From the outside looking in, the crypto space is wild! People see scammers, hackers, and criminals in the crypto headlines. This is reason enough to stay out of it entirely.
The thing is, fiat and the traditional money system have scammers, hackers, and criminals too.
While these are valid reasons for concern, you don’t want to be on the wrong side of history. Sure, it may feel daunting and intimidating at first, but it doesn’t have to. Your perspective could be that you are a beginner and want to learn what all the fuss is about.
Before you dive into the crypto space head first, there are some things you’ll want to be aware of. That’s what this guide is all about. Read on to hear what they are.
1. You Could Lose Everything
It’s an adage that you only want to put in as much as you’re willing to lose. This goes for traditional investment markets as well as the cryptocurrency market.
As you may know, cryptocurrencies can be volatile at times. It can often feel like a rollercoaster. Some days you’ll be up 100x, and other days down 100x.
It’s wise to take emotion out of investing, but it can be easier said than done. You have to prepare for rocky waters.
This is why you never want to put all your eggs in one basket. A diversified portfolio will set you up for success.
Nothing is predictable, but once you’ve been through a few bear and bull cycles of the crypto market, you will soon learn what to do and what not to do.
2. You Have to Pay Taxes
If you think crypto offers a way out of paying taxes, you can think again. Whatever you earn via crypto, you have to report. This is because earnings and profits are subject to Capital Gains Tax (CGT) or Income Tax.
In many ways, it is similar to the way you are taxed for fiat.
There are some factors and nuances to be aware of, such as how you acquired the crypto in the first place. This goes for selling crypto for cash, trading crypto for crypto, and paying for goods and services directly with crypto.
As you know, taxes can be confusing, and adding cryptocurrencies into the mix can be tricky. If you don’t feel comfortable handling your taxes with crypto, be sure to reach out to a professional.
3. You Can Lock Yourself Out
Despite the many benefits of crypto over fiat and traditional financial systems, it is not fail-proof or without its faults.
There have been countless horror stories of people losing their bitcoin or altcoins all because of human error. Maybe they left their crypto on an old laptop or hard drive that they seemingly forgot.
Or perhaps they forgot to write down their private key or seed phrase. Maybe they did write it down but were too carefree and lackadaisical about proper storage.
There are two types of wallets to be aware of in the crypto space—hot and cold.
A hot wallet is one that you download to your smartphone or computer. It is a convenient way to store your cryptocurrencies. Despite the convenience, they are more susceptible to hackers, and bad actors since hot wallets are connected to the internet.
One way a hacker may try to gain access to your crypto via a hot wallet is with your private keys. Private keys are how you prove ownership of a blockchain address. They also allow you to sign transactions.
This means that anyone who has access to the private keys has access to the crypto. A hacker may try to phish you or try some other social engineering tactic to wipe the funds from the wallet.
Do not confuse a hot wallet with an exchange like Coinbase. For that reason, you never want to leave your crypto on an exchange. Remember the mantra—not your keys, not your cheese.
A cold wallet is offline. Many will look and feel like a thumb or hard drive. They are considered more secure in the crypto space since they are offline.
4. Why You Are Investing
Before you dive into the rabbit of the crypto space, you ought to ask yourself one question—”why?”. Why are you investing? Why crypto?
With traditional markets like stock and forex, what draws you to crypto? Both of the aforementioned markets are seemingly less risky too.
Do you have FOMO (fear of missing out)? Are you in it for the technology? Do you believe in freedom, privacy, and security?
Whatever the reason is, make sure you know this before spending any money. Once you have more clarity on this, you’ll be able to spend your money more wisely. This reason will likely shift over time, so continue to ask yourself, “why?“.
There are many benefits of crypto over fiat. The more you educate yourself, the better off you’ll be. This only strengthens the crypto community and will allow you to help others who are just starting on their journey.
5. An Understanding of the Industry
Entering the crypto space can be a bit daunting. Heck, any new space can be. This is especially true if you come from a more traditional investment standpoint.
While there are similarities, the crypto space is a whole new animal. It only makes sense to learn as much as possible so that you don’t get “rekt.”
Before you start investing real money, you want to get a feel for the crypto space industry at large. What’s all the fuss about these digital coins, anyhow?
Things you will want to familiarize yourself with are the different types of coins, tokens, and their functions. Different algorithmic mechanisms behind these coins, such as Proof-of-Work (PoW) and Proof-of-Stake (PoS), are important to familiarize yourself with.
You’ll want to learn what a blockchain is and how it functions. You don’t need to be a computer scientist, but you should have a working knowledge. This is helpful when you interact with other crypto people in the industry.
Understand the difference between public and private keys. Know the difference between a hot wallet and a cold wallet. Read up on what smart contracts are.
Know how a Bitcoin ATM compares to a traditional one. Click here to find a Bitcoin ATM in your neighborhood.
Be sure to do your own research (DYOR) and educate yourself. There are plenty of online quizzes that will reward you in crypto for taking them.
Browse the blogs Reddit, Crypto Twitter, and BitcoinTalkForum. Head to your local library or get cryptocurrency books on Amazon. You also want to befriend crypto people who are further along on their journey.
6. You’re Too Late to Mine
Many cryptocurrencies rely on miners to validate transactions and mint new crypto assets. In the early days of the crypto space, the average person could mine cryptocurrencies like bitcoin from their personal computers (PCs).
Fast forward to today, and mining has become a lot more expensive. This is largely due to the fact that certain cryptocurrencies like bitcoin become more difficult over time.
You may be able to fall smaller market cap coins to mine, but don’t expect much of an ROI for your investment.
Mining has also gotten its fair share of criticism over the years since it can be harmful to the environment with how much electricity is used. Do your own research (DYOR) and come up with your own opinion on the topic.
7. Advantages Over Fiat
What is the point of crypto in the first place? What are the crypto and bitcoin benefits over fiat? There have to be many, given how much interest there is in the crypto space.
One of the biggest benefits of crypto is accessibility. In the United States, you may take having a banking account for granted. The same can’t be said for other parts of the world.
More than 1.6 billion adults are unbanked. Many people are also underbanked. This is a huge disadvantage to have in the modern world.
When you stop to think about it, money and financial instruments have become a luxury. Things like checks, ATMs, debit cards, credit cards, credit unions, banks, mobile banking, loans, etc.
What are those unbanked and underbanked people to do? How can they safely hold and secure money rather than having to resort to hiding it under their pillows?
With traditional banking systems, many times, you’ll need to provide some sort of identity. This is largely due to KYC/AML ( (Know Your Customer/Anti-Money Laundering)) regulations.
Cryptocurrencies offer a unique solution to those who may be at a disadvantage.
Having to pay for transactions and banking fees is an annoyance you have learned to live with. While we can’t escape transaction fees entirely, cryptocurrencies offer a much cheaper solution in this department.
All of these fees (ATM withdrawals, cross-border payments, monthly account bills) add up. These fees will often keep poor people poor or prevent them from using the services in the first place.
Cryptocurrencies cut these fees down tremendously. Rather than paying a few dollars for transactions, with crypto, you can expect to pay a few cents per transaction (depending on the crypto).
Cryptocurrencies like litecoin (LTC), dash (DASH), and bitcoin cash (BCH) behave a lot like cash. Bitcoin could be viewed as your savings account or as a store of value.
Dealing with fiat can get messy. This is especially true for global payments.
One of the beautiful things that cryptocurrencies present is 24/7 global payments. Cross-border payments have never been easier with crypto! This is all at a fraction of the cost too!
People in the business and e-commerce world will benefit big time when using crypto.
Crypto is permissionless too. You don’t need anyone’s permission to interact with a blockchain network!
If you want to create a wallet with an address, you can! If you want to start mining, staking, or creating smart contracts, you can!
Because cryptocurrencies are decentralized, the barrier to entry into these systems is zero. Compare that to how you might open up a banking account. What a headache!
One of the downsides to fiat is that whenever you spend it, it can be traced back to you. Now, you may be thinking that you have nothing to hide. That may be true!
What you may not be thinking of is the data being collected by government agencies, institutions, and who knows who else! Your spending habits are all being tracked. If you don’t like this idea, cryptocurrencies are here for you.
Cryptocurrencies like bitcoin are pseudonymous. If you’re new to the crypto space, you may have the assumption that cryptocurrencies are anonymous. While some privacy coins are anonymous, like Monero (XMR), Zcash (ZEC), and Pirate Chain (ARRR), Bitcoin and others are pseudonymous.
This means that while you can see the transaction on the blockchain, you don’t necessarily know the parties involved. This is important for people and businesses who rely on privacy and security.
Even if you have nothing to hide per se, privacy ought to be something you strive to achieve.
Cryptocurrencies are secure by default. They take advantage of blockchain technology. Everything on the blockchain is recorded and immutable. This means that nothing can be tampered with or changed.
This prevents double-spending, chargebacks, and hackers from taking advantage.
Fiat takes too long to transact with. Sometimes you don’t have time to wait! Rather than waiting hours or days for your money to reach its destination, with crypto, it will take seconds or minutes.
Become an Astronaut in the Crypto Space
As you can see, there is much to be aware of in the crypto space. Take your time to learn the ropes before you dive into more technical aspects. Remember to learn from others and their misfortune and mistakes.
The crypto space is a wonderful community to get involved in. Crypto is an endless onion. You’ll always find some new avenues to explore.
To stay in the loop with all things crypto, be sure to peruse our blog.