Congratulations on your decision to do some research before investing in a new technology. By reading this, I’ll assume you’ve already made the decision to invest in Bitcoin (or another blockchain project) and you’re wondering how to get started. Grab a cup of coffee… let’s dive on in!
Understanding the Risks
We need to address the scary stuff before we get to the fun part. There is a lot of potential for things to go wrong and ultimately cost you money. From hackers to hype, there are a bunch of little obstacles that you may encounter on your cryptocurrency adventures and it’s best to be prepared. I’m not trying to scare you out of investing in Bitcoin… I’m hoping to terrify you into making good decisions along your journey
Note: Two quick things!
- When I say Bitcoin, I’m lazily referring to any blockchain token or cryptocurrency coin investment.
- Keeping you safe is what NuCoiner is all about. We feel strongly that this is the most important article on the website. If you feel like we’re missing anything here, please drop a comment below.
Nasty Little Hackerses
It’s extremely unlikely that a hacker would target your personal Bitcoin wallet without a prior knowledge of your Bitcoin holdings. If it isn’t obvious, please keep that information to yourself for your own benefit. Not only will people generally like you more, but you won’t make yourself a target for hackers.
Apart from scammers and social engineers, hackers usually target poorly secured cryptocurrency exchanges and other large publicly advertised service providers. Unfortunately, those wallets usually contain coins owned by folks who don’t practice the safe coining tips found below.
Always hold your own coins
Once you’ve made a purchase from an exchange, immediately transfer your balance to a wallet that you own. This means a hardware wallet, paper wallet or local PC wallet. But, why?
Every Bitcoin wallet contains a unique private key that is responsible for the contents of the wallet. This private key can be encrypted with a passphrase and used to restore the wallet in the event of device migration or accidental deletion. You should generally be the sole owner of your key, unless you really trust who you’re sharing it with.
“Not your keys, not your coins”
I’d rather you hear this phrase now than in some Discord server as a smug community member is making a bad day worse with their “told-ya-so” attitude. Any service that requires you to send your coins to a third-party (no/shared private key access) wallet poses a potential risk for your coins to go missing. Stop and assess the risk before using anything like this. Sketchy exchanges included.
Protecting your private keys
Wherever possible, I recommend using a hardware wallet. Nothing comes close to the security of having your private keys stored on a separate chip from your wallet software. If that’s not possible for you, store your local (wallet.dat) backups on an encrypted USB drive in a safe or other discreet location. If you can’t export your private keys, you need a better wallet. Each project should have their own core wallet software that you can setup on your local machine.
Back that cash up regularly
I recommend a weekly backup to ensure it contains all of your updated wallet information. Always make a backup after changing your wallet password and delete any prior versions of your wallet backups.
FOMO and Emotional Trading
It can’t stop. It won’t stop. The fear of missing out can’t be controlled, but only contained.
I first entered the market in April of 2018, 4 months after the 20K bull run that made Bitcoin a household name. I was tired of missing out on a technology that I’d stupidly been ignoring since 2013 and I was going to get rich, too. Nope. I ignored all of the good advice and let my emotions take over. This cost me a lot, but provided a first hand education (which I seem to need) to establish some safer best practices.
Dollar Cost Averaging
Instead of trying to time the market, I’ve started dollar cost averaging into certain projects. I pick a set time on a set day every week and invest a consistent amount (ie. $50 every Tuesday at noon). When the price of Bitcoin dips more than 3.5%, I’ll consider investing another $50-100 if I can afford to lose it. This helps me increase my holdings without the stress and emotion of trading.
I’m not an expert trader and I was getting destroyed when trying to scalp the market. Most of the Bitcoin investors I follow recommend dollar cost averaging as the best way to enter the market for beginners. If you’re confident in your trading skills and want to play the markets, I wish you the best of luck.
DYOR: Do Your Own Research
Don’t take anyone’s word as gospel in this space. From YouTubers, to bloggers, to lead project developers, everyone has their own personal bias, incentives and agenda.
Before making any investment, using any service or sharing any sensitive information, please do your own extensive research on who or what you’re going to be dealing with. This expands well beyond the scope of cryptocurrency projects and is still overlooked by many “veteran” crypto investors.
Only Invest What You Can Afford To Lose
Cryptocurrency is a highly speculative new asset class. The demand is almost entirely based on idea-selling and there are very few tangible “products” on the market. It has been compared to the early days of the internet, before things became user friendly and accessible for the masses. Ensure that you consider the highly speculative nature of this asset class when balancing your entire portfolio.
ICOs and Exit Scams
Initial Coin Offerings and pre-sales allow development teams to sell coins to users at a “reduced rate” when compared to the projected coin price. In some cases (Ethereum), this can work out wonderfully for early investors. Bad actors quickly took notice of the crowd funding strategy and many exit scams took place during and after the bull run of 2017.
I recommend avoiding ICOs until some form of consumer protection is in place. As always, do your own research if you choose to stray from the beaten path.
You: The Single Point of Failure
It sounds rough, but it’s true! Bitcoin was designed to give you full control over your finances, but… as Uncle Ben said, “with great power, comes great responsibility”. Banks also provide you with several layers of security (and recourse) that you won’t find with Bitcoin in the project’s current state.
Blockchain networks are gaining popularity due to their unparalleled security, but personal mistakes, gullibility and technical incompetence can still cost you money.
When following a blockchain project, you’ll likely be a part of several online communities. Whether that be Twitter, Discord, Telegram, or more. Avoid any “giving away free <X>coin”, spam invitations from unknown users, support requests from unverified individuals and suspicious or unconfirmed file downloads. Social Engineering attacks like these can be extremely tough to spot and are one of the most successful hacking strategies in the space.
Double Checking Means Indefinite Checking
When sending Bitcoin to another wallet address, always double check the receiving address. By “double check”, I can’t stress enough that I mean check and re-check that receiving address as many times as necessary to be absolutely sure it is correct. Once your Bitcoin is sent to the wrong address, it’s gone for good!
I usually compare the 6 first and last characters of the wallet address when confirming it is correct.
Be Honest With Yourself
Are you sure you’re ready for this? You’re willing to tread carefully, research thoroughly and experience the emotional highs and lows of being a Bitcoin investor? Are you comfortable enough with your technical experience to keep your coins safe?
If not, that’s ok! I manage coins for some of my family members who feel this way, but still want some skin in the game. Perhaps this is an avenue that you can explore with someone you trust (remembering the important of your private keys).
If you are ready… Let’s go setup your first Bitcoin wallet!