Advice to Beginners on Trading Bitcoin and Other Crypto Currencies

So you have read the newspaper about the meteoric rise of crypto currencies such as Bitcoin or Ripple. You want to get in on the game and make some money. What do you do?

Let me just start by saying, this is all very high risk. Don’t invest what you can’t afford to lose. It is not just risky because the prices of the currencies are volatile but because the technology is unfamiliar to most people. Don’t treat this as buying stocks or gold, at big established companies. This is the wild west, although we are seeing things mature a lot over the last years.

Step One: Understand the Basics of the Technology

You can watch videos and read about this many places. One way would be to watch one of my videos on youtube. In particular watch the video about the basics of cryptography. There is no math there and I am explaining with lego guys so this should be accessible to anybody.

You need to become familiar the bare minimum of what public keys and private keys is all about in cryptography, because if you don’t grasp this you wont understand how your crypto currency money is stored and safeguarded.

Money is stored in what we call a wallet, but it is nothing like a physical wallet. You need to understand what this is all about otherwise hackers could steal your money.

Step Two: Get a Crypto Currency Wallet

Have you hear all those scary hacker stories about bitcoins being stolen by hackers? That happens because people keep their money at exchanges long term.

It is worth clarifying here that, if you store your money properly in a secure wallet, then you are very safe. Hackers won’t suddenly get hold of your money. At least that is very rare.

For smaller amounts of money I would recommend an online wallet such as, which is what we call a hot wallet, because it is online and accessible from the internet.

Image for post
Image for post
Bitcoin paper wallets. Example of one form of cold wallets. These are safe from internet hackers because they are obviously not connected to the internet.

However for larger amounts I highly recommend using a cold wallet. That means a wallet not on the internet. It can be stored on paper, on a USB stick, offline computer or a special hardware wallet.

I have personally started using a hardware wallet called Trezor. It is a tiny device you connect through USB to your computer.

Image for post
Image for post
Trezor hardware wallet. You input your pin on the computer. However a hacker can’t pick up which PIN you are inputting, because the position of each number will be different each time. You can only know the position of the keys, by looking at the screen of your hardware wallet.

I must confess I had wished I had gotten a hardware walled sooner. As you hold more crypto currency, you easily end up paranoid about security, you easily lose sleep over it. You think you might not need it, but then suddenly your crypto currency quadruples in value, and suddenly it is enough money that you get scared of losing it.

Then you want something which is:

  • Safe
  • Practical
  • Easy to use

Hardware wallets are just that. You can store crypto coins quite safely offline on e.g. paper (paper wallets) however these are extremely impractical in use. Any time you need to use it, you are exposing yourself.

The benefits of hardware wallets is that you can use them at any time to perform transactions without exposing your wallet to danger. Even if your computer is infested with viruses, trojan horses, malware and hackers, it is not dangerous to use a hardware wallet connected to your computer.

When choosing a hardware wallet also consider what kind of crypto coins you are going buy. E.g. I am realizing my Trezor is problematic, since it doesn’t store Ripple. So I have ordered Ledger Nano S instead. It supports a lot more currencies through extensions. Trezor is quite neat in that it can be used as a login and password keeper as well. So I’ll probably keep it still.

Image for post
Image for post
Ledger Nano S hardware wallet. You can often connect these to mobile crypto currency wallets as well. Not just your computer. However this is not as frequently supported on iPhone.

What if my hardware wallet gets destroyed or lost?

Image for post
Image for post
Seed of Trezor wallet written on paper and Crypto Steel ready to store seed as steel letters. The seed is a list of words used to restore your hardware wallet in case you need to buy a new one because the old got destroyed or malfunctions.

Aren’t you being too paranoid?

Step Three: Sign up with a Crypto Currency Exchange

Having been hacked in the past doesn’t necessarily mean it is a bad choice. It depends on how they dealt with it afterwards. Did they refund all customers who lost money? Did they improve their security? And of course it matters how they got hacked. Mt. Gox was exposed as having absolutely horrible security and not caring about it. Even if they had done a full refund, I would not have trusted such an exchange.

It is useful to find out a bit about how your exchange secures your money. E.g. Coinbase, keeps 90% of customer funds in cold storage. Meaning, the wallets are mostly stored physically offline.

Step Four: Transfer Funds

Same goes for withdrawing cash from the exchange to your bank account. Once you got the crypto currency and you want to sit on it for a long time, you should transfer most of it to your secure wallet (preferably a hardware wallet).

This is where you DON’T want to screw up. I always make a smaller transaction first and wait to see that it gets to my wallet, before making bigger transactions. If you send it to the wrong address, then there is a high likelihood you have lost the money forever.

What Crypto Currency to Pick

I advice instead, to do your research and determine which technology you think sounds most promising. Also check how well run the company behind the currency is, what kind of people or talent they got onboard, and what sort of contracts they have with other companies. That says something about long term potential.

E.g. I’ve invested previously in Bitcoin mainly because it has momentum and network effects. Lots of services have been built around it, and it is well known. However I don’t think the technology is that great anymore.

I’ve picked Ripple/XRP because they have managed to make deals with a lot of important players. They got many banks and financial companies onboard using their technology. They also work actively with regulators, while their technology has a lot going. E.g. Ripple is not merely a crypto currency but also a payment system for any currency.

However both of these are older technologies now. There are newer crypto currencies which technologically speaking looks more impressive. However it is hard to know if they got the manpower, talent, marketing skills etc to become dominant. But obviously among the less known currencies is where the biggest potential is, but also the highest risk.

UPDATE: I have added a new story describing the main differences between various crypto currencies. This makes it easier to navigate the market. But remember I am not a financial advisor. My focus is on the technology and how that might affect success in the market.

Geek dad, living in Oslo, Norway with passion for UX, Julia programming, science, teaching, reading and writing.

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store