Get equipped to make your first crypto trade with this guide from our experts.
With crypto’s ever-changing market of new players and currencies, crypto can be daunting. That’s why we created this guide to cryptocurrency trading to help beginners work their way from first trade to advanced strategies so they can experience all of the benefits crypto has to offer.
In this article, you’ll learn cryptocurrency basics, how crypto trading works, and easy steps to create your first crypto strategy.
The world of cryptocurrency may seem overwhelming now, but by the end of this guide, you’ll be ready to take that first leap into your crypto journey.
What is cryptocurrency?
At its most basic, cryptocurrency is a form of digital money.
The concept of digital money shouldn’t be too foreign — you’ve probably paid a bill online or transferred funds from one bank account to another on your phone, tablet, or laptop.
Using money as a medium of exchange to purchase goods and services or settle bills is one of the cornerstones of the cryptocurrency market. But, unlike the paper bills you carry around, cryptocurrency only exists online. It’s not a physically tangible asset.
That means you can’t go to an ATM and withdraw a ‘physical’ Polkadot token. You’d first have to convert the Polkadot cryptocurrency into dollars before withdrawing those dollars from your crypto exchange or bank account.
Unlike regular currency where the bank intermediates any transaction, cryptocurrency is decentralized. This means it depends on a peer-to-peer network — instead of a bank — for creating, exchanging, and overseeing all crypto transactions.
A peer-to-peer network is, simply put, many different computers or “nodes” that are set up to store and share files related to cryptocurrency transactions. At its best, decentralization makes cryptocurrency a faster, cheaper, and more secure way to transfer money.
Currently, there are over 21,000 different cryptocurrencies. All of them are secured, or created, by cryptographic technology. Complicated mathematical formulas are used to secure each unit of cryptocurrency so it cannot be copied.
This makes the double-spending phenomenon nearly impossible.
The double-spending phenomenon refers to scenarios where asset holders can spend the same asset twice. The technology that prevents this is called a blockchain.
Crypto basics: Terms to know
A blockchain is a public digital database capable of storing transaction records in a secure, irreversible, and decentralized manner.
Think of a blockchain as a piece of paper everyone can see that’s used to record transactions, such as deposits, withdrawals, and trades.
In all, blockchain technology provides the benefits of enhanced security, transparency, and instant traceability to transactions. It also results in cost efficiencies.
As we mentioned, a coin or token represents a record of digital value stored on a given blockchain. Although the terms are often used interchangeably, they are technically different.
A digital asset is a coin if it has its own blockchain. For instance, bitcoin and Ether are coins, mined from the Bitcoin and Ethereum blockchains, respectively. A coin acts as both a store of value as well as a medium of exchange.
Digital assets built on existing blockchains are considered “tokens”. For instance, UNISWAP is a token built on the Ethereum blockchain that powers a decentralized exchange.
To simplify things, coins and tokens are generally referred to as “crypto.”
Most popular cryptocurrency
There are thousands of cryptocurrencies available today with more coming online all the time.
However, some of the most popular cryptocurrencies include:
Bitcoin was the first cryptocurrency, created back in January of 2009. Its value has climbed steadily over the years, and it is currently one of the most valuable coins on the market.
An altcoin is any cryptocurrency that isn’t bitcoin. The term can refer to anything from the second-most popular coin, Ether (ETH), to any of the thousands of cryptocurrencies that have appeared on the market in recent years.
A stablecoin with crypto ticker symbols
A stablecoin is a cryptocurrency that pegs its price to the market value of an external asset. This external asset could be a government-backed currency (like a dollar), an exchange-traded commodity, or another cryptocurrency.
Stablecoins have been thought to be less susceptible to the volatility of the market, however, this is not always the case.
A cryptocurrency exchange is a digital marketplace where users can buy, sell, and trade crypto.
A crypto wallet allows users to store, access, and manage their crypto funds. Wallets fall into two categories: hot wallets and cold wallets.
Hot wallets are those that online cryptocurrency exchanges offer to their customers and are connected to the internet. Because they’re online, transacting with a hot wallet is faster and often easier. However, because of the internet connectivity, they can be susceptible to hacks.
Cold wallets are those that store cryptocurrency offline (e.g., on an external hard drive). These wallets are typically disconnected from the internet and are, therefore, slower and more cumbersome to transact with. However, they are more secure.
Decentralized finance (DeFi)
Financial activities conducted without an intermediary — such as a bank or government — are considered decentralized finance. Examples of DeFi activities include staking crypto and securing a loan backed by crypto.
Crypto for beginners: Mining versus buying
Person holding a phone and using a computer to learn crypto for beginners
Mining is the process of verifying transactions and adding new crypto to a blockchain. A miner is simply the owner of a computer or “node.”
Miners are given the chance to solve very complicated math problems by running a program on their computers. The first one to solve each problem gets a reward (new crypto).
Once it’s solved, the other miners who did not win check the winning computer’s answer. If they all agree, the new transaction can be added to the blockchain.
These miners serve as the peer-to-peer network that allows many blockchains to operate. Their consensus (or agreement that the math problem was solved correctly by the winning miner) is what underpins the blockchain’s security.
When the first cryptocurrency came online more than a decade ago, you could use your personal computer to add transactions to the blockchain and create new coins or tokens.
Though mining is the only way to bring new coins or tokens to the market, the nature of its technology means that once you create a cryptocurrency — bitcoin, for example — every subsequent coin becomes harder to mine.
To mine most of the world’s most popular cryptocurrencies, you’d need an extremely powerful, customized computer that might cost thousands or even tens of thousands of dollars to build and operate.
Because of this, it has become prohibitively expensive for most people in the crypto market to mine cryptocurrencies themselves. Instead, the vast majority of traders buy crypto using their local currency on an exchange or trading platform.
In recent years, people have become aware of the large amount of energy used in mining cryptocurrency using the above-described techniques. New, less consumptive validation methods are now being used by many blockchains, including Ethereum.
One popular method is called Proof of Stake (PoS). Instead of having multiple computers competing to solve a very difficult math problem, Proof of Stake requires validators to hold and stake tokens to earn transaction fees.
Crypto for beginners: Why trade crypto?
You might want to trade crypto for the same reason you’d consider a host of different financial opportunities: You believe that the value of the asset will rise.
In cryptocurrency, when demand for a coin or token increases, it’s possible its value will follow suit.
Why would demand for a coin or token increase? There are several reasons specific to the various currencies. For instance, perhaps a particular cryptocurrency provides a better buying and selling experience. If word of its benefits spreads, then people may flock to that crypto.
As many cryptocurrencies — including bitcoin — have a fixed supply, if demand for the currency is high and supply is limited, the value of the currency could rise.
However, much of the market is speculative at this early stage because many aspects of the crypto market are untested. Cryptocurrencies are also quite volatile. Trading crypto for beginners and intermediates alike comes with risks.
It’s wise to consider your own financial goals, your timeline, and your risk tolerance before jumping in.
Crypto for beginners: Matters of safety
If you’re going to include crypto in your financial strategy, keeping it safe is key. Safety in crypto refers to several different things, and not everything will be within your control.
First, there can be risks in the crypto project itself. Although we talked earlier about the high security of crypto thanks to the peer-to-peer network and the mechanics of the technology, there have been several high-profile hacks over the last few years resulting in large losses.
You should think about this risk when you embark on a crypto strategy.
Second, there is the security of your own crypto holdings. Keeping your crypto wallet safe is key to your strategy’s success. You will have to maintain your crypto wallet, which is secured with a private key. That private key cannot be shared and should never be stored online.
Your crypto is only as safe as the security of this key. If you forget the password (called a seed phrase) of this key, you will not be able to access your wallet. Many have lost fortunes by forgetting or losing their passwords.
Third, you must consider the overall volatility of crypto. Over the last few years, crypto has experienced significant growth followed by massive losses. Various cryptocurrencies have fallen to near zero valuation in a matter of days.
It may go without saying, but when it comes to crypto for beginners, as with anything risky, you only want to put in what you are prepared to lose.
Crypto for beginners: Pros and cons
Access to financial markets
Crypto allows greater access to financial markets, namely to those who have little to no access to traditional financial systems. There is no credit check, ID, or other verification needed. All one needs to get started is a computer or smartphone and an internet connection.
No government middleman
As there is no “trusted third party” in crypto and transactions are peer-to-peer, governments do not manage the money supply.
Crypto can be used to transfer funds globally with little transaction cost. That means no more large bank transfer fees or credit card fees.
Blockchain advocates talk about the greater security the cryptographic validation of transactions has over current centralized systems. Because blockchain is decentralized, there is no single point of failure.
Crypto is volatile. The market has experienced considerable ups and downs over the last few years, and its unpredictability makes it challenging to fully manage risk.
To mine many currencies, computers expend enormous energy, which can take a toll on the environment. This being said, many crypto companies have changed the way they validate transactions to be more eco-friendly.
Because crypto is complex and developing rapidly, governments are trying to keep up. As they gain a handle on consumer protection and other issues surrounding crypto, regulatory changes may occur that could affect projects and financial opportunities.
Crypto for beginners: How to trade
If you’ve decided that you do want to go forward and develop your own crypto strategy, here are a few steps to get you started.
1) Create a crypto exchange account
The first step toward trading cryptocurrency is to create an account with a crypto platform, like Binance.US. This will give you the ability to convert fiat currency (money backed by a local government) into cryptocurrency.
Before choosing a trading platform, be sure it has features that work for you regardless of the crypto you choose to trade.
Consider such features as:
- Low trading fees
- Ability to set recurring buy orders
- Numerous supported cryptocurrencies and cryptocurrency pairs
- Real-time order books
- Advanced trading API
2) Fund your account
The second step toward trying out a new strategy in crypto is to transfer funds from a traditional bank account to your newly created crypto exchange account.
Most trading platforms offer a variety of ways for you to fund your account, including:
- ACH (from a bank account)
- Debit card
- Credit card
- Wire transfer
We recommend verifying that the trading platform of your choice offers a funding method that’s convenient for you.
3) Select which token to trade
Learn as much as you can about each crypto you’re considering and its value proposition or purpose. Then, diversify by choosing coins or tokens with different use cases.
For example, BTC is not only a means of exchange but also a store of value. ETH adds the functionality of smart contracts that are used for decentralized applications. Stablecoins are pegged to fiat currency, commodities, or other financial instruments, theoretically mitigating some of the risks of volatility.
Here are some other ways to diversify your crypto holdings:
- Consider including crypto from different blockchains in your strategy.
- Think about location. You don’t want all of the crypto projects you include to be based in the same region.
- Diversify with different crypto use cases like DeFi, gaming, metaverse, and identity.
- Consider adding utility tokens and other digital assets to the mix.
- Like with a traditional portfolio, you may want to mix larger, more known crypto projects that may be more stable with smaller emerging projects that have a potential for growth.
4) Choose your trading strategy
A variety of crypto strategies exist, including day trading, HODLing, range trading, and dollar-cost averaging.
Start by identifying how long you’re willing to commit to your crypto strategy (e.g., days, weeks, months, or years), and then choose the long-term or short-term strategy that fits your goals.
Once you’ve settled on a strategy that works for you, you’re ready to access the features on your trading platform and start trade.
Tips for trading crypto
1) Research first
Before creating your crypto strategy, be sure to research the tokens or coins you’re interested in.
Gather information from multiple sources, and always keep in mind that:
- Crypto markets are very volatile
- Many cryptocurrencies are so new that nothing is set in stone yet
- Even experts in one cryptocurrency may not understand the new cryptocurrencies coming online
The more time you spend researching, the better you’ll be able to protect yourself from the ups and downs of the cryptocurrency market.
One thing you can do is check the website of the project. The website should have a link to the crypto’s whitepaper.
A whitepaper is a document common with blockchain projects that states the mission of the project and details how the crypto works. This is a good place to start.
You can also Google the company and read what’s being said about it. But remember to take everything with a grain of salt and consider the source. It’s also smart to find out about the team behind the project and any major supporters or partners.
Another thing to look at is the exchange or platform on which the coin is being offered. To lessen your risk, only include crypto available on recognized platforms in your strategy.
Diversify your crypto portfolio so you don’t overexpose yourself to the peaks and valleys of the market.
3) Don’t rush
The old saying “haste makes waste” certainly applies to trading crypto for beginners.
Resist the urge to buy unproven coins you’ve seen hyped on social media. Unscrupulous individuals often use this method to inflate a token’s value, sell what they’ve got at high prices, and then disappear when the value crashes.
Again, research is essential before trading any cryptocurrency.
Build your portfolio with Binance.US
When you trade cryptocurrency, the risks and rewards vary based on the token you purchase and the strategy you choose. Considering the risks, crypto for beginners can seem daunting.
However, you can minimize risks by learning all you can before diving in, taking it slow, following the tips on this list, and partnering with the right exchange.
Whether your crypto strategy involves trading every day or HODLing for the future, choosing Binance.US as your crypto platform is the best way to maximize the rewards associated with crypto trading.
Sign up with Binance.US today to explore a new crypto strategy.
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