If you have decided that you want to jump into this rapidly growing market, then there are some very important things that you need to understand. In this guide, you will learn how to choose the best cryptocurrency investment for you. We will also analyze a few hot currencies, to kickstart your research. Keep in mind that this guide focuses on long-term investing strategies and NOT active trading.
The Best Cryptocurrency to Invest in is…Anyone who tries to tell you that the “X” cryptocurrency is the absolute best cryptocurrency to invest in, probably has a very large vested interest in it. In reality, there are will mostly likely be several big winners in cryptocurrency. It’s like the dot com boom, where companies like Microsoft, Oracle and Google ultimately became blockbuster investments. But you only made money in those investments, if you understood why they were good investments AND you had a reason to keep those investments for the long term. Otherwise there would have been a big temptation to sell them as soon as you made a little bit of profit. If you don’t understand what a cryptocurrency does or why it’s valuable, then don’t invest in it. Many of these cryptocurrencies are going to be a passing fad. Like these things… There will be a select few cryptocurrencies that will be great investments. Bitcoin has already shown us the potential. But the majority of coins will fade into obscurity. Since nobody knows which ones will be huge winners and which ones will be epic fails, we believe that the best investment strategy is to have a portfolio of currencies. Putting all of your eggs into one basket is a recipe for disaster. You don’t have to understand every single technical detail of each currency. However, you should read a lot about a currency that you want to invest in and make a very informed decision. That is the only way to find the best cryptocurrency investments. We will give you a few examples of the research that we have done, at the end of this post. …so stick around.
How to Buy CryptocurrencyWhere you buy your cryptocurrency will depend on which cryptocurrencies you want to invest in. If you are only interested in the big three, then you don’t have to open a trading account. The big three cryptocurrencies are: Coinbase is all you need. They don’t offer any trading capabilities, but they do make it easy to purchase these coins with a credit card or bank account. If you want to buy smaller cryptocurrencies, then that is when things get a little more complex. Some cryptocurrencies are only listed on select exchanges. So you will have to do your research to see where you can buy that cryptocurrency. For example, if you want to buy IOTA, you will need to open a trading account at Bitfinex because that is the only exchange where it is currently traded. However, Bitfinex does not allow US customers to purchase cryptocurrencies with US Dollars. If you are a US customer, you would need to first buy Bitcoins from a site like Coinbase. Then you have to transfer those Bitcoins to your Bitfinex account. Once those coins have been transferred, you can use that balance to purchase IOTA. Other websites like ShapeShift and Changelly can help you trade Bitcoins to another type of currency, without setting up an account. The coin options are limited, but if a coin is available, they can save you the hassle of setting up an account. Alright, now that you have purchased some cryptocurrency, it’s time to store it somewhere safe.
How to Store Cryptocurrency for a Long-Term Hold (Cold Storage)Before we get into actual investing strategies, let’s talk about keeping your investment safe. You should NOT hold cryptocurrencies at an exchange or in an online wallet for an extended period of time. If you are actively trading cryptocurrencies, then you will probably have to keep at least some of your coin at an exchange, so you can get in and out quickly. But exchanges and online wallets can be hacked and poorly run exchanges can even fold. So whenever humanly possible, get your coins into a wallet that you control. These options are called “cold” storage because they can be taken offline and therefore aren’t “hot.” Here are your four cold storage options:
1. PC WalletIn our opinion, a wallet on your computer at home is not a good option for cold storage. This is because your computer can get a virus, your hard drive can crash or your computer can get fried by a power spike. If you are going to store a significant amount of your cryptocurrency on a home computer, it is a good idea to only use that PC for cryptocurrency storage. You can get a cheap laptop from eBay and use that as your storage computer. This is safer because that computer won’t be connected to the internet all the time and you won’t install any other programs that could contain viruses. Unfortunately, some cryptocurrencies can only be stored in a PC wallet, so you don’t have a choice in those situations. But if you do have an option, we would highly recommend that you pick one of the following two options…
2. Hardware WalletsThis is the best balance between convenience and security. A hardware wallet is a device that has the bare minimum of software that provides security and allows the device to store cryptocurrency. Many of these devices look like a memory stick. A hardware wallet that is very popular right now is the Ledger Wallet. It has a tiny screen that allows you to control the device. As this post is being written, they are currently out of stock because it is very popular. So you may need to look at several different online retailers before you can find a place to purchase it. There are other wallets like the Trezor. The wallet you use will depend on the currency you want to store. Wallets are only designed to hold specific currencies, so be sure to do your research before you purchase.
The Upsides to Hardware WalletsHardware wallets can be plugged into your computer and your funds can be quickly accessed with a PIN or security phrase. Even if someone gets ahold of your wallet, they can’t access your funds without the code. Since hardware wallets only have software related to storing cryptocurrencies, the risk of hacking is low. Some wallets also give you the ability to backup your wallets to an online account.
The Downsides to Hardware WalletsLike all electronic devices, hardware wallets are susceptible to power spikes, water and hacking. If you do use cloud backup, that can also be another account that could be hacked. Also be sure to use a wallet that is water resistant. You don’t want to cry over spilled milk…literally.
3. Paper WalletsThis is a secure option because it is totally offline. Paper wallets are created by software and printed on paper. They give you an easy way to store your public and private keys. You can think of it as a fancy way of writing down your password. These wallets usually have QR codes that you can easily scan to get the public and private keys. If you had to type in those keys, it would take too long and you would probably make a mistake. That could cost you a lot of money. 🙁 Many wallet designs also give you a way to hide your private key. You can also buy tamper resistant tape so you know if someone has peeked at your key (pictured above). There are several solutions out there for the more popular currencies. Here are links to a few examples:
The Upsides to Paper WalletsPaper wallets cannot be hacked or lost to a power spike. Since they are totally offline, they cannot be compromised by a virus. You can also easily create multiple wallets, so all of your money is not in the same wallet. They are easy to transport and one wallet can store as much money as you care to keep on it.
The Downsides to Paper WalletsThere are a few downsides to all of this security. First, these wallets are essentially bearer bonds. So whoever has possession of the wallets is the owner of the currency in those wallets. This is because the private key (or password) that is required to access the funds in the wallet is also printed on the wallet. So if you do create paper wallets, keep them in a secure place, like a safety deposit box. Next, if you print your paper wallet on regular paper, with inkjet ink, then prepare to lose your investment. Seriously, that is the worst idea ever. It may be tempting because it is a very cheap solution. But liquid, a small child and fading are all enemies of this el cheapo approach. If you are going to store your currency on paper, be sure to use a laser printer because the ink is waterproof. Be sure to buy as “dumb” a printer as possible. That means that it cannot be WiFi connected and does not have a large internal memory. Both of these things can potentially be hacked, so it is best to keep it as low tech as possible. Also use high-quality synthetic paper like this, which is compatible with laser printers. These “papers” are essentially made of plastic and cannot be torn with your bare hands. Yeah, I didn’t believe it at first either. But it’s legit! I couldn’t rip the paper. Obviously, the paper can be burned though. Finally, you have to be careful how you create paper wallets. A shady coder could create a wallet generator that secretly transmits the private key of the wallet back to the creat0r. This would allow them to steal your funds as soon as you transfer money into the wallet. Do some research online to find out which wallets are safe. Not all cryptocurrencies have an option to store your wallet on paper. So if you really want this capability, be sure to research your storage options before buying a currency.
4. Brain WalletsA “brain wallet” refers to the technique of memorizing a mnemonic recovery phrase that will give you access to your cryptocurrency wallet. This phrase is not written down (in a true brain wallet), so you are the only one who can access your funds. The passcode usually consists of a long list of short, random words. Here’s an example: Not all cryptocurrencies give users the ability to do this. While this is probably the most secure option on this list, it is also the easiest to “lose.” If you forget your passcode, your money is gone forever. Brain wallets might be a good short-term solution, but I would not recommend them for cryptocurrency investing. Imagine trying to remember your passcode when you are 80 years old. Not gonna happen 🙂 There is also a solution called Cryptosteel, which allows you to create a physical backup of your phrase. Since it is made of metal, it’s waterproof, fireproof and lockable.
Fundamental Analysis of CryptocurrenciesSince there are still a lot of unknowns when it comes to the use cases of cryptocurrencies, it is very important to really understand every cryptocurrency you invest in. So let’s take a look at the major fundamental factors that you absolutely must understand about any currency you buy.
What Problem is the Cryptocurrency Solving?This is the most important factor in determining if a cryptocurrency will have long-term value or not. I always tell people that they should think about cryptocurrencies as tech stocks. What problems does the company (cryptocurrency) solve? Is this something that has real-world value, or is it just a nice idea? Also consider the development team and who is running the show. Do they have a long-term vision for the currency? What do users think about the currency? By asking these simple questions, you will start to uncover which currencies may be valuable in the future and which ones will crash and burn. But that’s just the beginning. Here are some other things that you have to consider.
What is a Blockchain?As you do your research into the different types of currencies out there, you should understand the basics of how a blockchain works and why it is so revolutionary. Almost all cryptocurrencies are based on the blockchain technology that has made Bitcoin popular. It is basically a database that is downloaded to every computer on the network. So if you are a miner or you have a PC wallet, you will have a copy of the blockchain for that currency. This database stores all of the transactions that have ever happened in the currency. Therefore, even if one copy of the database is hacked, it won’t match up with the other copies and the change will be ignored.
What’s the Advantage of The Cryptocurrency?Even if a cryptocurrency does solve a problem, there might be other cryptocurrencies out there that solve the same problem. …and they might do it better. So before you invest in a currency, research the competition. It can be tempting to think that the currency you have found will be the solution that disrupts an entire industry. But it might actually be the worst solution available. Some things to look for:
- Go through the website, does it look professional? Does it make sense?
- Is the team experienced?
- Try out the software, if possible, to see how well it works
- Read the whitepaper on the currency
- Are there potential security issues?
- And more