8 Things Beginners Need to Learn About Cryptocurrencies

The hurdle to understanding crypto can take a lot of time for some people, and unfortunately many lessons are learned the hard way. This is mostly due to the fact that this market, and technology, is still very new and lacks the educational resources that are readily available for traditional markets. We’re going to dive into several topics to boost your knowledge and avoid those costly mistakes.

Always “Do your own research” (DYOR)

One of the most common mistake newbies make, is that they believe anything they read online. This can be something read on Reddit, Twitter, BitcoinTalk, and even news articles. Projects tend to over-exaggerate news such as partnerships, or new developments. The number of cryptocurrencies that “partnered with Microsoft” is too many to even count. Never trust what random people say on the internet, instead, find this information from the sources themselves. We will continue to use the partnership example. Let’s imagine you are browsing Twitter and see tweets about a partnership with Microsoft and Xcoin. The wrong thing to do is immediately purchase Xcoin in order to make money on this partnership news, the correct way to go about this is search for confirmation from Microsoft, that they are in fact partnering with Xcoin.

This tip goes for any sort of information, you must be sure that all investments are based on cold hard facts and realize that anyone can post anything on the internet. Always be vigilant and take everything with a grain of salt.

Projects have even been caught deliberately lying to investors in order to pump the price, do not be a victim of this type of market manipulation.

Beware of scams

Scams come in many forms, from paid groups, to Twitter scams. A good rule of thumb is, if it is too good to be true it certainly is. One of the most common scams are Twitter scams.

Also, any sort of “deal” on any platform at all, that requires you to send crypto to an unknown address will also be a scam. Any sort of giveaway is going to be some sort of scam. (Unless posted by a real account that you have verified)

Next, let’s dive into paid groups, and pump-and-dump groups. Paid groups, or sometimes called signal groups, are where you pay monthly/yearly fees in order to receive buy and sell signals. These groups are almost always owned by anonymous individuals who claim to have the skills to make anyone money. All you have to do is buy when they say, and sell when they say. The number one problem with this is that you are blindly buying something a random person on the internet is telling you to buy, you learn absolutely nothing, and if you lose your pants because of these signals there is nothing you can do. These people are NOT financial advisors, they carry no licensing which allows them to charge clients for investing advice. Keep in mind, this is very different from paying for education, which is totally fine, but in the long run you want to stay away from these groups because their main motive is your money going into their pocket.

Pump-and-dumps are groups that are usually free, and promise that certain coins will pump after you buy them. Here is the standard process that PnD groups do:

1.     Countdown to the pump time

2.     Choose a coin that the owners of the group will purchase before informing the community

3.     Announce the coin to the community

4.     Sell their previously purchased shares, as the coin pumps from the community

The owners of the group have sold their coins for profit, while the masses purchase their coins, meaning you lose money. These pumps last for mere seconds, and the odds that you will make 70-80% gains are extremely small. Avoid these no matter how tempting it may be.

Markets trade 24/7

Simple as it sounds, all cryptocurrency exchanges operate 24/7. Even on holidays they will be open as normal. This is one of the reasons many 9-5 workers enjoy crypto trading, they are not restricted to the opening and closing times on the New York Stock Market.

Tip: Cryptocurrency exchanges follow the UTC (Universal Time Code) time zone.

Cryptos stored on exchanges technically do not belong to you

This may sound weird, but even though you deposit your own money on to the exchange, you have now given up ownership of those cryptocurrencies, and trusted them to the exchange to hold safely. If for any case, an exchange fails to do so, you have lost your cryptocurrency with no method of retrieval.

Some exchanges keep a safe fund in case of hacks, like Binance. Most smaller exchanges do not implement this safety measure and you should never store large amounts of money on exchanges unless you are actively trading.

Once you lose your cryptocurrency, it is gone forever

Losing a wallet file, sending to an incorrect address, losing recovery keys, can result in losing your crypto forever. There is no central organization that may retrieve these private keys or refund you for sending to the wrong address. Sometimes, when you make a mistake with depositing to an exchange, or make any mistake related to an exchange, you can contact their support and they may be able to make things whole. The world of cryptocurrencies is really every man for themselves. Be extremely careful where you send coins, double check addresses, always create and store wallet backups safely.

Exchanges will provide a (.csv) file for easy tax reporting

Cryptocurrency trading creates a massive number of taxable events. These (.csv) files may be found by your transaction history and are free to download and can make your bitcoin tax reporting much easier. You can open these up in Microsoft Excel and view the times you made trades, the amounts, and which assets were traded. This comes in handy when manually reporting your taxes, or uploading them to a bitcoin tax calculator.

Create strong passwords

Like previously mentioned, if you are a victim to a hack or any sort of theft, you are the only one accountable. A lot of wallets simply utilize a password and if anyone gains access, they may steal your money with no way of getting it back. Create strong passwords or consider using a password manager.

Tip: 2-Factor Authentication is a tool that most password protected accounts implement as another layer of security. It is highly recommended to use 2FA when possible.

Bitcoin dominates price action

Bitcoin is king. Price action of the entire market will follow the price action of Bitcoin in respective manners. As a trader you must always keep track of Bitcoin even when you are trading altcoins. A useful metric to study and understand would be the “Bitcoin Dominance” which can be found on websites like Coinmarketcap. Study how altcoins react to certain movements from Bitcoin in order to gain an edge in the market.

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