How to buy, sell & hold crypto
Let's talk about buying, selling, and holding crypto.
Let's talk about buying, selling, and holding crypto. The first thing to know is that cryptos are very different from other stuff that you invest in.
When you buy gold, you actually get coins (or bricks) of the shiny metal. You can keep these coins safe in... a safe! When you buy a house, you actually get physical "possession" of it.
Crypto is very different. You start by generating a "wallet". This is what a typical Bitcoin wallet looks like:
If you write this down on a piece of paper, it would be called a... paper wallet.
Usually, people store their crypto in a mobile or web wallet. That's a mobile app or web service that stores your keys and addresses.
Login to the Future Money Wallet and navigate to Investor Dashboard -> Generate paper wallets and generate some paper wallets - Bitcoin, Dash, Dogecoin, Ethereum, and Litecoin. Do you notice any differences in these wallets?
Also, try out bitaddress for generating a bitcoin paper wallet.
The address is similar to your bank account or UPI ID. Anyone can send crypto to your address. If you send crypto to the "wrong" address, it's gone forever! Also, remember that the same address doesn't work for all cryptos e.g. a Bitcoin address won't work for Dogecoin.
The private key is what you would need to "sign" transactions i.e. to send crypto to someone else. If someone gets hold of your private key, they can transfer all your crypto to another address. This is what happens in most crypto "hacks".
There are many ways in which you can buy, sell and hold crypto.
The most common is to use a crypto exchange. A crypto exchange authenticates you using your username, password, and email / SMS OTP (one-time-password). Once you are logged into your account, you can transfer fiat (rupees, dollars, etc.) to your account and use it to buy crypto. Similarly, you can sell the crypto and get the fiat into your bank account.
The problem with the centralized exchange method is that the crypto is not in your "wallet". It's in the exchange's wallet. So if the crypto exchange packs up or the team decides to vanish with your crypto, there is virtually nothing you can do.
You should use crypto exchanges only for trading. If you are going to hold the crypto for a longer period, then you should use a paper wallet, a hardware wallet, or a software wallet. These are called "non-custodial" wallets because no one else has custody of your private keys, only you do. In fact, there's a saying in the crypt world that goes "Not your keys, not your coins".
A crypto wallet is designed to
- store your public and private keys,
- send and receive cryptos,
- monitor "balances", and
- interact with supported blockchains
A hot wallet is one that is connected to the Internet and is considered the most vulnerable to hacking. Examples include mobile wallets and crypto exchanges.
Metamask is a popular browser-based crypto wallet.
A cold wallet, on the other hand, is not connected to the Internet and is considered more secure. Examples include hardware wallets and paper wallets. There are many free services for generating paper wallets e.g. Future Money Wallet.
Paper wallets are inconvenient to use but are the safest option. Consider using them if you have a large amount of crypto to keep for a long period of time.
Hardware wallets are a little pricey and there's always the risk of losing or breaking them. I am speaking from experience!
Software wallets are free and very easy to use. But if you accidentally delete them, your crypto is gone forever. Again, I am speaking from experience! So remember to back up the seed phrase - a bunch of words that you can write down.
An example of a seed phrase is:
history lumber quote board young dove robust kit invite plastic regular skull
If you are just getting started, I would recommend that you download Trust Wallet, the most popular software wallet. It supports 53 blockchains and more than 160,000 cryptos and digital assets. You can buy cryptos using a credit card and even earn interest on your crypto balance.
Another cool way of trading crypto is to use "swapping" services. These are also called decentralized crypto exchanges. An example is Uniswap, a popular service for swapping Ethereum tokens.