Thinking of finally investing in cryptocurrency? But are you really prepared for it? Ready or not, here’s what you should really know before buying any crypto!
What follows is in no manner financial advice. Please do your own research before you proceed with any kind of financial transactions and investments.
👨🏼💻Things you should keep in mind when buying crypto
So, are you really sure that you finally want to try your luck in investing into cryptocurrency? If yes, then mind you that this financial space doesn’t just come with profits, but also risks. So, there are a few points that you should make a note of (don't worry, we are not trying to scare you 🙄).
Here we go! 🚀
Factors influencing the choice of crypto
📉📈Price trends
Since the crypto market is highly volatile, it is common to see fluctuations in their price depending on the market situation.
So, before buying, make sure you don’t invest in the one having a history of going from very high value to negligible value, as it is representative of market hype.
Try to choose one that has seen moderate fluctuations or one that has seen a gradual increase in price over some time.
💻Check the website for authentication
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Any cryptocurrency that you are planning to invest in should have a website of its own. With the world revolving around technology, creating a website is not a difficult job. Every company, institution (even schools and colleges 🏫), and the government has an official website, so why not something like crypto? 🤔
Once you are on the website, watch out for spelling or other errors, a white paper, mention of the team, etc. All these criteria, when matched, may make you trust the company before you buy something. 😎
🕵🏼♀️Look for the utility
Everything doesn’t need to have a utility for everyone. In the context of crypto, it is advisable to look for those tokens or coins which have some utility in any blockchain.
For instance, Ethereum is a significant player in the world of digital assets because it is on its blockchain that many NFTs are based on, businesses depend on it, etc. These act as a measure of its value in the market.
Others may not have any utility but have become popular due to some social media trends, like certain memecoins.
Supply
It might be a new fact for you that some cryptocurrencies have a limit to their supply, i.e., they will exist in a ‘maximum number’ (simply put, they won’t exist after that number! ❌).
This max supply thing is for you to understand the scarcity of those coins that might affect their price at any time. Understanding this factor can help you make a wise choice in choosing which coin you should invest into. 🤑
Factors influencing buying crypto ⬇️
Understand the trading mechanism first 🤝
Suppose you hear about Dogecoin or Solana from your friends one day, like the concept, grab your wallet, and set out to purchase some crypto from a stall in your local marketplace. No! It is not how it works. 😅
For buying crypto, one thing to be kept in mind is to look for a platform that allows both deposit and withdrawal of local currency, facilitating you in moving funds within the crypto world.
Do proper research in order to understand how the buying-selling mechanism works for digital currency, and don’t just jump to buy one after hearing about it the first time.
👮♀️Security
Since cryptocurrencies are not regulated by the government or banks, there can be security concerns. Cases of hacking and fraud in this context are not unheard of 🤷🏼♀️.
It becomes your responsibility to secure your Solana or Ethereum coins by making the right choices and finding a reliable crypto wallet. Most preferably, choose one that allows storing and trading crypto from one place and that regularly communicates with the server for verifications.
An insider's tips for buying crypto - we learnt it the hard way 😩
👶Baby steps
Doing anything for the first time means that you have to be very careful with your steps, and investing in crypto is no exception.
When investing in crypto for the first time, make sure that you invest a small amount. It is because the crypto market keeps fluctuating, and you will never know when the currency will get devalued and all money will be lost. You are still in the learning stage so it would be better if you spend only that amount which won’t be that big of a deal if lost.
💰Tax concerns
A first-timer should be well aware of the fact that not all countries have the same laws and jurisdictions regarding cryptocurrency. In some countries, like the US and Canada, it is legal while in Russia, China, etc. crypto trading is not allowed at all.
Taxation and legal knowledge about this field is required because differences with respect to them can determine the returns you receive from your investment. Violating any law can land you in serious trouble and make you lose all your investment returns.
White paper
This is one important step that may be ignored. Every crypto company is bound to offer a white paper which lays down the objectives of the company’s proposal. They are the first thing that potential buyers should read before moving further with their decision. 🗺️
You have the right to know who the team behind the project is, what are their goals, and how do they plan on achieving them.
🙅🏼♂️ Not having a white paper is a warning for you!
Where can I buy crypto?
🙄Again, you don’t have a ‘cryptocurrency mall’ where you can go with your friends to purchase some of these digital assets. So, you have two options to buy crypto- centralized and decentralized exchange. We’ll give you the details so, don’t worry! 🤝🏼
Centralized exchange
Using this method, you can purchase any cryptocurrency using fiat money (💁♀️pretty much like your regular shopping where you exchange fiat currency for any item).
This is a pretty straightforward and easy method to become the owner of any crypto coins or token. The centralized exchange comes with a third-party that will act as an intermediary between the two parties and you have to pay a small transaction fee for that.
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Peer-to-peer (P2P) exchange through Binance is a good example to understand this method. In this, if you are the buyer, all you have to do is place the order for the desired amount of crypto and pay the seller through the available method in fiat. After the seller receives the notification of payment, the crypto will be sent to you 🤝🏼.
On the other hand, if you are the seller, place an order and confirm that you have received the payment. The crypto will then be released to the customer.
P2P exchange comes with its own pros like flexible payment methods, negotiable trade prices, and upholding user privacy (doesn’t collect information from users like credit and debit cards require to). You can also trade from legit any corner of the world and use the local currency.
But hey, wait! We never asked you to turn a blind eye to the disadvantages like high transaction fees (ouch! you feel the pinch here 🤕), chances of theft because these centralized exchange companies may involve transactions worth billions, attracting hackers. One of the major cons is that these CEXs won’t allow you to store your coins and tokens in your private wallet, but rather hold your assets in their own wallets as a custodian, giving rise to fears of failed transactions and frauds.
Several centralized exchange platforms are available aside from Binance, like CoinSwitch Kuber, Gemini Coinbase, etc.
Decentralized exchange
Now, this mode of exchange differs from its centralized counterpart in the sense that here you won’t find any intermediaries. Apart from that, you are not allowed to use fiat money for purchasing crypto. Its like give-and-take only, but both sides involve cryptocurrency.
They work using smart contracts, self-executed codes on blockchain, that allow more privacy and less or no transaction costs.
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How does this method work? First you need to have your private wallet and connect it to any of these decentralized aggregators.
Lets assume that you want to exchange your USDT coins for Solana. For that, you need to place the required amount of USDT (Tether) for the value of Solana that you wish to purchase. When the transaction is successful, your order will be released into your private wallet.
Of course, this too comes with its pros and cons. In a decentralized exchange system, users don’t need to keep their assets with a third party which keeps the crypto safe from hacks, thefts, etc. that companies usually fall prey to. There are also no chances of market manipulation due to absence of intermediaries. And since, DEXs don’t require censorships, KYCs, etc. more crypto options are available here as compared to CEXs.
Coming to the disadvantages, users are required to carefully handle their seed phrases and remember them or else the coins and assets will be lost forever. Another point is that, this mode is suitable only for those users who already hold some crypto because otherwise they have to purchase some using fiat (CEXs).
Almost there! 😇
Hopefully, after reading this article you will understand the major red flags and warning signs you need to watch out for before buying cryptocurrency.
Investing in any kind of asset (digital or non-digital) requires proper research and a lot of thinking before coming to a conclusion, and we really hope you understand the importance for the same.
👀 Now, let us discuss where are you going to keep your crypto after you buy it? The answer is - a wallet!