Make sure you understand how cryptocoins work before investing in them
How to Invest in Cryptocoins
Investing in Bitcoin and other cryptocurrencies is becoming more common as the technology's popularity grows and the media promotes those lucky enough to have made it big by investing early.
How does investing in crypto work though and where can you even buy Bitcoin and store it? Here's everything you need to know about investing in Bitcoin and other cryptocoins before making any major decisions.
Where to Buy CryptocurrencyThe easiest and most reliable way to buy Bitcoin and other cryptocurrencies is through an established online service such as Coinbase. Coinbase allow users to purchase different cryptocoins via a variety of payments methods, including credit card, and they can also buy your crypto back off of you whenever you want to sell it in the future.
Where to Store CryptocurrencyFor relatively small amounts of cryptocoins (worth under $1,000), keeping them on Coinbase after the initial purchase is usually fine. For larger amounts however, it's highly recommended to invest in a hardware wallet made by Ledger or Trezor.
Hardware wallets protect the access codes to your cryptocoins on their respective blockchains and require the pressing of their physical buttons to make a transaction. This added layer of security makes them essentially malware and hack proof.
Understanding Crypto LingoWhen investing in cryptocurrency, you're bound to encounter a variety of new words and phrases that will leave you scratching your head. Here's some of the more-common crypto slang you'll hear.
- Crypto: Crypto is simply short for cryptocurrency or cryptocoins.
- Blockchain: Blockchain is the technology that most cryptocurrencies are built upon. Blockchain can be used for more than just making cryptocoins however and businesses have already begun implementing the technology to help secure data and improve efficiency in numerous fields.
- Wallet: A wallet is something that grants access to funds on a crypto blockchain. A software wallet is a program or app while a hardware wallet is an actual device. Hardware wallets are much more secure than software wallets.
- HODL: HODL is internet slang for hold. It refers to holding onto your Bitcoin or other crypto even when its price is falling or rising. Don't sell your Bitcoin when it jumps 10% in value. HODL!
- Scam/Fake Coin: Cryptocoins that are created with the aim of misleading consumers are often referred to as scam coins or fake coins. They may be fully-functional cryptocurrencies but the general consensus is that they, and the people behind them, shouldn't be trusted. One example would be Bitcoin Cash because many of the people behind it tell new investors that it's the real Bitcoin when it isn't. Bitcoin is Bitcoin, Bitcoin Cash is Bitcoin Cash. Always be weary of scam coins and make sure to research a coin properly before investing in it.
- Market Cap: Market cap refers to the total value of all of a cryptocurrency's coins that are in circulation at one time.
Cryptocurrency and TaxesDue to how relatively new cryptocurrency is, governments often change their stance on the technology several times a year. Because of this, it's highly recommended to request the assistance of a tax specialist or financial advisor when filing your tax return if you own any cryptocoins.
Many people think that they can hide their cryptocurrency investments from the government but the reality is that many cryptocoin transactions can be traced and more and more companies are reporting crypto purchases made by individuals. Coinbase has even started giving information on users and their investments to the IRS.
Always keep a record of your cryptocurrencies and transactions. A free app such as Crypo Chart can be very useful for this.