurrency exchanges:

  1. Centralized: Run by an organization responsible for overseeing day-to-day operations like growth, security, and maintenance, a centralized cryptocurrency exchange acts as a third party mediator that connects buyers and sellers. It shares a similar business model to that of a traditional securities exchange and charges small trading fees for access to its exchange platform.
  2. Decentralized: A decentralized exchange, or DEX, is a platform that allows individuals to trade crypto without the involvement of an intermediary. A DEX enables users to initiate and confirm trades on their own, directly from their personal wallets.

Once you choose which exchange is right for you and your account is active on an exchange, you’ll need to set up a way to fund it

Depending on where you live and the platform you choose, this can include linking your checking account, payment card (i.e. credit or debit), or initiating a wire transfer. After your account is funded, you’ll be able to buy your first cryptocurrency coin or token. 

Brokers

For those new to cryptocurrency who aren’t ready to dive in themselves, a broker might be a good option. Similar to traditional stock brokers, cryptocurrency brokers remove confusion from trading by interfacing directly with the exchange on your behalf. 

While this is a convenient option for some, it’s important to note that many brokers—including the two most popular: Robinhood and SoFi—impose restrictions for moving crypto holdings off the platform. 

Beginners to cryptocurrency are often fine with this stipulation, but veteran investors who prefer to keep their digital coins in their own crypto wallets for added security, often are not.

ATMs

When it comes to buying and selling cryptocurrency on the go, crypto ATMs are often the most convenient option for veteran and newbie traders alike. With more than 29,000 places to buy or sell cryptocurrencies for cash, and a website that offers a “Maps by Cryptocurrency” feature enabling users to filter out coin- or token-specific ATMs in their area, it has never been easier to buy and sell crypto.  

Trading

If you want to make more of a return on your crypto investment, trading might be right for you. To trade crypto, you’ll need to first find an exchange (i.e., DEX or CEX). If the exchange you choose does not offer wallet storage, you’ll need to secure a separate storage space to hold your cryptocurrency. Once you find an exchange and a digital wallet solution that’s right for your needs, you can begin investing your fiat currency in digital assets.

Due to its volatile nature, cryptocurrency investing tends to be much riskier than investing in traditional stocks and bonds. Before you start investing and trading crypto, take time to understand the market and inherent risk associated with investing in digital assets.

Sending and Receiving

Earlier we discussed what digital wallets are and why you need one to get started with cryptocurrency. If you plan to send or receive crypto at any point in time, having a wallet is a necessity. 

Why? Because every crypto wallet is automatically assigned public and private keys, you’ll need one to receive, send, and spend cryptocurrency. The public address, or key, of the recipient is needed to send crypto to their wallet. If you’re on the receiving end, you’ll need to give your public key to the sender. Once sent, the transaction will need to be recorded on the blockchain before funds are received. The waiting period can vary depending on the blockchain itself, as well as the amount of fees collected. 

The actual step-by-step process of sending and receiving Dash and other cryptocurrencies differs depending on the wallet being used. In general, the process is fairly straightforward and requires minimal time and effort from both the sender and receiver. 

4. Stay Up to Date on Cryptocurrency News

Learning how to trade cryptocurrency, settling into a comfortable routine, and finding an investment strategy that works for your unique goals will take some time. Like anything else, becoming a successful cryptocurrency trader does not happen overnight. It takes discipline, knowledge, and insight. 

Keeping up with cryptocurrency trends, news, and participating in discussion boards can help expedite your journey from a crypto beginner to an expert crypto trader.

Not sure where to start? Look for crypto-related learning resources in the following places:

5. Pay Any Necessary Taxes

Despite being virtual, cryptocurrency is defined as “property” by the federal government. If you sell cryptocurrency for a gain, you are responsible for reporting it to the IRS and paying any necessary taxes.

To put it simply, anytime you purchase a capital asset (in this case, a crypto like Dash), a basis equal to the cost of acquisition is established. When that asset is sold, the proceeds from that sale are compared to the basis to determine if a capital gain (or loss) resulted. When a capital gain does occur, you will be responsible for paying taxes on that amount.

Understanding crypto taxes can be tricky and involves a lot of nuance. Be sure you fully comprehend the tax complexities involved with crypto trading and consult a tax professional to ensure you stay above-board with Uncle Sam.

6. How Much Money Do You Need to Start Investing in Cryptocurrency?

The answer to this question varies depending on who you ask. Those who have had rapid success in crypto investing might suggest a more aggressive, high-risk approach. Individuals who have not had such success might offer more conservative investment advice. 

Bottom line? Only you can decide how much money you need to start investing in crypto. As always, educate yourself and understand your full financial picture before getting started.  

Indirect Ways to Invest in Cryptocurrency

We’ve gone over the traditional ways to invest in this non-traditional asset, but what about alternative options? While there isn’t a whole lot of wiggle room, here are two indirect ways to invest in cryptocurrency:

  1. ETFs: Crypto’s entry into ETFs (which will allow investors to buy into the ETF without going through the complicated process of trading bitcoin itself) as an investment tool is still up in the air, but on the horizon. The U.S. Securities and Exchange Commission (SEC) began reviewing three crypto ETF applications in June 2021, with a decision expected soon. 

Invest in Cryptocurrency-Related Companies: There are dozens of companies that directly or indirectly support cryptocurrencies and the blockchain that powers them. For those who aren’t ready to jump into crypto investing just yet, investing in traditional stocks from these types of companies is a great, indirect way to invest in cryptocurrency.

For more information about cryptocurrency, check out the other helpful articles available from the Dash blog.


About the author


Arden Goldstein