Navigating Crypto: How to Set Up Your Exchange Account and Wallets
Entering the world of cryptocurrencies might seem daunting at first, but it's much like setting up a bank account and learning how to use online banking tools—only with a few extra layers of technology and security - there’s a bit of jargon involved, but try and skip that. This guide will walk you through the basics of creating accounts on exchanges, setting up wallets (both hot and cold), and the essential steps for securely managing your digital assets.
Step 1: Choosing and Setting Up an Exchange Account
To buy cryptocurrency, you'll first need to set up an account on a crypto exchange. For beginners, I recommend using Coinbase https://www.coinbase.com/ because of its user-friendly interface and robust security measures, I know it’s a pain but please turn on MFA (Multifactor Authentication)
Sign Up: Go to the Coinbase website https://www.coinbase.com/ or download the app. Provide your email address, set a password, and complete the verification process which includes identity verification.
Secure Your Account: Enable two-factor authentication (2FA) for an added layer of security.
Link Your Bank Account: Connect your bank account or a credit card to deposit fiat currency (like GBP or USD) that you'll use to buy cryptocurrencies. Alternatively you can just pay (i.e. deposit money) with a debit card or ApplePay/GooglePay.
Note on UK Banking Restrictions: Some UK banks have restrictions or outright bans on transactions involving cryptocurrencies. It's essential to check with your bank and maybe even consider alternatives that are more crypto-friendly.
Step 2: Creating a Wallet - Hot and Cold
Why use a wallet? Well exchanges are great for getting money in and out, they are also simple, but if you want the “cash in your wallet” then you need a wallet. It’s just like a bank account and cash machine vs the cash in your pocket - it’s all fine, but if the bank (exchange) change their rules, bar your account etc then you are stuck. You don’t have to use wallets, if you are putting a significant amount in, then wallets are the right move.
Hot Wallets are digital wallets that operate on internet-connected devices like computers or smartphones. They're convenient for frequent trading.
Setting Up a Hot Wallet: Coinbase offers an integrated wallet service, making it simple to transfer your purchases from the exchange to your wallet. Download the Coinbase Wallet app, create your wallet, and make sure to write down your seed phrase securely. There are many others.. just be careful and check they are legit.
Cold Wallets are physical devices that store your cryptocurrency offline, safe from hacking attempts. (more advanced users)
Using a Cold Wallet: For a robust security option, consider a hardware wallet like Cypherock https://www.cypherock.com/. It works by storing your private keys offline and only connecting to your computer or smartphone when you need to make a transaction.
Step 3: Transferring Crypto from Exchange to Wallet
Withdraw from Exchange: Navigate to your Coinbase account, select the currency you want to transfer, and choose 'Send/Receive'.
Enter Wallet Address: Make sure to enter the correct address of your hot or cold wallet. Sending crypto to the wrong address may result in irreversible loss.
Select Network: Ensure you are using the correct network that matches your wallet’s capabilities to avoid lost funds.
NEVER GIVE ANYONE YOUR SEED PHRASE, NEVER, EVER.
You should securely store your seedphrase - it will be 12 or 24 words. You should not store this online - print it out, yes paper and store it securely. You can decide on what is best, google it..
Step 4: Understanding Transaction Costs - Gas Fees
Each blockchain network requires a transaction fee for operations like transferring coins. These fees, known as "gas fees," vary depending on the network’s congestion. It’s crucial to check current gas fees as they can significantly affect the cost of your transactions, especially during peak times. In practise this is shown when you try and make a transfer - Coinbase will show this.
Step 5: Monitoring Your Portfolio
Simple Tools: The Coinbase app allows you to track the performance of your cryptocurrency investments directly.
Advanced Tools: For a more detailed analysis, use platforms like CoinMarketCap’s portfolio tracker. It offers insights into market trends and the performance of individual cryptocurrencies.
Final Thoughts: It's Your Money, Your Decision
Despite varying restrictions by banks or governments, the principle remains that it's your money and your right to decide how to invest it. Always stay informed, use secure methods for transactions, and keep learning about new developments in the cryptocurrency world. You may have to pay tax based on your local jurisdiction.