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How to Invest in Cryptocurrencies: Easy Guide

Investing in cryptocurrencies can offer substantial rewards, but it comes with high risks and should be approached with caution and due diligence.

Are you considering investing in crypto and wondering how to start? Keep on reading to learn the essentials and the steps to get started.

What Are Cryptocurrencies?

Cryptocurrencies are digital or virtual currencies that use cryptography for security, making them nearly impossible to counterfeit. Unlike traditional currencies, they are decentralized and typically operate on a technology called blockchain, a distributed ledger enforced by a disparate network of computers.

A Brief History

There’s debate on who started it. Still, we can agree that the inception of cryptocurrencies can be traced back to the creation of Bitcoin in 2009, which was developed by an individual or group of people using the pseudonym Satoshi Nakamoto.

Bitcoin introduced the concept of a decentralized currency and blockchain technology. Since then, thousands of cryptocurrencies have been created, each with unique features, objectives, and technologies underpinning them.

Some Popular Cryptocurrencies

  • Bitcoin (BTC): The first and most well-known cryptocurrency, widely regarded as digital gold.
  • Ethereum (ETH): Not just a cryptocurrency but a platform for building decentralized applications, with Ether as its currency.
  • Ripple (XRP): Aimed at facilitating faster and cheaper cross-border transactions.
  • Litecoin (LTC): Created as the “silver” to Bitcoin’s “gold,” with faster transaction confirmation times.

As you can see from this short list, cryptocurrencies have multiple applications, although many think of them only as tradeable assets.

Who Offers Cryptocurrencies?

Cryptocurrencies can be bought, sold, and traded on cryptocurrency exchanges, which include:

  • Centralized Exchanges (CEXs): Platforms like Coinbase, Binance, and Kraken where users can trade cryptocurrencies for fiat currencies or other cryptos.
  • Decentralized Exchanges (DEXs): Platforms that allow for direct peer-to-peer cryptocurrency transactions online without the need for an intermediary, like Uniswap.

How It Works

Investors can buy cryptocurrencies on an exchange using fiat currencies (like USD or EUR) or other cryptocurrencies. Once purchased, cryptocurrencies can be stored in digital wallets, traded, or used for transactions. The value of cryptocurrencies can fluctuate significantly due to market demand and supply.

There are three main ways people make money with crypto:

  • Capital Appreciation: Investors can profit from buying cryptocurrencies at a low price and selling at a higher price.
  • Trading: Some engage in trading, leveraging the volatility of the cryptocurrency markets to make profits on short-term price movements.
  • Staking and Interest: Certain cryptocurrencies offer rewards or interest for holding or “staking” them in a digital wallet or on an exchange.

Let me illustrate: Let’s say an investor purchased Bitcoin in January 2017 at around $1,100 and sold at its peak in December 2017 at nearly $20,000 would have realized significant capital gains.

So, are you ready to get started?


How to Start Investing in Cryptos

Follow the steps to help you begin investing in cryptocurrencies.

Step 1: Continue Learning

Understand what cryptocurrencies are and the risks associated with investing in them. You’ve started with this guide, which is a great step. Many of the platforms also offer additional resources to help you understand cryptos.

Step 2: Select a Platform

Choose a reliable exchange or trading platform. We’ve all heard the news of exchanges going bankrupt, so working with a reputable platform is vital.

You can find a list of the best crypto exchanges on phroogal.com.

The following are considerations when choosing a platform:

FactorDescriptionWhy It Matters
SecurityRobust measures like 2FA, encryption, and cold storage. Check for past breaches.Ensures the safety of your funds and personal information.
Ease of UseUser-friendly interface for beginners and advanced tools for experienced traders.A simpler learning curve and better trading experience.
FeesIncludes trading fees, withdrawal fees, and other charges.Affects the overall cost of trading and your investment returns.
Available FeaturesMultiple cryptocurrencies, fiat transactions, margin trading, wallet services, etc.Enhances trading flexibility and options.
Regulatory ComplianceCompliance with legal standards and possession of necessary licenses.Adds a layer of security and legitimacy, ensuring protection against fraud.
Customer SupportAvailability and effectiveness of customer service.Crucial for resolving issues and supporting your trading activities.
Geographical RestrictionsSome exchanges may not operate in all regions.Ensures the exchange is available and functional in your location.
ReputationUser reviews and testimonials.Provides insights into user experiences and the reliability of the exchange.

Step 3: Fund Your Account

Once you open an account with an exchange, you will need to verify your personal information, fund the account, and make your first purchase.

Some Additional Tips to Protect Your Money

Start Small: Begin with a small investment to familiarize yourself with the process. Don’t risk your hard-earned money following crypto gurus and heavily speculating. Allow yourself the time to learn how the platform works, learn the lingo and jargon and research the cryptos themselves.

Diversify: Consider diversifying your investment across different cryptocurrencies to mitigate risk. Once you’re familiar with the exchanges and main cryptos, look at other possible investment opportunities.

Secure Your Investments: For large amounts, use secure wallets, preferably hardware wallets. Once you start building a large crypto portfolio, it might be time to learn more about wallet storage. For instance, hot wallets are always connected to the internet, whereas cold wallets are disconnected from it.

Risks to Consider

Investing in cryptocurrencies can offer substantial rewards, but it comes with high risks and should be approached with caution and due diligence. Always invest money you can afford to lose and consider consulting with a financial advisor.

  • Volatility: The prices of cryptocurrencies can be highly volatile, leading to significant fluctuations in your investment value.
  • Regulatory Risks: The regulatory environment for cryptocurrencies is still evolving, which could impact their value and legality.
  • Security Risks: Cryptocurrencies are prone to theft if not properly secured, and transactions are generally irreversible.
  • Market Risks: Like any investment, there is no guarantee of profit, and the cryptocurrency market has experienced significant downturns. There’s a great chance you’ll lose it all.

If you’re not invested in the stock market or contributing to your retirement plans, crypto investing might not be the right first move.

Jason Vitug

Jason Vitug is a bestselling author, entrepreneur, and founder of phroogal.com and thesmilelifestyle.com. His purpose to help others live their best lives through experiential and purposeful living. Jason is also a certified yoga teacher and breathwork specialist and has traveled to over 40 countries.

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