What Tools for Trading Cryptocurrency?

What Tools for Trading Cryptocurrency
What Tools for Trading Cryptocurrency

What tools for trading cryptocurrency?

1. What you need to know

Cryptocurrency is a secure yet unregulated form of digital money that’s completely decentralized and doesn’t require a middle man or bank to conduct transactions. As of October 2017, there were approximately 3,600 different cryptocurrencies in existence. The largest cryptocurrency, bitcoin, was launched in 2009 and, as of March 2018, its market cap was $110 billion, according to data from CoinMarketCap.com.

There are hundreds of cryptocurrencies out there, but the three most common are bitcoin, ether and litecoin. Bitcoin is the largest by market cap, at $98 billion, while ether is second at $28 billion and litecoin is third at $12 billion.

However, there are hundreds of other cryptocurrencies in existence, so you should know that you don’t need to invest in the most popular cryptocurrencies to earn money. However, the more popular cryptocurrencies and the higher the price, the more difficult it is to mine (i.e. make money on) your coins.

According to the Medium post “Where to Mine Bitcoin and Litecoin,” bitcoin miners are a group of people, organized into companies like Bitcoin.com, mining cryptocurrencies like bitcoin. Those who want to mine cryptocurrencies can rent dedicated computers and buy specialized mining equipment to earn currency or collect cryptocurrency.

Then, there’s transaction fees. Because cryptocurrencies are decentralized and not regulated by governments, transactions incur no fees. However, “miners” charge companies to make transactions quicker, as they require a lot of computing power.

As a result, it’s more profitable for a company to charge fees to process transactions than for users to process their own transactions.

Lastly, you need to know how to buy and sell cryptocurrencies. The easiest way to invest in cryptocurrencies is with a cryptocurrency exchange. There are a few different ways to buy or sell cryptocurrencies, but most options work with bitcoin or ether. In fact, Coinbase is one of the most well-known exchanges. Other popular cryptocurrency exchanges include Kraken, Binance and GDAX.

A note about exchanges: These platforms usually charge a flat fee to send and receive cryptocurrency. According to the Medium post “Banking on Bitcoin,” Coinbase’s rate is $2.99 per dollar and GDAX’s rate is $3.95 per dollar. If you use two different exchanges, it may take several attempts to buy or sell cryptocurrency, as they usually compete for your business.

2. Get a Cryptocurrency wallet

If you want to begin investing in cryptocurrencies, you’ll need to download a wallet or software that stores your cryptocurrencies. There are different ways to store your cryptocurrency, which I’ll cover in future sections, but basically, you have three options:

Safer storage options: You could use a hardware wallet to store your cryptocurrencies, which are physical devices (e.g. the Trezor or Ledger Nano S) with your private key that require you to plug them into your computer or smartphone for transfers.

You could use a hardware wallet to store your cryptocurrencies, which are physical devices (e.g. the Trezor or Ledger Nano S) with your private key that require you to plug them into your computer or smartphone for transfers. Software wallets: Cryptocurrency investors typically keep their cryptocurrencies in a software wallet, which are often platform-specific (e.g. CoinBase, Coinbase, etc.) or web-based, like Mycelium. These wallets are a little less secure than hardware wallets, but they do allow you to access your funds in case your device is stolen.

Cryptocurrency investors typically keep their cryptocurrencies in a software wallet, which are often platform-specific (e.g. CoinBase, Coinbase, etc.) or web-based, like Mycelium. These wallets are a little less secure than hardware wallets, but they do allow you to access your funds in case your device is stolen. Mycelium: Lastly, you can keep your cryptocurrencies in an unregistered paper wallet, which involves creating a database of private keys to a digital file and storing it with an independent, third-party wallet service, such as the one that operated the crypto wallet that allowed the hack of Bitfinex.

The most popular software wallets, including mycelium and Coinbase, are available for download, as well as the Trezor and Ledger Nano S, which I’ll review in detail below.

3. Get your first cryptocurrencies

In order to buy cryptocurrencies, you’ll need some of your own. And, of course, you’ll also need some of the currency that you’re hoping to invest in.

Cryptocurrency mining has gotten out of control. Don’t get me wrong, cryptocurrency is the hottest asset out there, and I see it continuing to rise in value for the next decade. But this is one bubble that, unfortunately, I believe is going to burst. There are 1,518 different cryptocurrencies in circulation, according to The Merkle. The total value of these currencies is about $150 billion.

Now, you could try to get in on this by investing in a group of these cryptocurrencies, such as one of the cryptocurrency exchanges (i.e., Kraken, Binance, Gemini, etc.), or, more likely, some Bitcoin or Litecoin. But if you’re not in the business of investing in cryptocurrencies for the long haul, I would advise skipping this step altogether and just downloading the wallet software that you’ll need to store your first cryptocurrencies. (I’ll cover the process in more detail later on.)

4. Open a brokerage account and trade your first cryptocurrencies

Once you have some of your own cryptocurrency to trade, you’ll need a brokerage account to buy and sell them. For this step, we’ll assume that you have a bank account or credit card with a low- or zero-interest balance.

To open a brokerage account, you can use one of the three large U.S. brokerages (Fidelity, Merrill Lynch, or TD Ameritrade). All three will likely charge a small registration fee, then some smaller “flat-rate” brokerage fees, and finally trading fees. (These brokerage fees will differ depending on your brokerage, but they will be significant.)

Before you put money into your new brokerage account, I would like to ask you a favor. It is imperative that you protect your money and never reveal your private key to anyone, including the brokerage. Anyhow, if you are a new cryptocurrency investor, one way to protect your private key is to store your cryptocurrency somewhere that only you have access to it.

Think about it like this: Imagine you’re sending someone money via a wire transfer. You sign the transaction and the bank gives you an envelope with cash in it. You open it, count the money, put it in your pocket, and take the cash. But, of course, a thief comes along and steals your cash before you can even start to count it.

Even though you didn’t pay any money to the bank to open the account, it is still considered a theft. And, of course, the robber gets his money (plus interest). If you were to disclose your private key to anyone, including the bank that you opened your account with, then your money is gone forever.

In order to safeguard your money from theft, you should store your cryptocurrency in a “cold storage” digital wallet that you don’t use often, but is still safely accessible to you.

Cryptocurrency wallets store private keys, which allow you to spend cryptocurrency. These wallets are run by a software called “wallet apps” that you can download onto your smartphone. The app gives you the ability to buy, sell, or store cryptocurrencies. But, in order to do this, you must use a private key to access the wallet’s funds.

To open a cold storage wallet, you must first purchase the cryptocurrency that you want to store there, like Bitcoin. Once you have purchased Bitcoin, open your cold storage wallet (the app), and click the Bitcoin icon. You’ll be prompted to input your Bitcoin private key.

I know that this may sound scary. But remember that you’re buying Bitcoin for a reason. If the price of Bitcoin were to crash, then your funds are protected from that crash, too.

If you don’t feel comfortable handling Bitcoin, you can simply buy the Bitcoin cryptocurrency without using your private key.

5. After you’ve safely purchased some Bitcoin, now’s a good time to buy some Litecoin

In order to use Bitcoin for daily purchases, you need to purchase some cryptocurrency. You can buy Bitcoin with your private key. You can then store this Bitcoin in a cold storage wallet. Now, you can use your Bitcoin to make purchases on the Bitcoin exchanges. But, you’ll need some Litecoin for everyday transactions. So, why not buy some Litecoin?

To purchase Litecoin with a Bitcoin, all you need to do is buy Bitcoin with your private key. You can then use your Bitcoin to buy Litecoin. In other words, you’re making a purchase with a Bitcoin, using your private key, but you’re not actually selling your Bitcoin in order to make the purchase. Once you’ve made this purchase, you can now use your Litecoin to buy goods and services on the Bitcoin exchanges.

Of course, there’s a major downside to this approach: the Bitcoin you used to purchase the Litecoin is now in someone else’s possession. So, if you don’t use your private key to open a cold storage wallet, you risk losing access to this Bitcoin (and others like it).

Regardless, one way to mitigate the risk of losing your Bitcoin is to make sure you have a backup of your Bitcoin. A popular Bitcoin wallet, “Mycelium,” is one such Bitcoin wallet that can be used for backup storage. You can download the Mycelium wallet onto your smartphone and then store Bitcoin in your Mycelium wallet (this way, your Bitcoin is still in your possession, and you don’t have to transfer it over to a cold storage wallet).

NEXT READ:

Share

Related Posts

Leave a Reply

Your email address will not be published. Required fields are marked *