Where To Start With Crypto In 2020? (In-Depth Guide For Beginners)
After 10 years of successful operations, the Bitcoin protocol is undeniably a part of the modern crypto economic system. So much, it now shapes the future of the digital economy from inside-out; directly as an exchange medium and as a digital store of value many times compared to physical gold, as well as indirectly, with the concept of distributed ledger technology, commonly known as blockchain managing to influence not one, not two, but almost every industrial sector in numerous ways.
Whether you believe in cryptocurrencies or not, you are involved in the scene from an investor’s perspective, or you’re betting on the long-term effects the technology underlying Bitcoin has to offer, the fact is that it works, and it works on a 24/7/365 basis.
In this article, I’ll try to spread some of the possible ways to enter the cryptocurrency scene from various perspectives on the table, and hopefully, you can find one that fits your needs, in case you’re left behind, yet you see the potential growing by the minute.
All roads lead to crypto
Now you’ve probably heard from your friends and/or colleagues that you can start mining your own cryptocurrencies, or that you should invest into Bitcoin before it’s too late, but the truth is, you should first consider what you’re going to do with your crypto?
Is it gonna be a speculative investment based solely on price fluctuations and you don’t really care what you’re going to do with your cryptos? Would you rather invest in a cryptocurrency you can use in your every-day life? Or maybe you’re an experienced physical asset broker, and you see similar potentiality in some digital assets that are screaming arbitrary opportunities?
Well, as Socucius Ergalla* would say: “The choice is yours”, and it directly reflects your approach, as well as your vision when it comes to this new, still booming industry.
Regardless of your end goal with cryptos, there is some basic stuff you should figure out first, including where do you get your crypto from? Which wallet(s) you’re going to use? How you redeem your cryptos to fiat in case you want out?
*The quote refers to Ergalla’s first words when encountering him in TESIII: Morrowind: “Ahh yes, we’ve been expecting you. You’ll have to be recorded before you’re officially released. There are a few ways we can do this, and the choice is yours.”
Your very first encounter with REAL crypto
For starters, I won’t get in-depth into mining operations, but I’ll tell you this much: It is not the first path you consider when entering the crypto market as a newcomer.
Mining can be extremely complicated if your tech knowledge is limited to browsing Chrome, and it requires pre-planned geolocation, exessive electricity-consumption research, sophisticated machinery, software, and coding skills to perform successfully, so let’s talk about the more pragmatic options you have.
First-hand crypto market
Buying crypto first-hand is probably the most efficient way to get hold of your favorite digital asset both from an economic and time x processing perspective. It can be as simple as asking a friend who already owns cryptos.
Usually, first-hand trades would be fast, and cheap based on a mutual agreement between the two parties. If you don’t know anyone who owns cryptos at the moment, or they are not keen on parting their assets, you can consider portals such as locabitcoins, localcryptos, and Paxful which act similar to Tinder for crypto buyers/sellers across the world.
There are numerous ways to engage in a first-hand crypto trade, but I believe a face-to-face meeting at a public cafe or analogous geolocation is the best first encounter. Such events can create new relationships with brokers and traders that have been in the scene for quite some time, and they can result in long-term bonds if you’re lucky to find the right person for your needs.
You can also use a first-hand broker to redeem your cryptos back to fiat currency or any other digital asset (depending on the broker).
Trading live with another person would require you to have a setup cryptocurrency wallet associated with the digital asset you’re about to purchase. (we cover digital wallets later in this article.)
Second-hand crypto market
A second-hand market would be any for-profit legal-entity that acts as a custodian of large amounts of various cryptocurrencies and would sell a chunk of them to you for a fair commission.
Portals like Coinbase, Kraken, and eToro can be considered as second-hand markets, although putting aside the higher fees associated with each transaction, these vendors would almost always require to undergo a KYC (know your customer) processes where you have to submit your ID documents, residency and contact details, photos and other personal data to ensure no actors would ever use these platform for money laundering operations and other illegal cyber-activities.
Second-hand markets can also redeem your cryptos back to fiat, again for a fixed fee associated with each respective platform.
At the same time, these brokers will provide you with ready-to-use wallets integrated with your online account, yet these wallets essentially belong to the platform itself and you don’t have access to their private keys, seed phrases, etc.
Cryptocurrency exchange markets are the most popular gateways to buy and sell your cryptocurrencies for other digital assets, stablecoins, and sometimes fiat currencies.
Similar to second-hand vendors, most cryptocurrency exchanges will offer you accounts with pre-installed wallets for all available cryptocurrencies on their platform, so you don’t have to create different wallets for each asset.
In general, cryptocurrency exchanges will require you to have a basic understanding of crypto principles, and most of the times would require you to have at least one major crypto such as Bitcoin (BTC), or Ether (ETH) to start with, as they are not offering fiat currencies compatibility (with exceptions: look at Binance.US).
The good thing about crypto exchanges is that you can trade almost any crypto for any other crypto in no time, and for relatively low fees when compared to secondary markets. However, cryptocurrency exchanges won’t let you redeem your crypto into fiat currency, and you will have to send your crypto into your personal wallet from where you can trade it in a first-hand fashion, or to your second-hand market wallet from where you can redeem your crypto into fiat and withdraw directly to your bank account.
Contrary to second-hand markets, crypto exchanges have an optional KYC mechanism that is usually required when trading large amounts of crypto in fiat terms.
Decentralized exchanges (DEXs)
Decentralized or third-party based cryptocurrency exchanges are similar to regular crypto exchanges with the difference that most of the time, they will require you to sign in with your own wallet and won’t provide you with custodian vaults as happens with all the above.
At the same time, unlike cryptocurrency exchanges which act similar to second-hand vendors when it comes to trading, meaning that the exchange itself will buy your cryptos or sell you cryptos based on their own terms and pricing, in DEXs, people can buy and sell cryptos to other users that are part of the DEX network.
Some DEXs that popped after the introduction of open finance (or Decentralized Finance) would allow for direct wallet to wallet exchanges without any custodian processes in the middle.
The good thing about DEXs is that you own your cryptos and exchange fees can range from none to minimal, while again, there is no fiat integration, and therefore you will have to own some precious ETH before entering a DEX.
There are a couple more interesting pathways to earning cryptocurrency including bounties and working for a crypto company even if you have no particular crypto skills, but again, these options are not the most efficient, direct ways to get your first digital currencies.
Last but certainly not least, one of the most essential things to have when considering to enter the crypto scene is a crypto wallet, or a bunch of them actually, as different wallets come with different perks and offer various functionalities across the crypto ecosystem.
In this section I will try to put together a shortlist that describes the different types of wallets out there, and not a list that endorses specific wallets, or wallet provider companies; once again, in Ergalla’s words: “The choice is yours”.
So, starting let’s understand what a cryptocurrency wallet really is:
- a cryptocurrency wallet is your digital ID or key that allows you to access a particular spot on the blockchain where your digital assets are stored.
- similar to your physical wallet or ID, if you lose access to it, you lose access to your funds, and it will be really really hard to retrieve them if you don’t have all the backup intelligence required.
- crypto wallets can act as crypto IDs considering most of the time, a wallet is associated with one specific individual or legal entity.
- you can have multiple wallets whether they are different types of wallets or many wallets of the same type to diversify your funds.
Cryptocurrency wallets come in many forms, but the idea behind each wallet is basically the same. There is a hexadecimal hash associated with your wallet, a private key, a public key, and a seed phrase that acts as a backdoor mechanism in case you ‘lose’ your wallet.
Many would argue that the security of your funds is subject to the wallet you’re using and they are not completely wrong. Trusting your funds to a wallet created by a third party exchange, and owning your private keys and seed phrases are two different scenarios.
On one hand, you have to trust the third-party custodian in securing your wallet among million other wallets with sophisticated private cyber-security, on the other hand, you must trust yourself and your own ability to protect your private keys and/or seed phrases on your computer, on a piece of paper, or on a hard wallet.
Creating a wallet can be as simple as creating a Twitter account, or as complex as hacking into your local elementary school.
Overall, besides DEXs which will use your personal wallet as a vault, there is no way around custodian wallets when entering a major cryptocurrency exchange such as Binance. It might sound ‘dangerous’ at first, but from another perspective, it is the same as storing your hard-earned fiat with your local bank. You just have to trust them.
Sure if the bank is hacked, your funds are exposed, but most of the time the bank will compensate you without even telling you about the incident in order to protect its own reputation, besides that, a possible attack that managed to penetrate a bank’s cyber-security protocols will most likely search for a ‘fat’ vault and not a newcomer’s pocket.
Concluding, it is wise to have both a private wallet, and a custodian wallet that can act as a medium of exchange when you need to trade your cryptos for other cryptos fast and securely, but other than that, your stash should always remain in your private wallets.
As previously mentioned, private wallets come in many forms. You can choose a wallet provider company, app, or website to help you set up your blockchain link, or do it yourself in case you’re experienced with basic coding and you have the whole blockchain downloaded for x reasons.
The good part is that most mainstream cryptocurrency projects will also have a list of trusted wallet providers to accompany their project. For example if you’re looking for an Ethereum wallet, you should consider MyEthereumWallet or Metamask, if you’re looking for a Stellar wallet, you should consider their own official wallet etc.
Trusted wallets will always give you your private keys, and seed phrases and will basically act as a UI to make the creation process and management of your wallet(s) more friendly.
There are some third-party wallets that can store more than one particular cryptocurrency and that is achieved by their own software that plays a role in managing all these different connections. Not all of them, but most of them will also give you your private keys and seed phrases, but in general, you should consider that these wallets are similar to exchange wallets, with the difference they provide you with your personal keys.
Then there is a handful of hardware wallets, such as nano Ledger, which are offline, often referred to as ‘cold-storage’ wallets, and will be activated only when you’re using them via a device that has access to the internet, and in extension to the blockchain.
While these wallets are considered to be the safest, you should have in mind, that the wallets installed in these devices are pre-generated by the company behind each cold-wallet and while they are sharing the private keys and seed phrases with you, it also means they’ve had a good look at them first.
Important sticky-notes for when creating a wallet
You should always have in mind that creating a Bitcoin wallet, will allow you to send and receive Bitcoins, but not Ethereum let’s say, or any other cryptocurrency. You will need currency-specific wallets in most cases, except for ERC-20 tokens.
ERC-20 tokens are essentially subject to various Ethereum blockchain protocols, hence they can be exchanged between any Ethereum wallet.
Nevertheless, you should have in mind that sending an ERC-20 token to your Ethereum address in an exchange or on Coinbase, won’t necessarily ‘show’ your token in your assets, as custodian wallets are currency-specific most of the times, so for example:
If I want to send FOAM (erc-20) to my private Ethereum wallet, it should normally appear in my asset list, as the smart-contract behind FOAM, acknowledges it is part of the Ethereum blockchain while sending FOAM to my cryptocurrency exchange wallet might require a totally different Ethereum wallet that is tethered only to my FOAM which might not be integrated with my main Ethereum wallet on the exchange.
This is not a big deal, and most of the times people who have sent ERC-20 tokens to Coinbase and couldn’t find them, complained to Coinbase and the issue was eventually resolved, but that takes time, emails, and a procedure that could be avoided if you used the correct address to transfer your funds from one place to another.
In general, I usually use BTC, or ETH when I want to change platforms to ensure the funds arrive in-time and securely. Then from each platform respectively, whether it is a second-hand market or a cryptocurrency exchange, I can easily trade my BTC or ETH paired to any other cryptocurrency I’d like to acquire.
I hope this makes some sense, at least enough sense to start digging into some of these projects on your own as you read this.
I tried to craft this piece as objective as possible, so any brands, companies, and exchanges mentioned should be considered as subjects of example and not as endorsements.
In a nutshell, I am writing this to inspire older people in my family and social circles to consider cryptocurrencies, even as an experimental engagement, and explore the scene on their own terms.
If you need further assistance, and a detailed explanation about the topics discussed in this article, feel free to hit me at @rosspeili