DISCLAIMER: I am not a financial advisor. I have no affiliation with any of the products/services mentioned in this post. I am not responsible for your actions. Your mileage may vary.
After founding a crypto startup a few months ago, I've had a good number of friends, family, and friends of friends reach out to me asking for advice & guidance on getting started with cryptocurrency. Since Bitcoin has gone supernova in the past few weeks, numerous more have sought my help - of which I'm very grateful for; teaching others is a great passion of mine. This article serves as an attempt to summarize and polish the information I've been giving out over the past year to beginners looking to purchase Bitcoin or Ethereum.
This guide will help you accomplish the following things:
- Determine your starting capital amount
- Create and verify an account on a regulated exchange based in the United States
- Point you in the right direction for obtaining a physical hardware wallet to secure your coins
- Find resources to learn more
There is plenty of work to do before you actually convert USD into cryptocurrency, so we'll be forgoing any actual purchasing until the prerequisite steps have been completed.
The structure & ordering of the information within this guide was made with a certain use case in mind. If you're looking to day trade frequently and want to take a stab at making quick profit, this won't be of much use to you. I certainly don't recommend that route for beginners and urge everybody to take the time to learn many new things first. I strongly recommend you start small, read tons of articles, and consider cryptocurrency as a long term strategy through education and experience.
"Invest in Education Instead of Speculation" - Andreas Antonopoulos
Cryptocurrency as a techno-sociological innovation is here to stay; you're not going to miss out if you don't act fast, and those that invest in understanding it will prosper far more in the long term than those seeking to profit in the short. But education alone won't help you obtain wealth (which I presume is the reason you're reading this) - you'll need hands on experience.
"Ok, enough with the preaching" you say. Shall we begin?
How to Derive Your Starting Capital
Riddle me this: Tonight you are to meet me at MotorCity casino for an evening full of gambling shenanigans. You are no poker star, and you know this to be fact. You're now standing in front of your bank's ATM staring at the withdrawal screen.
Think long and hard about this - how much cash will you pull out, knowing damn well that there's a good chance you'll be walking back to your car in a few hours with none of it left in your pocket? Seriously, take the time to get this number right.
Got it? Congratulations! You've officially selected the amount you'll be using as your starting capital.
I frequently use this example as it illustrates a key concept: until you gain a significant amount of understanding about the big and small details of cryptocurrency, you are not investing - you are gambling. However, gambling in this regard comes with the added benefit that by partaking, you will gain familiarity and eventual comfort with using the technology, and opens the door to many new opportunities. Consider your modest amount as an admission fee for a very worthwhile education.
Crypto Starter Kit
Now that you have your starting amount in mind, we begin our journey by creating an account on a reputable exchange and verifying your identity. This process will likely take a few days to complete, so you'll want to start right away.
What Is Verification?
In order to comply with Anti-Money Laundering (AML) laws in the United States, exchanges must collect detailed information about their users. Before you can partake in any meaningful trading, you must submit proof of identity to an exchange via your drivers license or passport. The thought of sending a random website such personal details would make anybody uneasy, but creating a verified account on an exchange is equivalent to opening a new account at a regular bank and therefore falls under a similar level of scrutiny and security.
Your First Exchange
Many (too many) people use Coinbase for this step as it is by far the largest exchange in the United States. As they soon realize, this causes major issues during times of peak volatility when everybody and their third cousin twice removed are storming the login gates, causing the exchange to buckle and go offline for hours at a time. Also, Coinbase has seen an astronomical increase in verification requests recently, so it'll take even longer to get started. Therefore, we begin our journey by registering for an account with Gemini.
Proceed to https://exchange.gemini.com/register to create an account. It'll take a few days (1-3 on average) after submitting your documents to be verified. Once your account is created, hover over your name in the top right corner, select "Security Settings", and MAKE SURE YOU ACTIVATE 2 FACTOR AUTHENTICATION! You should check out all the settings and turn your account into Fort Knox; don't learn this lesson the hard way.
And now we wait. This step leaves many people itchy to pull the trigger, so instead of refreshing every 5 minutes to see if you've been verified, lets discuss a serious risk that must be mitigated.
Ensuring Your Crypto Is Actually Yours
Unlike traditional fiat currency which is kept in your bank account, you should not trust anybody to safeguard your cryptocurrency, including the exchange you bought it from. Although your USD on Gemini is FDIC insured, any crypto you purchase is not. Once your dollars are spent, you are solely responsible for keeping your crypto safe. If hackers manage to compromise the exchange, you will have nothing left and no way to retrieve it.
If anybody else has the ability to transfer your crypto,
it is not actually your crypto!
People that don't trust regular banks will often keep their cash/assets safeguarded at home. This is the route we will be taking, with the added benefit that personally safeguarding your crypto is far easier than securing cash or physical assets.
What Do You Actually Own?
Let's take a moment to cover a topic that is often misunderstood about cryptocurrency. If you purchase a Bitcoin, what does it actually mean to have one Bitcoin? How can you own something purely digital that is merely an abstract representation of value?
If you own one Bitcoin, the shared public ledger used by all participants on the network will be able to see that your public address is credited with one Bitcoin. Ownership implies owning the private key to transfer your Bitcoin to another address.
Here's a short video that explains the concept by comparing it to email.
What Is A Hardware Wallet?
Crypto wallets that manage your public/private keys are nothing more than software that understands how to speak to other participants in the network. Gemini (and all other exchanges) will provide you with a wallet for your account and they manage the private key for you. Using an internet connected wallet (on an exchange or your own personal computer) exposes you to the risk of theft from hackers and malware - if someone can read the file containing your private key, they can spend your coins.
This is why I advise everybody to use a hardware wallet instead, which is a physical device dedicated to protecting your private keys. The private keys can never leave the device and signing any transaction to transfer funds off the device requires knowing the pin code to unlock it, as well as pressing a physical button.
Most look like a USB thumb drive and are small enough to keep on your person or hidden/locked somewhere safely. The one below is a Ledger Nano S.
Obtain A Hardware Wallet
When it comes to which specific hardware wallet to purchase, I'll leave that up to you, but I can say that I personally recommend the Ledger Nano S as it offers the best balance of security, features, and price. Here's a guide to helping you decide between the most popular options as of December 2017: https://hackernoon.com/top-5-bitcoin-hardware-wallets-of-2017-2018-altcoin-supported-3a1dac5884b1
Demand for hardware wallets (like nearly every other product/service involving crypto) has been exceptionally high as of late, so you'll want to order one soon as it might take a while to ship. It likely won't arrive by the time your account on Gemini is verified, so if you absolutely insist on purchasing crypto soon, just make sure you transfer any assets to your hardware wallet as soon as possible.
Moving crypto off an exchange to a dedicated hardware wallet will introduce considerable delay if you wish to sell. You'd first have to transfer your crypto from your hardware wallet to the exchange, await for confirmation, and then sell. It is my belief that this is a beneficial tradeoff as it prevents antsy beginners from getting trigger-happy and panic selling :) HODL!
To summarize, here's a very condensed list of actions I recommend all beginners complete before purchasing crypto:
- Determine your starting capital amount
- Create an account on Gemini and submit verification documents
- Research and then purchase a hardware wallet
- Google everything! Fall headfirst into a rabbit hole of information and learning.
If you follow all these steps, you'll be able to purchase in the next few days! How exciting! Use the interim time to dig deeper because we haven't even scratched the iceberg that is crypto trading. But the first steps have been taken, which are by far the hardest to take.
If you've been verified and actually want to buy, here are the next steps to take:
- Link your bank account to Gemini.
- Transfer USD from your bank account to Gemini. Using the bank transfer/ACH option (on Gemini specifically) will allow you to have instant access to your USD for trading without waiting for the ACH transfer to complete!
- Purchase Bitcoin or Ethereum!
- Setup your new hardware wallet
- Transfer your coins from Gemini to your hardware wallet
Bonus: My Favorite Mobile & Web Apps
Here are the two apps I cannot do without; after trying many others I have found these to be of the highest quality when it comes to staying in the loop:
Mobile: Crypto Pro (iOS only, $4.99) - I don't care if this sounds like an ad, I seriously love this app so much. I'd honestly pay double for it; the features/functionality are the best I've seen from a mobile experience. Worth every penny.
Desktop: cryptowat.ch - The most detailed and beautiful webapp I've found for market data. Simply having it open will make you feel like a Wall Street big-shot. Tons of metrics, indicators, alerts, and more.