For a detailed overview of how to start trading cryptocurrencies, read our comprehensive guide on trading cryptocurrencies like a pro.
What Is A Cryptocurrency?
Before you start investing in cryptocurrencies, you will need to know the primary function of each major cryptocurrency and its financial tools. So, let’s start by defining what is a cryptocurrency! A cryptocurrency is a digital or virtual currency that serves as a medium of exchange and uses cryptography to make transactions more protected. Through the use of blockchain technology, crypto transactions are decentralized by nature, as compared to the centralized banking system that we are all familiar with.
Top 5 Cryptocurrencies In 2019
There are many cryptocurrencies created every day. However, almost all of them do not survive for long. As a result, lots of crypto investors have lost money from their investments. On the bright side, some digital currencies have a well-planned strategy and viable use cases. These cryptocurrencies occupy the top 5 positions and have cemented their position as market cap leaders, at least for the foreseeable future. Furthermore, there are many great applications for tracking the value of cryptocurrencies. The most popular one is CoinMarketCap. According to it, the cryptocurrencies listed below constitute the top 5 cryptocurrencies based on market cap, as of 31 July 2019.
1. Bitcoin (BTC) — 64.5% market cap
The leading cryptocurrency is Bitcoin, which was created by Satoshi Nakamoto (no one actually knows who Satoshi is or if he is a particular man or a group of people) in 2008. Bitcoin is still the alpha cryptocurrency presently and it is in no hurry to give up its market dominance any time soon.
2. Ether (ETH) — 8.5% market cap
Another popular cryptocurrency is Ether (ETH). Made by Vitalik Buterin in 2015, Ethereum has developed an innovative decentralized applications (dApps) platform. It is also the first blockchain system to apply smart contracts during transactions.
3. Ripple (XRP) — 5.1% market cap
The third from the top is Ripple. It’s a native asset of Ripple Consensus Ledger. XRP is considered to be the most efficient choice for the financial sphere and liquidity providers because it enables the fastest transaction verification.
4. Bitcoin Cash (BCH) — 2.2% market cap
The fourth popular coin is Bitcoin Cash. It’s the first hard fork of Bitcoin, which took place in August 2017. Later, BCH was forked again and divided into Bitcoin ABC and Bitcoin Satoshi Vision.
5. Litecoin (LTC) — 2.1% market cap
Litecoin is a cryptocurrency built by Charlie Lee. Today, it occupies the fifth position in the world of cryptocurrencies. LTC was formed on Bitcoin’s protocol but it differs as it applies another hashing algorithm.
What Are Cryptocurrency Wallets?
Now when you have read about some famous crypto coins, let’s understand where you’re supposed to keep them. A program that connects with many blockchains and gives users an opportunity to transfer and hold digital currencies is known as “cryptocurrency wallet”. You must have a crypto wallet in order to hold cryptocurrencies. Some crypto wallets have the ability to keep multiple coins and tokens at once. However, most crypto wallets today are only able to hold a selected group of cryptocurrencies.
Types Of Cryptocurrency Wallets
Generally, crypto wallets are divided into two types: hot and cold.
Hot Wallet
Hot wallets are connected to the Internet. They’re easy to use and suitable for beginners who are learning the ropes. These wallets are easy to set up and generally accept a wider range of tokens. The disadvantages of this type are mostly connected with possible regulation and hackers.
Cold Wallet
Cold wallets are not connected to the Internet. This makes them safer from hacking attempts. The disadvantage of using a cold wallet is that it doesn’t accept a wide range of cryptocurrencies.
Top 5 Cryptocurrency Wallets
1. Coinbase
Coinbase is considered to be the best cryptocurrency wallet. Its platform is regarded as the most convenient way to trade and store cryptocurrencies. The platform was the first to let users connect to an American bank account and simply make BTC-fiat/fiat-BTC transactions. This feature made Coinbase the leader in the industry, and it has retained its position today. The wallet currently supports Bitcoin, Ethereum, Litecoin and Bitcoin Cash.
2. Trezor
Trading is not allowed on the Trezor wallet like Coinbase. However, it is the best platform for storing Bitcoin. It is a physical device that connects to your PC, phone or other gadgets. The wallet also provides a service to protect from lost devices and forgotten passwords.
3. Electrum
Electrum is a desktop wallet, which allows you to store your cryptocurrency on your computer. Presently it’s available on Linux, Android, Mac OS X and Windows.
4. Blockchain.info
Similar to the leading crypto wallet, Coinbase. The main difference is that you can not sell Bitcoins directly. Coin storage and marketplace are separate.
5. Robinhood
Formerly a free stock trading platform, Robinhood has expanded and includes support of other investments, including cryptocurrencies. This platform has both and wallet and exchange features. Robinhood is a mobile-first application and does not have a web version.
Cryptocurrency Exchanges: How Do They Work?
The first point is that crypto exchanges enable trading one cryptocurrency for another and digital tokens to fiat currency. The market decides the price of every cryptocurrency based on its demand. Simply put, crypto-exchanges operate just like stock exchanges, but instead of stocks, you trade coins and tokens. Even though there are over 250 crypto exchanges today, very few of them provide fiat-crypto trading pairs or fiat deposits. To ease the cash-out process, most crypto exchanges prefer using fiat-backed stablecoins like USDT or PAX.
Types Of Cryptocurrency Exchanges
There are two types of crypto exchanges: centralized and decentralized. Centralized exchanges can accept fiat-crypto/crypto-fiat swappings. In this case, the exchanges require users to undergo a KYC verification process. In some cases, credit card details need to be scrutinized too.
What Is KYC & Why It Is Important
KYC stands for “know your customer/client”. It is a process of verifying a user’s identity and status. This process is also applied by businesses that want to check the identity of their clients. Furthermore, this is done for the purposes of assessing the suitability of users and ensuring that no illegal intentions are harbored. The main purpose of KYC is to prevent cryptocurrency exchanges, banks or other economy-related institutions from being used by criminals for their money-laundering activities. Usually, KYC policies have these four elements:
Customer Acceptance Policy; Client Identification Procedures; Monitoring of transactions; Risk management.
CC (Credit card) verification is done for linking your card to an account so you will be able to make transactions using fiat money, so be ready to be asked to upload selfies with your credit card. Decentralized exchanges (DEX) require an Ethereum wallet as they don’t store money directly on the platform. Instead, this type of exchanges provides users with P2P cryptocurrency trading. The advantage of a decentralized exchange is that they provide higher security and don’t require any additional steps to start trading. On the other hand, transaction speed is slower and trading volume is generally lower.
Top 5 Cryptocurrency Exchanges
If you are new in this world of various cryptos and you try to do your first steps, you’ll need to find a platform which is easy to navigate and understand. That’s why we have gathered a list of the best crypto exchanges for newbies.
1. Binance
Binance is the most popular exchange presently. It suits both and advanced users and beginners. Its UI has an option of switching between modes, which makes it really user-friendly. It ranks in top 5 exchanges on CMC by volume, so you can be sure you won’t face liquidity.
2. Kucoin
Kucoin is an exchange which gathers a lot of attention in the last 6 months. It’s not surprising cause it has a very easy-to-use UI. Tips for beginners: owning this exchange’s native coin – KuCoin Shares – gives you some extra passive income in the form of an exchange fee.
3. Changelly
Changelly is thought to be the most user-friendly crypto exchange in the market. It’s very simple to swap supported currencies between each other via this platform. Changelly supports over 35 crypto and some fiat currencies.
4. Coinbase
We have already told you about Coinbase wallet, now the exchange’s turn has come. You can simply deposit your fiat money and get the cryptos you need. It’s also very loved because it gives an opportunity of buying currencies using credit cards.
5. CEX.io
Another website with a good reputation is CEX.io. They made really simple UI for beginners and also their past track record is prepared pretty well. Like Coinbase, you can deposit with fiat money and get Bitcoin, Ethereum, Stellar, Ripple and Bitcoin Cash.
How To Create An Account On A Cryptocurrency Exchange
Now that you know the top 5 crypto exchanges, you can choose one of them (or any other if you so desire) and start the process of creating an account. Just like creating an account on social media, you will have to provide an email and a password. The variation is that crypto exchanges are enforcing the KYC process to ensure cybersecurity and prevention of financial fraud. If you have chosen a centralized exchange, be prepared to give credit card information. In the case of a decentralized exchange, make sure you have an Ethereum wallet.
Benefits Of Investing In Cryptocurrencies
There are two main benefits of investing in cryptocurrencies. The first is the potential to make a huge profit. But, what makes cryptocurrencies such a profitable investment? Their extreme volatility. Hence, the return on investment for crypto is exceptional for percentage increases. However, putting your money in the wrong coins at the wrong moment will see you having correspondingly large losses. And the second benefit is that cryptocurrencies are impossible to counterfeit. This is because all transactions are recorded on a distributed ledger. Hence, no one can modify any transactions. Even if someone makes any modifications locally, the consensus algorithm will find the discrepancy within minutes.
Best Cryptocurrencies To Invest In
Understandably, some of you may be thinking of Bitcoin while reading the header. Unsurprisingly, BTC is the leading cryptocurrency since its inception. However, experts insist that buying altcoins may be as profitable too. So, here’s a list of coins that professionals recommend to put money in:
1. Bitcoin (BTC)
The obvious number 1 choice. This is because the coin has already confirmed that it is trustworthy by solidifying its status as the crypto market leader. So, if you are a novice investor, start off by buying some Bitcoins. Also, check out our earlier article for a detailed comparison of Ethereum vs Bitcoin.
How To Invest In Bitcoin?
For investing in Bitcoin, you will need to have a crypto wallet to be able to store the coins you are going to obtain. Then, you will have to find an exchange, which supports Bitcoin (virtually all crypto exchanges). Next, create an account on the exchange and that’s it. You’re ready to invest in Bitcoin. The second way to get Bitcoins is mining. However, it’s harder than the first option. This is because to become a miner and procure Bitcoins, you’ll have to spend a lot of money on computing power to have suitable machines for the process.
2. Litecoin (LTC)
The main reason for investing in this cryptocurrency is that the number of retailers who accept LTC is growing day by day. Moreover, it has a more accelerated block formation and transaction verification than Bitcoin.
How To Invest In Litecoin?
The best way to obtain LTC is to register an account on a crypto exchange, deposit other cryptocurrency or fiat currency (if you have chosen a centralized exchange) and exchange it for Litecoin. The most profitable scenario for this coin is holding it till the price increases.
3. Ether (ETH)
Ether is highly sought after by blockchain developers who’re looking for a means to built and manage applications inside the Ethereum platform. Likewise, the cryptocurrency attracts investors who are trying to make purchases of other digital currencies using ether. You might also want to check out our earlier article for a detailed comparison of Ethereum vs Bitcoin.
How To Invest In Ethereum?
The required thing for investing in Ether is owning a digital wallet. First, you can choose any of the platforms we have mentioned above to buy ETH. Then, you can either swap it for fiat currency or for a crypto coin. Remember that you are putting your money in currency and there are no payouts or dividends in this case.
4. Zcash (ZEC)
Zcash is a decentralized coin launched in 2016 and looks very promising. The advantage of the coin is the feature of shielded transactions, which gathers a lot of attention from crypto enthusiasts.
How To Invest In Zcash?
There are four easy steps you need to do to get Zcash: get a Zcash wallet, locate your transparent address, find an exchange that supports the coin (CEX.io, that we have told you about, is one of them), and purchase the amount you need. An alternative way of getting Zcash is Coinbase, which offers a brokerage service. This one is more simple but more expensive.
5. Dash (DASH)
Dash is a lesser-known version of the original Bitcoin and was originally named Darkcoin. It was launched in 2014 and has a very fast increasing number of investors.
How To Invest In Dash?
Get a cryptocurrency wallet of any type you wish. Then, buy Dash in an exchange that trades the currency. Two options are still working: you can use other cryptocurrencies or just fiat. Finally, transfer your Dash coins to your wallet.
6. Ripple (XRP)
This is a coin that has no mining feature. Hence, it decreases computing power usage. The coin was announced in 2012 and since then, it provides cross-border payments for banks and other institutions.
How To Invest In Ripple?
Today, it’s not very easy to buy XRP. This is because you’ll have to follow some strict rules. First, you will need to create a Ripple account on one of the recommended exchanges (Bitsane is the most popular choice). Then, get a second account on Coinbase or another alternative exchange (this is done because you can’t directly send money to any Ripple exchange so you have to own a second account on other exchange). Next, buy Ethereum or Bitcoin on Coinbase. Finally, transfer the purchased coins to Bitsane and buy Ripple from here. Even though the process may seem very complicated, the results are worth it.
Cryptocurrency Investment Strategies
So now that you have already invested in cryptocurrency, it’s obvious that you would like to make a profit. Hence, here are some investment strategies that you can consider using:
Buy and sell crypto coins when its price rises enough Buy and hold cryptocurrency for dividends Run master nodes Day trading cryptocurrencies Stake cryptocurrencies Invest in ICOs Mining (Note: as we already mentioned above, not all cryptocurrencies can be mined) Participate in Airdrops
Definitely, these tips will help you navigate through the ocean of cryptocurrencies and be more confident in making a profit from your investments. Most importantly, make sure you have done your due diligence before putting money into projects. In addition, be sure to understand and analyze the project’s business model, management team’s experience and cryptocurrency use case to minimize risk and (possibly) make a handsome profit.
