This is a high level guide and explanation of the tools and accounts you’ll need to use cryptocurrency, organized by what you’re trying to accomplish with it.
Why I Learned How to Use Bitcoin and other Cryptocurrencies
It was only a few weeks ago that I expressed an interest in online trading as an income stream –and that article triggered an almost unhealthy infatuation with cryptocurrency trading.
I stopped taking on clients and immersed myself full-time to learn as much as I could about cryptocurrency.
I took three weeks off and spent 14 hours per day consuming every available piece of information I could find –I learned how to get started using cryptocurrencies like Bitcoin, Ethereum, Dash, EOS, and Neo (Antshares), the tools I need to use, and the trading strategies I will need to employ to make profit.
And in my first two weeks I saw my first Ethereum coin almost double in value. I was hooked.
Perhaps the most compelling reason why I became obsessed with trading cryptocurrencies is that the barrier to entry is so low that young, everyday average people are making a fortune with them (many without fully understanding the nuances of online trading). Even college students are leveraging the bullishness of cryptocurrency markets to pay off their student loans. That’s f*cking awesome.
Those new to cryptocurrency could start with as little as $50 if they want to get their feet wet. I started with a mere $200 USD –not the $25,000 many professional traders on traditional stock exchanges suggest you start out with.
What Do You Want to Use Cryptocurrency For?
The accounts, systems, or technologies you’ll need to familiarize yourself with depend on what you’re trying to accomplish with cryptocurrency.
First we’ll discuss the most common uses of cryptocurrency. Throughout this exploration we’ll look at the range of software and hardware tools that cryptocurrency users will need in order to accomplish a number different tasks.
Common Uses of Bitcoin and Other Cryptocurrencies
How you use cryptocurrencies will help you determine how far the rabbit hole you’ll need to go –as in how many cryptocurrency tools you’ll need for your day-to-day activities.
Buy and Hold
If you’re simply looking to buy and hold cryptocurrency as a way to make financial gains over the long-term, you will need a way to obtain it and then to store it.
If you are buying cryptocurrencies with FIAT cash, you will need a verified account with an exchange in your country that will be able to accept FIAT funds from a bank account and/or debit card. In Canada, we use Quadriga CX, and Coinbase is popular internationally and in the United States.
If you prefer to obtain cryptocurrencies with some level of anonymity, it is possible to buy and sell it outside of an exchange –which means you will not need to associate your real-world identity to your public key by verifying your address or other personal details.
LocalBitcoins is one such online marketplace where you can meet with other individuals to buy or sell cryptocurrency, in the real world, without relying on an exchange to do so.
Once you have purchased your cryptocurrency you will need to store it, in which case we suggest a hardware wallet like Trezor or a Ledger Nano S. Often, cryptocurrency buyers and sellers will facilitate in-person cryptocurrency transfers using a temporary intermediary mobile wallet and then transfer it to their long-term cryptocurrency storage solution afterwards.
The security of online cryptocurrency exchanges, online wallets ledand the computer that a software wallet may run on can be compromised over time. Computers and mobile devices are prone to malware or silent rooting, and exchanges are occasionally victims of DDOS attacks or insider hacks.
For long-term cryptocurrency storage an offline hardware wallet is a must –this is called “cold storage”, whereas an internet-connected wallet is called “hot storage”.
Buy, Sell, Trade or Lend
If you’d like to lend, buy or trade cryptocurrencies, you’ll need to have an account on a cryptocurrency exchange in addition to a wallet. As of the time of writing this article (August 2017), the most popular exchanges are Coinbase, Bittrex, Bitfinex, Gemini, Poloniex, and LedgerX — the latter of which is ”the first US federally-regulated exchange and clearinghouse for derivatives contracts settling in digital currencies” and Gemini is working on being regulated as well.
In order to create a small profit with your cryptocurrencies, it is also possible to lend them on popular exchanges like Bitfinex.
Pay for Goods and Services
In my opinion, the use case for crypto has changed over the years since the early days of Bitcoin. Once heralded as a cheap or free way (as in, no fees) to make purchases online or in the real world, I think this is changing.
I personally believe the best way to use Bitcoin or other altcoins is for buying and holding, lending, or trading –and you should always consider putting some of your profits away to buy gold or silver (you never know). With the value of cryptocurrencies fluctuating while they reach maturity as a globally recognized currency, their FIAT value can change wildly in the time it takes you to read this sentence.
If you spend them today at their current FIAT value, that same amount may be worth dramatically more in just a few weeks.
Nobody wants to be that guy who bought two pizzas with 10,000 Bitcoin only to discover years later his 10,000 Bitcoin would now be worth about 20 million USD. When he bought those pizzas back in 2010, his 10,000 Bitcoin were only worth about $40 USD.
Cashing out your cryptocurrency may be ideal for profits now and again, but I wouldn’t recommend pulling out your nest egg for a cup of coffee.
Now, that’s one hell of a disclaimer.
However, if you’d still like to make direct purchases using cryptocurrency it is possible to do so with services that have a debit card like BitPay, Payzaa, or you can pay your employees (or virtual assistants) with BitWage. At this time, there is no way to use PayPal to spend Bitcoin or any other cryptocurrency. Here in the Philippines, I love using Coins.ph which also has a subsidiary in Thailand.
Most mobile wallets also come with a QR code scanner, which you can scan and pay for goods and services where supported –no debit card required.
Tools of the Cryptocurrency Trade
Now let’s take a look at a range of cryptocurrency tools beginners will need to get started.
Cryptocurrency wallets can be divided into five types and each comes with varying levels of security to ensure the safety of your private keys; online, mobile, desktop, hardware, and paper wallets.
An exchange is a platform (website) where you can buy, trade, or lend cryptocurrencies. This means you can exchange one cryptocurrency for another, cash out cryptocurrency into FIAT money (aka ‘real’ money), or exchange FIAT money for cryptocurrency.
Financial visualization platforms provide enhanced visibility into cryptocurrency market activities by helping traders identify patterns to make informed trades. These tools can also be used to create email or SMS alerts based on specific criteria you establish so you never miss a profitable trade.
Cashing out a cryptocurrency into FIAT cash that you can use to buy a cup of coffee at Starbucks is as easy as swiping a debit card, however it comes with caveats that I mentioned earlier.
There are a number of factors to consider when you choose a cryptocurrency wallet, exchange,or payment processor. Here are a few key considerations, with a little extra focus on wallets.
Consider how long the company has been around, who’s running it, how securely they store your data on their servers, who holds your private keys, if they’re insured, or whether or not they have prior incidents of insider hacking and cryptocurrency losses due to poor data management practices or glitchy software.
Seek reviews and do your homework to choose the most reputable one.
Open source wallets allow third parties to review their code in its entirety, meaning that if there’s anything amiss, it will be widely reported; traditionally cryptocurrency users feel less secure when they use wallets with proprietary code and they can’t see what’s under the hood. Many new wallets are often buggy and aren’t quite ready for mass consumption.
Additionally, you’ll also want to know how your private key is stored –do you hold it, or is it held on their server? The latter is riskier than the former. And of course, do they use 2-factor authentication?
On top of all that, some cryptocurrency holders are also vehemently obsessed with privacy –if that sounds like you, read their FAQ to learn whether or not your wallet of choice can work seamlessly over the TOR Network.
As luck would have it, my third laptop in four years abroad died over this past weekend. Yes, some of my friends are beginning to wonder what the hell I am doing to my hardware –but corroded computer guts are a fact of life when you spend all of your time within a kilometer or two of the ocean, and rainy season can make a laptop perspire as much as my pale ass or the cold beer next to it.
With that in mind, ensure that your prospective wallets have a proper backup mechanism. I currently use Exodus on my deceased laptop which is a software wallet with a decent backup procedure that consists of a rescue link, password, and a number of pass phrases to get everything back up and running again. And soon they’re going to up their security features with 2FA (2-factor authentication), among others.
Even without a laptop, I’m still able to increase my Ether balance and verify it reached my wallet with tools like Etherscan.io. When I get a new laptop in a couple of weeks, I can re-install Exodus and pick up where I left off.
Many wallets and exchanges will allow you to work with many different cryptocurrencies under one roof. Before you verify your account on an exchange or open a new wallet, I suggest you become familiar with which cryptocurrencies they support.
Some wallets are purpose-built, just for one cryptocurrency, and some exchanges will only work with more mainstream altcoins. For example, Mycelium is a very robust Bitcoin-only wallet whereas Coinomi is a popular multi-coin mobile wallet.
Converting one cryptocurrency into another is a really handy integration to have built right into your wallet. This is another feature I love about Exodus, which uses ShapeShift to make this possible. I can’t stress how useful this feature is to have integrated within your wallet, as it also makes cryptocurrency arbitrage very easy.
If you’re sharing your crypto wallet with another user, it’s possible to require all parties to confirm a transaction. This is called a “MultiSig” account.
This relatively new feature allows users to setup multiple private keys for a single wallet and is ideal for families or business partners.
This one’s a no-brainer; do you want to access a single wallet across multiple platforms? If so, check out their availability. Personally, I use entirely different wallets on different devices to protect my assets, that way if one wallet gets compromised I don’t lose my entire savings in one go.
QR Code Scanner
If you’re looking for a mobile wallet, a QR code scanner is a must. The best mobile crypto wallets will be able to generate and scan a QR code for coin transfers, which will prevent you from having to type out your long public key to send or receive funds. Anything can go wrong, as any old school Windows user will know –remember those annoying license keys?
This is what my Ethereum address looks like: 0x57f70FfbaDcD2d94a15AB6FB4849c7738aB4B110
One day I’m sure that these addresses will be converted into something as easy to remember as an email address, but for now, this is what we’re stuck with.
A QR code is much easier to scan than typing out your entire public key on a tiny mobile device touch screen. The process of using a QR code is almost fool proof. Almost.
You can find an example of crypto QR codes below, which we use to make it easy for readers to make a small donation to our website. Although it is advisable you don’t share the public key of wallets where you store the majority of your cryptocurrency, so setup additional wallets like we did for the QR codes below.
When the market value of a cryptocurrency can rise and fall very quickly, the speed of any platform’s customer service is very important should anything go wrong –and this is particularly important for cryptocurrency exchanges. When doing your research, always be sure to include the “customer service” search term for any exchange, trading tool, or wallet.
Funding or cash flow liquidity risk is another factor that can negatively affect your ability to make a trade expediently when trading volume is at its peak. You can learn more about liquidity risk on Investopedia, and view detailed information about exchanges on Coinmarketcap.com.
Ensure that both your wallet provider and exchanges you use are ready to manage systemic improvements like “segregated witness” (segwit) or occasional hard forks as blockchain technologies emerge and evolve over time.
When in doubt, keep your cryptocurrency on a hardware wallet in cold storage until changes like these settle.
You will learn about changes to the blockchain over time, so don’t burn too many mental cycles on them today –you’ve already got a lot of ground to cover.
At this point, your first step is to get a wallet. I use Coins.ph (in the Philippines) on my phone and I’ve tinkered with Jaxx but I find it a little buggy –you may prefer to use an online wallet like Coinbase when you’re starting out. It takes a few days to verify your account, so get the process started before you’d like to buy your first crypto with your credit card or prepaid debit card.
When I get a hardware wallet, I’ll choose Ledger because they handled the last Bitcoin fork better than Trezor. And for now I use Exodus on a laptop. 99Bitcoins has a great spread of crypto wallet reviews which I believe they update somewhat regularly.
After you have a wallet, you’re going to need to find a way to load it with cryptocurrency which can be done with a verified account on an exchange and your bank account, or you can buy some from a friend.
Did you find this information helpful?
Sign up to Coinbase with this link and we’ll both get $10 USD free when you buy, sell, or trade your first $100 USD worth of cryptocurrency.
I mentioned a few related articles throughout this one that you may find useful:
- How to Get and Use Cryptocurrency
- 5 Types of Cryptocurrency Wallets Explained
- 10 Bitcoin Myths, Scams, and Criticisms Explained
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