Everybody wants to get into cryptocurrency these days and for good reason. Over the last few years, interest over cryptocurrency has bloated to unprecedented levels. So, if you are looking to invest your hard-earned money, you should definitely do your research. In this guide, we are going to tell you what all you need to do in order to choose coins which are “winners”. We are going to go through various tips and tactics that investors have used extremely successfully to gain huge profits.
So, let’s get started with some basic fundamentals:
- Where are you going to get your crypto
- Where are you going to save your crypto
Exchanges – Getting Your Crypto
First up, let’s look at where you can get your cryptocurrency from. For this, we need to familiarize ourselves with the concept of exchanges. Exchanges serve one of the most critical functions in the ecosystem. Think of them as a portal that connects the fiat world to the crypto world. There are two types of exchanges:
- Fiat to Crypto
- Crypto to Crypto
Fiat to Crypto
So, you have some money that you want to invest. How are you going to go about it? The portals which connect our world to the crypto-worlds are called “exchanges.” There are a lot of exchanges out there, however, before you choose to invest in one, there are certain things you need to look out for. Let’s call this the “Exchange Checklist.”
- Validity: Before you even do anything, first make sure that the exchange is available in your area. Eg. Coinbase, one of the largest exchanges, is not available in India and Indonesia. So before you do anything please check this.
- Reputation: Next thing that you need to check is the reputation of the exchange. Are people happy with their services? Has it been hacked recently? How secure is it? Have people complained about it? Twitter and Reddit are good sources for checking this.
- Exchange Rates: Up next we have the exchange rates. Different exchanges have their own exchange rates which may vary. Do your homework here and research 3 or 4 exchanges and their rates.
- Safety: Please always choose exchanges which need some sort of ID verification from you. Even though they may take time, they are easily 100 times more safe and secure than anonymous exchanges. At the end of the day, it is your hard earned money. You must take that extra step to keep it secure.
You can do your own research and choose your exchange, however, Coinbase is the most popular exchange when it comes to this area. This is a great way to get started, however, you will notice that
Crypto to Crypto
Up next we have crypto-to-crypto exchanges. As the name implies, you can use these exchanges to trade your base cryptocurrencies like BTC, BCH, ETH. This is pretty much the meat and potatoes of crypto trading. Some of the most notable crypto to crypto exchanges are:
Wallets – How to Store Crypto
In order to protect your cryptocurrency, you must have a wallet. The wallet saves your private key and public address which helps you store, send, and receive cryptocurrencies. Even though this should be very clear to you, let’s a do a quick run through of what private key and public address mean:
Private Key: The private key gives you the right to access and send your money.
Public Address: This is the address where everyone will send you money.
One key thing to remember before we continue, the public address is the one that you will give to others in order to send your money.
DO NOT and we repeat DO NOT give out your private key. The private key is for you and you alone. If you give out your private key to strangers, then they will gain access to your money.
Let’s hope we have made that sufficiently clear.
|Public Address||Give out to everyone|
|Private Key||If you give it out to everyone then you’re screwed|
Alright, let’s move on.
All crypto wallets fall into the following two categories:
- Hot Storage.
- Cold Storage.
Hot Storage vs Cold Storage
Before we go deep into them, let’s use an analogy to help understand the difference between the two. The hot wallet is like the wallet you carry around in your pocket. It gives you easy access to your cash but, it is pretty vulnerable.
The cold storage, on the other-hand, is like your savings account. Highly impractical for day-to-day use BUT it is extremely safe when you compare the two.
A wallet that is connected to the internet is termed as “hot storage.” The following are examples of hot wallets:
- Exchange wallets.
- Desktop and mobile wallets.
- Multi-Signature wallets
Before we get deep into each of those wallets, let’s go through the pros and cons of hot wallets.
- Gives you quick, easy, and instant access to your funds.
- Gets easy support in different devices.
- Very user-friendly and ideal for beginners.
- Vulnerable to hacks and cybercrime.
- Unless the keys have been carefully backed up, if the device is damaged then the wallet will be damaged as well.
- The device in which your hot wallet is saved like your laptop, phone etc. is susceptible to physical robbery as well.
So, now that you have a general idea of what a hot wallet is, let’s go through some of the more popular types of hot wallets.
Hot Wallet: Exchange Wallets
This is the easiest wallet that you will ever create. In fact, if you have been following our instructions and have created your coinbase account then guess what? You have created your exchange wallet already!
The advantages are obvious. It is already linked to your account and gives you quick and easy access for trading. HOWEVER, this also means that you are vulnerable to attacks. Remember, exchanges are a constant target for hackers. We would recommend that you don’t keep a major chunk of your cryptos in exchange wallets, keep only as much as you need for trading.
Hot Wallet: Desktop and Mobile Wallets
Desktop and mobile wallets have grown in popularity. Desktop wallets offer more security than exchange wallets. Setting them up is very simple as well. All that you need to do is to download the client in your laptop/desktop and you are done! MultiBit provides an excellent desktop wallet to store Bitcoins.
However, there is a problem with desktop wallets. They are not the most flexible of options. After all, you can’t access your desktop wallets from any other desktop apart from the one that you have downloaded it in.
This is why, for more users who want flexibility, mobile wallets are a pretty convenient option. Setting up is as simple as downloading an app into your phone. MyCelium is a pretty popular mobile wallet for both Android and iOS.
The problem with both these wallets is that since they are stored in a device which is connected to the internet, they are vulnerable to viruses and hacks.
Hot Wallet: Multisignature Wallets
Have you ever seen one of those old-school safes which require multiple keys to open? Or what about those treasure chests which needs 3 or 4 people to put in their keys and unlock at the same time?
That will give you an idea of how Multisignature wallets or multisig wallets work. Most of the ICOs use multi-sig wallets to collect and store their funds. So, why would one want to use multi-sig wallets?
- To protect from corruption: We have all heard stories of ICOs getting millions of dollars in their crowd sale. What is to stop all these developers from taking the money and run away? Human greed is powerful after all. In situations like these, it is far more prudent to accept funds in a multi-sig wallet where all the money and power won’t rest on one human being.
- More Security and Assurance: Since the funds are in a multisig wallet, they will automatically be more secure because they are no longer dependent on the whims of one person. Plus, if I am sending my money to a multisig wallet address, then even I will feel reassured that my funds are not being mishandled.
So, how does it work? Let’s take BitGo’s example.
- BitGo issues 3 private keys. One for the company, one for the user, and the third is a backup.
- Any transaction would require 2/3 of these private keys.
- So, even if a hacker gets their hands on one of these keys, they won’t be able to do anything without one more key.
While hot wallets give you great accessibility, the fact remains that they are extremely unsafe. That’s why it is more prudent to save the majority of your funds in a cold storage wallet. A cold wallet is completely cut off from the internet, which automatically keeps it safe from hackers and viruses.
Examples of cold storage wallets include:
- Hardware Wallet.
- Paper Wallet.
Before you learn how to set up each of the above, let’s understand the pros and cons of cold wallets.
- 100% safe from hackers and viruses.
- A great place to store and HODL your coins for a long period of time.
- Extremely impractical for daily transactions.
- Not beginner friendly.
- It is still vulnerable to human carelessness.
Alright, so now that that’s taken care of, let’s understand how to set up cold wallets.
Cold Storage: Hardware Wallets
Hardware wallets are physical devices where you can store your cryptocurrency.
The most common form of hardware wallets is the USB style which has been championed by the French company Ledger. The reason why hardware wallets have become so popular is because they give you the storage and security capabilities of a cold wallet while making transactions stupidly simple and straightforward. Basically, it works around and negates the biggest disadvantage of cold wallets.
Pros of Hardware Wallets
- Since it’s a cold wallet your private key will be safe and secure. The keys are stored in the protected area of a microcontroller and cannot be transferred out of the device
- They are designed to be sleek and can be carried around easily.
- Transactions are extremely easy. All that you have to do is to plug in the wallet and then follow the instructions given to make your transactions. The UI interface of the wallets is very user-friendly.
- Extremely safe and secure. As of writing, there have been no instances of a hardware wallet hack.
- Has the capability to store multiple addresses for you to send your funds over.
- The wallet is pin code protected, so even if it falls on wrong hands, they won’t be able to access your funds. Entering the wrong pin code 3 times will shut down the wallet. In the event of a shutdown, you can still recover your funds by following the restoration details.
Cons of Hardware Wallets
- As with all products, these wallets may also have design flaws. Recently, a design flaw was discovered in the ledger which made it potentially vulnerable. Ledger has addressed the issue since then.
- It is an actual physical object, which means that it can be stolen from you or it can get damaged.
- They are not the most versatile when it comes to storing cryptocurrencies. Trezor stores 10 kinds of coins while Ledger stores around 23.
- Finally, you will have to trust that the company which is creating your hardware wallet is ethical and will not try to mess with the design of your hardware wallet. It asks for trust in an environment which should be trustless.
So, now that the pros and cons have been addressed, let’s see how can set one up! Without a doubt, the two most popular hardware wallets in the world are Trezor and Ledger Nano S.
Trezor is a company based in Prague, who has made one of the easiest and simplest to use Hardware wallets ever. It really is stupidly simple to use and the design is so sleek and light that you can carry it anywhere with you. It is compatible with windows, mac, and Linux and using it is a simple matter of plugging it in your laptop and connecting it with one of the following interfaces:
- My Trezor.
Ledger Nano S
Ledger, is a Paris-based company and they have given the crypto-community one of the easiest-to-use, sleek, and popular hardware wallets. They save all your data inside a smartcard which keeps it safe from hackers. Using it is a simple matter of plugging it into your laptop and connecting it to one of the following interfaces:
- The Ledger Wallet, which you can download from chrome extension.
- Green Address.
Setting it up is pretty straightforward.
Cold Storage: Paper Wallets
It could be argued that paper wallets are, hands down, the safest way to store your cryptocurrency. The idea of a paper wallet is very simple. You set up a wallet offline while following some simple instructions and then you simply print out the private and public keys in a piece of paper. The keys will also be printed in the form of a QR code which you can scan in order to get access to your funds.
So, the questions that you must ask now is, do you need a paper wallet?
The short answer….depends.
Are you planning to use your funds in a fairly regular manner? Then no. Paper wallets will be a pain if used like that. It is better for you to get a hardware wallet then.
However, if you are planning to just store your funds for a long time then, without a shadow of a doubt, the paper wallet is the way to go.
There are two paper wallet sites that we would like you to check out:
If you want to make a paper wallet, then Walletgenerator will give you the easiest interface to work on plus they give you the option of creating multiple paper wallets and support 197 different currencies. Some of the major ones that they support are (in alphabetical order):
- Bitcoin Cash.
If you want to know how to create your own paper wallet from Walletgenerator then watch this video right here.
When you have made your wallet here, you will get something like this:
You may print this page and store it in a safe. Please ensure that your printer is not connected to the wi-fi when you do so to ensure added security.
If you want a paper wallet which supports Ethereum and Ethereum-based tokens, then MyEtherWallet is the best option out there.
When you are done creating the MyEtherWallet you will get the following:
Like before, you may print this and store in a safe and, once again, make sure that your printer is not connected to the wi-fi.
Restoring a Cold Storage Wallet
When you want to bring your cryptocurrency back out of cold storage, you need to import the private key into a suitable online wallet. Any wallet which supports importing private keys will work. The process is simple and intuitive for most wallets. The steps we have given below correspond to using the Bitcoin Unlimited wallet.
- Open the client and click on “Help”.
- Select the Debug Window and click on the Console tab.
- Type in the field “importprivkey<private key>” replace <private key> with your private key and the remove quotation marks.
- Hit enter.
This will import all the data from your paper wallet to your online desktop client.
However, do keep in mind that doing so will mean that your funds are immediately exposed to the dangers of a hot wallet.
Ok so till now you have learned where to get your crypto from and how to save them. So, how do you know which cryptos you are going to buy? Let’s go through some of the tools.
Tool #1: CoinMarketCap
Coinmarketcap.com is a very helpful tool for traders who want to gain insight into the health of various cryptocurrencies. The website ranks all the cryptocurrencies by marketcap which is a good indication of its value.
The graph in the rightmost column also gives you a great indicator of how that coin has been performing over time. Plus, there is another useful information that you can extract from this website. You see, most of the cryptocurrencies have a cap on the total tokens.
Eg. Basic Attention Token aka BAT has 1,500,000,000 BAT total token of which 1,000,000 tokens have already been mined. This means 500 million tokens are still left to be mined. So, how does that help you?
Since BAT tokens have loads of utility (disrupting the digital advertising space), there is no doubt that more and more people would want to get their own BAT tokens which drive the demand through the roof. And remember, there is only a limited supply. Supply and Demand is one of the core concepts of micro-economics.
More the demand and lesser the supply, more the price of the asset.
Tool #2: Social Media Metrics and Community
The interesting thing about Cryptocurrencies is how closely linked their values are to the general buzz that people have around it. After all, cryptocurrencies (quite like fiat) get their value from what the public perceive their value to be.
One of the best ways that investors can gauge how a coin’s value may change over time is by checking the amount of social buzz and chatter around that particular project. For that, we use two tools to understand the mechanism:
Solume is simply the best tool out there to judge overall social buzz around a coin. Let’s say we want to check how Cardano (ADA) has been doing social buzz-wise. We will go to the solume website and search for “ADA.”
So, there is an increase in the value of social volume over the last two or three days (as of writing). Why is that happening? Let’s scroll down and read the most popular stories.
Here we can see two sections:
- Social Posts.
- Top Talker.
In social posts, we can see the most popular posts written about it in the past 7 days. Why is this section important? A coin can generate a lot of buzz for all the wrong reasons as well. A quick look at the top posts will let you know the kind of buzz that it has been generating.
“Top Talker” gives you the list of people who have been talking the most about the coin.
Using Solume gives a very good idea of the general social buzz. However, there is one more tool that gives a good idea of how the coin has been doing on specific social media platforms.
So, going back to Cardano. It looks like the most popular story with the highest social buzz is the fact that it got added to Coinbase. No wonder people are talking so much about it, which has driven its value up.
Firstly go to the CryptoMetrics website. What you will see is this:
Now, don’t be scared of that swarm of numbers. We know it can be intimidating at first. However, once you really look into it, you will realize how important this site could be for your investing.
Firstly, let’s search for Cardano.
CryptoMetrics shows you the buzz of that particular crypto on two social media platforms:
These two are easily the two hottest platforms for cryptocurrencies, hence it makes sense to do a detailed research of how the coin has been doing there. CryptoMetrics lets you know how your coin has been doing in those platforms in the last:
- 1 day.
- 30 days.
- 90 days.
We feel that checking their performance over the last 7 days and 30 days is more than enough to gauge buzz in those platforms.
Buzz in the last 30 days
Let’s check Reddit buzz over the last 30 days for ADA.
So, that’s a 1.34% increase in Reddit posts.
A 1.62% increase in tweets over the last month.
Buzz in the last 7 days
So, that’s a 0.49% increase in Reddit posts.
That’s a 0.28% increase in Tweets.
Tool #3: Value the Token Brings In
Another thing that you need to look into is the sheer value that the token brings in. Eg. let’s look at OmiseGo and ZCash. OmiseGo is bringing in plasma to solve the scalability problem while Zcash is using zk-SNARKs to bring in privacy. Both of these tokens are bringing in a lot of value to the market, which is going to incentivize holders to actually hold on to the tokens instead of just trading it away.
This is where the concept of token velocity comes in.
Token velocity is one of the key aspects that affect the future speculative value of the tokens, however not a lot of people truly understand it. If you were to look at Token Velocity as a mathematical formula, it is as follows:
Velocity = Total Transactional Volume / Average Network Value
So, Velocity is directly proportional to the total transactional volume of a coin and is inversely proportional to the average network volume. If you flip this formula around, then you get the following:
Average Network Value = Total Transactional Volume / Velocity.
Meaning, more the token velocity, less the average network volume of the ecosystem.
Alright, so we got a lot of mathematical definitions, however, what does that mean and why are we saying that this could be the ultimate judge of ICO success?
Velocity basically is an indication of how much people respect you and your token. Are people actually holding on to your tokens because they realize that they can gain tons of value from it, or are they simply selling off your tokens for BTC, ETH or even FIAT because they don’t believe in your project?
When people hold on to a token, the velocity of that token decreases, and hence by the formula, the overall network value increases. But if people just sell your tokens, the velocity increases and hence the value of the network decreases.
Tool #4: The Team
The last tool that you need to have an eye out for is the team.
It really goes without saying that the success of a project is directly related to the credibility of the team. Let’s put it like this, if you are investing your money into a company, wouldn’t you want to know that the company is in good hands and that your money is going to be appreciated considerably?
Let’s look at one of the most successful projects of all time, OmiseGO. Not only do they have an incredible team, they also count people like Vitalik Buterin and Lightning Network Creator Joseph Poon among their advisors as well. So it is no wonder that they had no trouble getting their funds and their investors are now enjoying a healthy return as well.
However, now compare that with this:
This was a funny meme that was circulated throughout the community however, it sorta proves the point. Let us show you an actual photo of an ICO’s team:
Looks good right. Wait for a second, who is that pretty guy posing as the “Experienced graphic designer”?
These are the kinds of project that you should stay away from.
If you are interested in the project, google the team members and check out their LinkedIn profile. Email them if you have to and get to know more about them.
We hope that this guide has given you the information that you’d need to start investing. Do keep in mind that we are not financial advisors so please do your own research. We wish you all the best and hope that you gain a lot of value from this guide.