Everything you need to know about getting started with cryptocurrency. This is Crypto On-Ramp's comprehensive step by step guide for beginners and newbies entering the exciting world of crypto.
First things first...the Golden Rules
- Take your online security extremely seriously. Mitigate the risks associated with the purchase and storage of cryptocurrencies.
- You are your own bank. Not your keys, not your crypto.
- Only invest what you can afford to lose.
- Never invest out of FOMO (Fear Of Missing Out). Remember what goes up, must come down.
Crypto On-Ramp's comprehensive step by step guide for beginners getting into cryptocurrency
Step 1: Understand the critical security measures for cryptocurrency investing
Establish the tightest security measures on all your devices and accounts. Ensure you always use super secure passwords (multiple characters in length, using upper and lower cases, alpha-numeric and symbols) and store them safely in a secure password manager. Never use an online password generator site. Take special care to establish maximum security measures on your Google, Microsoft and cell/mobile phone accounts. Always use 2 Factor Authentication on accounts. We recommend Authy over Google Authenticator as it can be further secured with Touch or Face ID. Always double check the URLs of sites that you are visiting to ensure they are authentic and secured by https:// and never store passwords in your browser. Finally, if you are ever setting up security questions, always avoid using 'findable' answers, such as your DOB, Mother's maiden name or facts from your education or career profile.
Step 2: Establish cell or mobile phone account security measures for cryptocurrency
Ensure you have a strong passcode or Touch/Face ID on your cell/mobile phone. Never publish your phone number, especially on social media. To combat the risk of SIM hacking, ensure your cell/mobile account has extra security applied to ensure no-one but you can change the account details or order a new SIM card. If possible, set up a password or passcode that must be disclosed before activating new SIMs on your account.
Step 3: Set up a dedicated, secure and encrypted email for cryptocurrency accounts
Set up a new and dedicated email account. I strongly recommend an encrypted account (free) with ProtonMail. Use something random as an email address, with no obvious guessable connection to you. You will never use it for emailing people. It is ONLY for your crypto accounts. Get the email app on your phone as well. Once set up, add 2FA using Google Authenticator or Authy.
Step 4: Ensure you have a safe and secure back-up for all your crypto data and private keys
Ensure you store and back-up your passwords, seed phrases and keys safely. Always have more than one back-up. It may seem old-fashioned, but it is recommended to write your precious details in a book and store them securely in a fire-proof safe or safety deposit box at a bank - or both! Any small notebook will serve this purpose, but the recommended option is definitely Shieldfolio's Stonebook™ Notebook for Cryptocurrency Private Keys - a customised offline crypto solution that allows you to back up your entire digital portfolio on templated, durable tear-proof and water-resistant pages.
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Step 5: Decide on your cryptocurrency investment level and approach
Although cryptocurrencies offer potentially life changing upside for investors, it is important to remember that this technology is still in the early stages and there are numerous risks to consider. If you follow the advice in the steps above, you will have mitigated a significant proportion of the security risks to protect your holdings from hackers, but the threat is always present unless you are holding everything offline in cold storage. As long as you stick to the principle of only investing what you can afford to lose, then you will keep your sanity on what will be a roller-coaster ride in crypto. These assets are volatile! A big swing on the stock markets is just another Wednesday in the cryptosphere - get used to it and hold your nerves. In the meantime, consider the following investment strategies for your entry into cryptocurrency:
1. Cost Averaging - the safest and most conservative approach is to (Dollar/Pound/Euro) cost average. This means you invest a set amount on a regular basis (e.g. monthly) which will even out price fluctuations over time. When you use this approach, you can sit back, HODL and relax, not panicking over the charts and worrying about the price each day.
2. Buy the Dips - the alternative to Dollar Cost Averaging is to buy the dips. If you are wanting to invest a lump sum, it is advisable to study the price fluctuations of your target cryptocurrencies. Given the volatility in the price of most cryptocurrencies, it is not difficult to spot the dips and these can be opportune moments to invest. The more you study the charts and the price movements over time, the better you will become at understanding the opportunities to be taken in price retracements. A retracement refers to a temporary reversal of the general trend in the price of a cryptocurrency. Unlike a reversal, retracements are short-term movements away from a trend and are followed by a return to the previous direction in price.
3. Never FOMO - the first rule of crypto is 'Never FOMO'; the second rule of crypto is 'Never FOMO'.
Step 6: Understand the fees on cryptocurrency
As with all financial services and investments, you will need to pay fees to on-ramp into crypto. You can learn more about the fees charged by crypto exchanges here. However the main thing you need to understand is that you will pay:
1. A fiat on-ramp fee. This can range from less than 1% up to 3.5%.
2. Possibly a bank transfer fee or a credit card fee (for sending fiat funds/payments to your crypto exchange account).
3. The bid/ask price on the currency pair you are exchanging. Some exchanges offer better rates than others, just like exchanging foreign currency at the airport.
Tip - To avoid the highest fees, use a bank transfer to directly fund your fiat currency wallet at your exchange (e.g. your USD wallet on Coinbase or your GBP wallet on Binance). Then on-ramp into crypto within the exchange from your fiat currency wallet, for example trading USD/BTC or GBP/ETH. On Coinbase for example, this significantly reduces the fees charged to ~1.5% from over 3%. Try not to buy crypto directly with a credit card, as you will pay a lot more in fees.
Step 7: Select your crypto wallet solution
In order to buy, hold and sell crypto, you will need a digital wallet - at least one. But you may choose to have more than one, depending on the activities you wish to follow and the assets you choose to hold. The first thing to consider is your overall appetite for crypto and your comfort level with the associated technology. Although user interfaces and apps have improved significantly over recent years, managing crypto can still be pretty technical and confusing once you start to expand your horizons beyond the basics. The best piece of advice I can offer is to keep it simple at the beginning and to establish confidence gradually as you become more accustomed to dealing with cryptocurrencies and the various crypto applications.
To understand more about crypto wallets, visit Crypto On-Ramp's beginner's guide here, where you can learn about the difference between software and hardware wallets, how wallets are secured with cryptography and the importance of private keys.
For the purposes of this guide however, let's assume that you will want to start with a software wallet - accessible from your smartphone and/or PC. If you want to know about hardware wallets, see Step 9 below. To keep this as simple as possible, I have provided a few different curated options, depending on your situation. Select which is most applicable to you.
"I find this all very daunting and I just want the simplest way to get some exposure to Bitcoin without all the hassle"
If you are daunted or overwhelmed by the complexities of investing in Bitcoin or other major cryptocurrencies but want to get some exposure to the asset class, then the simplest option is probably to buy some crypto via PayPal (if you live in the United States) or an online bank, such as Revolut (if you live in the US, United Kingdom or Europe).
In the US, you can now buy, hold and sell crypto inside the PayPal app. You can choose from these top cryptocurrencies only: Bitcoin, Ethereum, Litecoin and Bitcoin Cash. Start with as little as $1 and purchase crypto simply in your PayPal Wallet. This is probably the simplest way to start but do please note that you cannot send crypto outside of PayPal. You can buy, hold and sell crypto for yourself or send it to another PayPal user, but your crypto has to stay inside the PayPal ecosystem - it cannot be transferred to an external crypto wallet. Be aware that this is a fully custodial solution and you will not get the best rates, with fees being introduced in 2021.
In the US, UK and many European countries, Revolut is one of a number of 'FinTech' newcomers on the banking scene, offering digital banking services in a mobile app. In addition to its highly competitive multi-currency banking and money transfer services, Revolut offers the ability to buy up to 10 major cryptocurrencies within your account, including Bitcoin, Ethereum and Litecoin. Your crypto will be held in custody by Revolut, enabling you to buy, sell or transfer to another Revolut account but like PayPal, this is a custodial solution and your crypto has to stay inside the Revolut ecosystem - it cannot be transferred to an external crypto wallet.
In short, these options really are a basic beginner's choice if you just want the simplest way to get some exposure to Bitcoin or other crypto without all the hassle. But please note, they have restrictions and limitations, so if you want something more than basic exposure to Bitcoin or Ethereum, move on to the next option.
"I am a complete newcomer to crypto but I want a crypto wallet, so what's the easiest way to get started?"
The simplest on-ramp into 'crypto proper' for beginners is to open a Coinbase account. Founded in 2012, Coinbase is a leading digital currency exchange headquartered in San Francisco, California and offers a custodial digital currency wallet and platform where you can transact in digital currencies. Coinbase enables access to Bitcoin, Bitcoin Cash, Ethereum, Litecoin, Chainlink, Tezos and many other cryptocurrencies with fiat currencies in approximately 32 countries. Coinbase provides Bitcoin transactions and storage in 190 countries worldwide. Coinbase is the world's largest Bitcoin (BTC) broker. Opening a Coinbase account offers a custodial solution, but unlike the providers in Option 1, you can not only buy, hold and sell crypto with Coinbase, but also transfer your assets to any other external crypto wallet. One great feature of having a Coinbase account is that you can benefit from Coinbase Earn - a way of earning free crypto whilst learning about blockchain and cryptocurrency. To benefit from Coinbase Earn, click here.
"I believe in the future of cryptocurrencies and digital assets and I am keen to take advantage of the additional financial benefits available via crypto platforms"
The pace of change in the world of crypto has accelerated hugely in 2020, with so many more options available. As long as you have a smartphone and an internet connection, you can now access digital currencies and financial services even if you do not have a traditional bank account. One of the most popular new ways of on-ramping into cryptocurrency is to open an account with a CeFi (centralised finance) provider like BlockFi, Celsius or Nexo. Not only do these solutions offer custodial wallets to on-ramp and transact in crypto, but they also enable you to earn highly attractive interest rates on your holdings. The rates currently on offer are significantly higher than you can earn on fiat currency (USD, GBP, EUR) in a traditional bank account and you can also get access to loans quickly and easily, borrowing with your cryptoassets as security. From direct user experience and in consideration of the strength of the financial backing behind these firms, I recommend the following options. You can buy crypto within these applications or transfer your assets in from an external digital wallet or exchange.
For the best yielding interest rates on Bitcoin (APY currently around 6%), BlockFi is my recommendation.
For attractive yielding interest rates on a wide range of cryptocurrencies, including: Ethereum (APY currently 5.5%), Chainlink (APY currently 4.5%), Synthetix (APY currently around 16%) and APY of 10.5% on stablecoins, I recommend Celsius.
"I am tech savvy, I have done my research and I am ready to start investing and trading in cryptocurrencies, including altcoins, tokens and DeFi"
If you are confident with technology, have done your own research and you are ready to step up your game with cryptocurrencies, then the opportunities, rewards and benefits are endless. There is no hiding the fact that this is a broad and complex area of expertise, but if you are willing to put in the time and effort to improve your knowledge, then you will be introduced to a whole new world of financial products. Even seasoned financial professionals would find their minds blown by what is available via crypto. So why is this all relatively unknown? The answer is simple - we are at the very beginning of a whole new financial frontier; a revolution in the very way we think about money. For those who get in early, the upside potential could be life changing.
This is a curated selection of recommended wallet solutions, based on direct research and user experience. There are many other options, but you can't go wrong with the following to get you up and running on your journey into cryptocurrencies and the new frontier of financial products.
Best for holding and earning interest on Bitcoin (BTC)
For HODLing and earning interest on Bitcoin (6% APY), Ethereum (5.25% APY), Tether USDT (9.3% APY), USDC (8.6% APY), look no further than BlockFi. A simple and superb product offering from a strongly backed US company. BlockFi is a custodial option. You can buy crypto within the application or transfer your assets in from an external digital wallet or exchange.
Best for holding and earning interest on Ethereum (ETH), Chainlink (LINK) and stablecoins
For HODLing and earning interest on Ethereum (5.5% APY), Chainlink (4.5% APY), Tether USDT (10.5% APY), USDC (10.5% APY) and a range of other altcoins yielding in excess of 16% APY, then the Celsius wallet is a must-have. It also offers the opportunity to hold and earn interest in the Celsius (CEL) token, which continues to outperform. Nowadays, why would anyone hold a cryptocurrency that isn't offering a yield and working hard to provide a passive income? Another super simple and superb product offering from a strong US company with over $4.8 billion of assets under management. Celsius is a custodial option. You can buy crypto within the application or transfer your assets in from an external digital wallet or exchange.
Best for holding and earning staking rewards on a range of altcoins
If you are looking for a non-custodial software wallet, which is available on cell/mobile phone and on your PC, then the Atomic wallet is a good option. Atomic offers a broad range of coins and tokens, but most importantly provides the opportunity to earn interest on a dozen cryptocurrencies via its staking feature. Staking on Atomic includes: Zilliqa (ZIL 16% APY), Cardano (ADA 5% APY), Cosmos (ATOM 10% APY), Algorand (ALGO 7.2% APY), Tezos (XTZ 7% APY) and Tron (TRX 5% APY), to name a few. Very simple to set up and the user interface is superb. A really good wallet solution. You can buy crypto within the application or transfer your assets in from an external digital wallet or exchange.
Best for DeFi and Ethereum based smart contract interactions
The term DeFi is an acronym for Decentralised Finance and refers to an ecosystem of digital assets, smart contracts, protocols and decentralised applications (DApps) built primarily on the Ethereum blockchain network. As many DeFi projects share a common technology platform, these applications are highly inter-operable. In order to access this ecosystem of DeFi apps and to interact with smart contracts, you will need an Ethereum digital wallet. These are non-custodial solutions and enable you to hold Ethereum, ERC-20 tokens and to interact seamlessly with the Ethereum blockchain. Options include MyEtherWallet and Coinbase Wallet, but my recommendation is Metamask, which also connects easily with decentralised exchanges, such as Uniswap.
Step 8: Select your chosen crypto exchange
There are a huge number of cryptocurrency exchange solutions available, for example Coinbase Pro, Kraken, Bitstamp and KuCoin, but in the spirit of keeping this simple and based on genuinely positive personal experience, look no further than Binance. For more options however click here.
Binance Global is a global cryptocurrency exchange that provides a platform for trading 150+ cryptocurrencies, offered on 450+ trading pairs. It is one of the biggest cryptocurrency exchanges in the world by trading volume. With Binance, you can easily buy Bitcoin and major cryptocurrencies with cash, as well as other cryptocurrency pairs on the platform. You can use your credit card to directly purchase Bitcoin, Litecoin, Ethereum, Ripple, and Bitcoin Cash using US Dollars, Sterling or Euro, but as always I highly recommend funding your Fiat account on Binance via a direct bank transfer in your home currency and then trading into crypto from your deposited Fiat funds. This minimises the fees you will incur on any transactions.
Some of the most notable features on Binance include:
Step 9: Decide on where you are going to hold your crypto
As highlighted at the start of this guide, a key consideration when dealing in cryptocurrency is security. If you follow the recommendations in Steps 1 - 4 above, that will provide a strong foundation for your own security protocols. Thereafter and as your portfolio grows, it would be prudent to mitigate your risk further by ensuring you spread your assets across a range of different wallets and/or custodial solutions. Don't have all your eggs in one basket. The recommendations highlighted in this guide provide a range of options to help achieve this strategy. At the end of the day however, there is no safer solution than cold storage.
In the context of centralised cryptocurrency exchanges, the term cold storage refers to the storing of cryptocurrency offline, without the private keys controlling the assets ever being online. This preventative measure mitigates the threat of theft by hackers and malware. Major exchanges see this as a necessary security precaution for their reserves. Exchanges will be keeping the majority of the reserve in cold storage, with only the trading day’s expected liquidity requirements being online. Offline storage of cryptocurrencies – either by individual investors or institutional custodians – is an important safety measure to look for in your choice of wallet and exchange.
As an individual investor, you can achieve cold storage by investing in a hardware wallet. Hardware wallets are available for multiple cryptocurrencies and function to store private keys on a hardware device, such as a USB. Hardware wallets are held offline, which means they are extremely secure, but do support online transactions. Using a hardware wallet requires you to plug the device into an online computer, enter your security details and send or receive currency. Hardware wallets have major advantages over standard software wallets in that private keys are often stored in a protected area of a micro-controller and cannot be transferred out of the device in plain text. They are also immune to computer viruses that steal from software wallets. Furthermore, hardware wallets can be used securely and interactively; private keys never need to touch potentially vulnerable software.
This is a curated selection of recommended hardware wallet solutions, based on direct research and user experience. There are other options, but you can't go wrong with the following:
Step 10: Manage your crypto portfolio and tax returns
Once you on-ramp into crypto, a whole new world of financial freedom and opportunities awaits you. As you become more aware and confident in what you are doing, it is likely you will open multiple exchange accounts and hold a number of different wallets. Not only do multiple solutions provide you with access to different platforms, features, benefits and trading pairs but you are also mitigating the risk of holding all your crypto in one place. Remember - you are now your own bank! So in this final step, there are two key aspects to consider: tracking your crypto portfolio and managing your digital asset tax obligations.
In the list below, you will find a curated selection of the applications I recommend, based on personal usage and preferences. I have lost count of how many portfolio tracking solutions I have tested and to be very candid, most of them have issues and limitations as not every wallet or exchange has a simple and functioning API interface for synchronisation and live updates. This can be hugely frustrating! I will continue to update this guide, but at the time of writing, these are my tips.
As for tax, I would leave you with two takeaways. Firstly, be absolutely clear that you are fully obligated to report and pay taxes on your crypto investments. Secondly, that there are great software applications available that make this hugely detailed and complex task very quick and simple indeed.
Best for portfolio tracking on your cell/mobile phone
Blockfolio is one of the most widely used portfolio tracking apps, with over 6 million users worldwide. The app provides support for over 10,000 cryptocurrencies and blockchain assets across 500+ exchanges, providing the latest prices, market data, team updates and news via its Signal feature. Organise your holdings and watch lists across an unlimited number of portfolios on your phone. It's free, simple to set up and the user interface is super slick. If you are getting into crypto, you should be tracking your holdings in Blockfolio.
Best for portfolio tracking on your PC and cell/mobile phone
CoinStats is a crypto portfolio tracker available on both PC and smartphone. The graphical interface is very slick and high quality, with a similar look and feel to Blockfolio. However note that CoinStats is a paid subscription app, with options from $3.49 to $13.99 per month. The plans differ by number of allowable wallet/exchange connections and transactions. API connection to external sources is very simple and quick, enabling auto sync with your wallet and exchange accounts with more than 8000 cryptocurrencies and 300 exchanges available. CoinStats also offers a personalised crypto news feed and live prices on pretty much the entire cryptocurrency market.
Best for crypto tax reporting and portfolio tracking
Take it from me - Koinly is awesome. Not only is it the best crypto tax software I've used (especially if you're a UK tax payer), but I have also found it to be the best overall portfolio management tool. Koinly covers the tax reporting of over 20 major countries, including the US, UK, Canada and Germany. Report production is so quick and simple. Admittedly, it's PC only and doesn't have the slick graphics of CoinStats, but for functionality, ease of use and the broadest range of wallet/exchange integrations, it's a clear #1 for me. If you have multiple exchange accounts and wallets, and you execute a lot of transactions, it's a must-have. Just consider that every time you receive a staking reward or loan interest on your crypto, a transaction is created. No more wasting hours downloading CSV files, formatting data or figuring out market prices to get the tax calculations right. This one is a no-brainer!
Alternative option for US crypto tax reporting
CryptoTrader.Tax is an alternative to Koinly - a simple and reliable crypto tax software and calculator for US tax payers. Simply connect your wallets and exchanges, import trades and download your tax report in minutes. CryptoTrader.Tax calculates your tax liability using the same methods tax professionals use. Download your completed IRS forms (e.g. IRS Form 8949) to file yourself, send to your accountant or import into software like TurboTax and TaxAct. It also has a built-in feature to help you with tax loss harvesting, enabling you to offset and reduce your capital gains. Cryptocurrencies with the largest tax savings opportunities appear on the tax loss harvesting report to help you plan your future trades. Unlike Koinly, which has a rich portfolio tracking and management functionality, CryptoTrader.Tax really is just a tax management application. If you are a US tax payer in need of a simple solution for your crypto taxes, this is a very good option.