If you’ve seen the incredible upward momentum of Bitcoin, Ethereum, and other cryptocurrencies, you’ve maybe also considered getting in on the action. Now, you’re gonna learn how.
But first, a disclaimer: Bitcoin, Ethereum, and so many of the other cryptocurrencies out there can be a way to pay for stuff online, sure. And they can also be (if they aren’t already more popular as) investments. And investments, you might know, can go up and down. You can gain money on them, or lose it. And those values can fluctuate wildly, as you might’ve also seen lately.
To put it simply: proceed with extreme caution. We’re not here to tell you whether or not you should buy it, just to show you how you can pull it off.
That said, the rise of cryptocurrencies are an exciting moment for technology, and even if you don’t want to actually buy any, it’s worth knowing how it all works.
Let’s begin where any investment starts—in your own wallet.
Just like depositing money in the bank or buying a stock, you keep your cryptocoins in a digital account known as a wallet, which lets you store, receive, and send them.
But it’s a bit more complicated than that, and there’s some serious notes of precaution to be aware of with a wallet. Cryptocurrency won’t just magically appear in your wallet out of thin air. You’ve gotta buy it, first. There are several ways to do that, but the easiest is to exchange a fiat currency—dollars, euros, pounds, etc—for some cryptocurrency. And the easiest place to do that is at an exchange.
Think of a cryptocurrency exchange as a stock market for crypto. You register for it, deposit your fiat currency of choice, and then, you can buy yourself some crypto. But the cryptocurrency market is still pretty new—and it’s not bound by the same laws and regulations as the stock market. So before you do anything else, remember this:
Your money is never 100% safe.
The cryptocurrency markets have matured in recent years, but there’s still a lot that can go wrong. There are scammers, out to separate you from your money. Software errors could theoretically wipe out your store of bitcoin. And there’s always the possibility of user error (i.e. you screwing up) that can send your cryptocurrency out into the abyss.
Hackers can also break in and steal it. It’s happened before; this summer, $32M in Ethereum was stolen. One of the largest bitcoin exchanges, Mt. Gox, has had some of its bitcoin stolen, and it went bankrupt in 2014.
Many users who had their bitcoin in Mt. Gox are still waiting to get it back. And even if you didn’t hold your bitcoin there, the incident triggered a massive price crash, in which Bitcoin lost over 70% of its value.