Hey everyone, it’s Finance Fridays again… and I’m going to talk about Crypto again. I do still plan to keep Finance Fridays primarily related to “The Philosophy”, however, I’ve received a few requests for more information on how to get started in crypto, so I wanted to address that. Without further ado let’s talk about “Getting Started in Crypto”.
Getting Started in Crypto
Before we move on, I must reiterate that Cryptocurrency is extremely volatile and is basically gambling. This isn’t even the normal gambling of picking stocks in the stock market, it’s the highest stakes, most volatile form of gambling.
PLEASE – Only invest (gamble) what you can afford to lose.
Ok, now that we have that out of the way. I’m going to recommend you read this post first: Introduction to Cryptocurrency
That will give you a very simplistic introduction to what we are dealing with. Now, before you do anything else I want to talk about safety/security.
What? Why safety/security?
Cryptocurrency is the wild, wild west. Currently, there is very little government regulation and most of the rules that apply to the stock market do not apply here. You need to be very, very careful with how you deal with your cryptocurrency and how to store it.
Cryptocurrency is intangible, meaning you can’t feel or touch it. Essentially, it’s just a 1s and 0s somewhere. If you lose your access to it or make an error in transferring it, there is basically nothing you can do about it. There are many, many stories of people transferring their crypto to the wrong place (wrong wallet address or wrong exchange address).
Recently, there was even a story about a guy who put all of his crypto on a hardware wallet and got it all stolen. Technically, it should not be possible to hack a hardware wallet. However, in this particular case, the wallet was already “pre-hacked” in a sense. You can read the story here:
To be clear, it wasn’t technically his “life savings” but it was about 25000 £ or ~$30k
The scam was actually incredibly intricate… and seemed legit. However, a simple Google search to confirm the instructions on the official Ledger Wallet site would have raised many red flags. Long story short, it’s not a good idea to buy a used hardware wallet.
Don’t fall for scams and/or Ponzi schemes. Don’t lead greed crowd your judgement.
How can I protect myself?
- When transferring crypto between wallets/exchanges always send a tiny amount first and verify it, before sending any large amount. If it’s a really large amount, then split it into different smaller amounts after the initial tiny amount.
For example: You have 5000 Ripple (XRP) on an exchange that you want to send to your wallet. Send 20 XRP first (the minimum allowed on a wallet) before sending the remainder of the 4880.
I do realize it costs a little bit in order to send, so it will technically cost you more by doing more than one transaction. However, would you prefer to lose a few XRP… or all of it? Greed is a very powerful behavior, and many, many people will lose their crypto because of it. Don’t be one of them.
- If it’s too good to be true, it probably is.
Don’t fall for Ponzi schemes like Bitconnect. As long as people continue to fall for them, they will continue to exist.
Any lending platform that has a guaranteed returns and a referral base should send up red flags everywhere. Don’t do it.
Anything else I should know?
Yes. Exchanges have been hacked before.
The most infamous one was Mt. Gox. Read all about it here. In fact, multiple exchanges have been hacked before.The long and short of it is that you really need to be to take responsibility for your crypto. You really shouldn’t leave and crypto on an exchange unless you plan to be trading it.
Also, on every exchange, you should be using 2 Factor Authentication (2FA), such as with Google Authenticator. Basically, you have a password like normal, but you also have a separate time-sensitive password which is tied to the specific site you are trying to access and your app.
Basically, exchanges are FRAGILE:
*My wife absolutely loves A Christmas Story, so I included this for her.
This ends the essential security portion of Getting Started in Crypto.
The next thing to do is to go get an account on an exchange, one of which must exchange fiat to crypto (ie. $USD –> BTC).
Fiat to Crypto
The go-to choice for fiat to crypto exchange entry into the market is Coinbase. It has developed a very good reputation as “the portal” into crypto. Unfortunately for me, I can’t use Coinbase because it does not sell Bitcoin to people who live in Hawaii. If you are from Hawaii like me, then your options are Bitstamp.net and Kraken.com. Which kind of sucks.
- Bitstamp was hacked back in 2015 and lost 18,866 BTC from its hot wallet, worth approximately $5,263,614 at a time when the price of bitcoin averaged $279. It rebuilt its infrastructure from the ground-up and worked very hard to restore consumer confidence… and is pretty reputable currently. However, a history of getting hacked is hard to erase.
- Kraken also had a few snafoos as well. Some of its users that didn’t use 2 Factor Authentication were hacked. There was also an episode of where it couldn’t be accessed and traders lost about $5 million dollars in a volatile market.
Like I keep reiterating, this is the wild, wild west.
Being on Coinbase, Bitstamp, or Kraken allows you to change your money into common cryptos like Bitcoin (BTC), Ethereum (ETH), or Litecoin (LTC). Then you transfer it over to another exchange in order to exchange it for other coins.
Crypto Only Exchange
There are many of these exchanges. However, the one that has become the favorite recently is Binance. People tend to like its clean interface and easy to use UI. I don’t have much experience with other exchanges, but I like Binance. Transparency: that’s my referral link, if you sign up with it, I get a small commission.
Binance doesn’t have every altcoin that exists, but it has a pretty good selection. I’m pretty sure just about all the top 50 market cap coins can be bought on there.
However, I believe that once Crypto becomes more widespread, we will see two things happen:
- Fiat to Crypto exchanges will list more coins
- Crypto Only Exchanges will begin to allow fiat transfer
How do I sign up?
Exchanges all require some form of verification. This is part of the Know Your Customer (KYC).The norm is usually:
- Copy of Personal identification (Driver’s License, Passport, etc)
- Proof of Residence (Utility Bill, Bank Statement, etc.)
- Proof of Identity (Picture of you holding your personal identification + hand written and dated note)
Submit all this information and make sure your Proof of Identity picture is up to their standards. Then you just wait until you are verified. This can take days or weeks. Recently, the wait times for verification have shot up significantly, so I would expect probably at least a week.
THIS IS A GOOD THING.
Now you have time to go read more about crypto. There is a wealth of information out there, but you need to always check the source.
This post was so basic, and was so long… I’m disappointed…
Please don’t be disappointed.
I’m trying to explain that you need to understand what you are getting yourself into. You need to be aware of the security issues and take safety precautions to attempt to safeguard yourself.
The biggest mistake a crypto newbie can make is to dive in head first… If you don’t look before you leap and take the necessary precautions, this is how the crypto market will greet you:
If you lose your money from a scam or a hack or a mistake or whatever, the U.S. Securities and Exchange Commission (SEC) or any other entity will not be able to help you (currently). You have literally zero protection in this space currently.
This is not the stock market.
Look before you leap.
Be aware of security problems inherent in crypto.
Take safety precautions in order to safeguard yourself. (Sending small amounts, 2FA, Hardware wallets)
Use the lag time between signing up and getting verified to learn more… but always check the source.
Only invest (gamble) what you can afford to lose.
Read more of my Crypto Posts.
Agree? Disagree? Questions, Comments and Suggestions are welcome.
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