In this guide, let’s talk about how to trade cryptocurrency.
Anyone who is remotely interested in learning about crypto has taken part in some form of trading. As it gets more and more mainstream attention, newer players want to enter the market and get their slice of the crypto pie. So, to help those people enter this exciting market, we have created this “Cryptocurrency Trading Guide.”
In this guide, we are going to take you through all the steps in order for you to become a crypto-trader. We will be going through the following sections:
- Fiat to Crypto Trading.
- Storing Cryptocurrencies.
- Crypto to Crypto Trading.
How to Trade Cryptocurrency
Fiat to Crypto Trading
So, you have some money that you want to invest. How are you going to go about it? The portals which connect our world to the crypto-worlds are called “exchanges.” There are a lot of exchanges out there, however, before you choose to invest in one, there are certain things you need to look out for. Let’s call this the “Exchange Checklist.”
Validity: Before you even do anything, first make sure that the exchange is available in your area. Eg. Coinbase, one of the largest exchanges, is not available in India and Indonesia. So before you do anything please check this.
Reputation: Next thing that you need to check is the reputation of the exchange. Are people happy with their services? Has it been hacked recently? How secure is it? Have people complained about it? Twitter and Reddit are good sources for checking this.
Exchange Rates: Up next we have the exchange rates. Different exchanges have their own exchange rates which may vary. Do your homework here and research 3 or 4 exchanges and their rates.
Safety: Please always choose exchanges which need some sort of ID verification from you. Even though they may take time, they are easily 100 times more safe and secure than anonymous exchanges. At the end of the day, it is your hard earned money. You must take that extra step to keep it secure.
You can do your own research and choose your exchange, however, in this guide we are going to go with the most popular crypto exchange out there Coinbase. So, let’s start trading!
Signing Up and Account Creation
Signing up is a very simple process. The moment you land on Coinbase.com just click on “Sign Up”. You will now see this screen:
Since you are creating your own personal account, create an “Individual” account as opposed to a “Business” one.
It is a simple matter of putting in your:
- First Name.
- Last Name.
After you just have to agree to their Terms and Conditions and prove that you are not a robot (if you are a robot and you are reading this then “Hail Skynet!”).
Ok, now you have an account set up.
Security and Account Addition
Next up is security and Account addition. In this section you will need to do the following:
- Phone Verification: Phone verification is necessary to give your account a 2-step verification process. Firstly, you’ll have to enter your phone number.You will receive a text message with a verification code. Simply put in that code and you are done.
- Adding a Payment Method: Payments in Coinbase can be done via bank account, debit card, and wire transfer. In order to understand the advantages and disadvantages of all these three methods you can simply refer to this table:“Buy” and “Sell” refers to buying and selling Bitcoin, Bitcoin Cash, Litecoin, and Ethereum.“Deposit” and “Withdraw” refers to depositing and withdrawing credit in your Coinbase account.The Coinbase help guide will show you exactly what you need to do in order to manage your payment methods. Click here to read the help guide. Note: Coinbase doesn’t support credit cards anymore.
- Identity Verification: Finally, you will need to verify your identity. Since Coinbase is a regulated company, they will need to be compliant with KYC/AML regulations.Before you can use your debit card to purchase anything, you will need to verify your identity.It is a pretty straightforward process, you can click here to follow the instructions .
How to Start Trading
Alright! Let’s get started.
You have now signed up and then set up your account. How exactly are you going to go about trading now?
In Coinbase you can buy the following coins:
Protecting your Cryptocurrency
In order to protect your cryptocurrency, you must have a wallet. The wallet saves your private key and public address which helps you store, send, and receive cryptocurrencies. Even though this should be very clear to you, let’s a do a quick run through of what private key and public address means:
Private Key: The private key gives you the right to access and send your money.
Public Address: This is the address where everyone will send you money.
One key thing to remember before we continue, the public address is the one that you will give to others in order to send your money.
DO NOT and we repeat DO NOT give out your private key. The private key is for you and you alone. If you give out your private key to strangers, then they will gain access to your money.
Let’s hope we have made that sufficiently clear.
|Public Address||Give out to everyone|
|Private Key||If you give it out to everyone then you’re screwed|
Alright, let’s move on.
All crypto wallets fall into the following two categories:
- Hot Storage.
- Cold Storage.
Hot Storage Vs Cold Storage
Before we go deep into them, let’s use an analogy to help understand the difference between the two. The hot wallet is like the wallet you carry around in your pocket. It gives you easy access to your cash but, it is pretty vulnerable.
The cold storage, on the other hand, is like your savings account. Highly impractical for day-to-day use BUT it is extremely safe when you compare the two.
A wallet that is connected to the internet is termed as “hot storage.” The following are examples of hot wallets:
- Exchange wallets.
- Desktop and mobile wallets.
- Multi-Signature wallets
Before we get deep into each of those wallets, let’s go through the pros and cons of hot wallets.
Pros of Hot Wallets
- Gives you quick, easy, and instant access to your funds.
- Gets easy support in different devices.
- Very user-friendly and ideal for beginners.
Cons of Hot Wallets
- Vulnerable to hacks and cybercrime.
- Unless the keys have been carefully backed up, if the device is damaged then the wallet will be damaged as well.
- The device in which your hot wallet is saved like your laptop, phone etc. is susceptible to physical robbery as well.
So, now that you have a general idea of what a hot wallet is, let’s go through some of the more popular types of hot wallets.
Hot Wallet: Exchange Wallets
This is the easiest wallet that you will ever create. In fact, if you have been following our instructions and have created your Coinbase account then guess what? You have created your exchange wallet already!
The advantages are obvious. It is already linked to your account and gives you quick and easy access for trading. HOWEVER, this also means that you are vulnerable to attacks. Remember, exchanges are a constant target for hackers. We would recommend that you don’t keep a major chunk of your cryptos in exchange wallets, keep only as much as you need for trading.
Hot Wallet: Desktop and Mobile Wallets
Desktop and mobile wallets have grown in popularity. Desktop wallets offer more security than exchange wallets. Setting them up is very simple as well. All that you need to do is to download the client in your laptop/desktop and you are done! MultiBit provides an excellent desktop wallet to store Bitcoins.
However, there is a problem with desktop wallets. They are not the most flexible of options. After all, you can’t access your desktop wallets from any other desktop apart from the one that you have downloaded it in.
This is why, for more users who want flexibility, mobile wallets are a pretty convenient option. Setting up is as simple as downloading an app into your phone. MyCelium is a pretty popular mobile wallet for both Android and iOS.
The problem with both these wallets are that since they are stored in a device which is connected to the internet, they are vulnerable to viruses and hacks.
Hot Wallet: Multisignature Wallets
Have you ever seen one of those old school safes which require multiple keys to open? Or what about those treasure chests which needs 3 or 4 people to put in their keys and unlock at the same time?
That will give you an idea of how Multisignature wallets or multisig wallets work. Most of the ICOs use multi-sig wallets to collect and store their funds. So, why would one want to use multi-sig wallets?
- To protect from corruption : We have all heard stories of ICOs getting millions of dollars in their crowd sale. What is to stop all these developers from taking the money and run away? Human greed is powerful after all. In situations like these, it is far more prudent to accept funds in a multi-sig wallet where all the money and power won’t rest on one human being.
- More Security and Assurance: Since the funds are in a multisig wallet, they will automatically be more secure because they are no longer dependent on the whims of one person. Plus, if I am sending my money to a multisig wallet address, then even I will feel reassured that my funds are not being mishandled.
So, how does it work? Let’s take BitGo’s example.
- BitGo issues 3 private keys. One for the company, one for the user, and the third is a backup.
- Any transaction would require 2/3 of these private keys.
- So, even if a hacker gets their hands on one of these keys, they won’t be able to do anything without one more key.
While hot wallets give you great accessibility, the fact remains that they are extremely unsafe. That’s why, it is more prudent to save the majority of your funds in a cold storage wallet. A cold wallet is completely cut off from the internet, which automatically keeps it safe from hackers and viruses.
Examples of cold storage wallets include:
- Hardware wallet.
- Paper wallet.
Before you learn how to set up each of the above, let’s understand the pros and cons of cold wallets.
- 100% safe from hackers and viruses.
- A great place to store and HODL your coins for a long period of time.
- Extremely impractical for daily transactions.
- Not beginner friendly.
- It is still vulnerable to human carelessness.
Alright, so now that that’s taken care of, let’s understand how to set up cold wallets.
Cold Storage: Hardware Wallets
Hardware wallets are physical devices where you can store your cryptocurrency.
The most common form of hardware wallets is the USB style which has been championed by the French company Ledger. The reason why hardware wallets have become so popular is that they give you the storage and security capabilities of a cold wallet while making transactions stupidly simple and straightforward. Basically, it works around and negates the biggest disadvantage of cold wallets.
Pros of Hardware Wallets
- Since it’s a cold wallet your private key will be safe and secure. The keys are stored in the protected area of a microcontroller and cannot be transferred out of the device
- They are designed to be sleek and can be carried around easily.
- Transactions are extremely easy. All that you have to do is to plug in the wallet and then follow the instructions given to make your transactions. The UI interface of the wallets is very user-friendly.
- Extremely safe and secure. As of writing, there have been no instances of a hardware wallet hack.
- Has the capability to store multiple addresses for you to send your funds over.
- The wallet is pincode protected, so even if it falls on wrong hands, they won’t be able to access your funds. Entering the wrong pin code 3 times will shut down the wallet. In the event of a shutdown, you can still recover your funds by following the restoration details.