Everyone, including your grandma, is talking about it, and you’ve finally arrived at the party. You’ve decided it’s time to join the almost 7% of the world who use crypto — which, fun fact, is more than the population of the U.S., Russia, and the UK combined — but maybe you don’t know where to start. Fear not, DeSci Hub has you covered. Here are the first five steps the crypto-curious can take for getting into crypto.
1. Understand Crypto and Why People Buy It
Like most things, if you want to own crypto, it’s a pretty good idea to understand what it is first. At its core, cryptocurrency is just digital money built on blockchain technology rather than stored in banks, and like banks, blockchain uses ledgers to record interactions and transactions. The ledgers are essentially just digital versions of those leather books old accountants used, but unlike banks, blockchain ledgers are transparent, devoid of human error, and don’t smell of stale tobacco.
There are literally hundreds of crypto coins and thousands of tokens out there, including household names like the O.G. Bitcoin, the younger Ethereum, as well as meme tokens such as Dogecoin and Shiba Inu. There are also tokens associated with different movements and projects. For example, in the decentralized science (DeSci) space, you’ll find AxonDAO‘s AXGT token, while in the decentralized finance (DeFi) space, Chainlink’s LINK token is a popular option.
People buy crypto for a variety of reasons: to profit from price increases through holding or trading, as a source of income for the unbanked, or as an anonymous way to hold and transact. (There is also lending, borrowing, and yield farming, but that’s advanced-level stuff. We’ll keep it simple for the purposes of this guide).
2. Choose Your Exchange
Your first step into the market involves deciding where and how to acquire some of that juicy crypto. There are two main methods, a centralized exchange (CEX) and a decentralized exchange (DEX). The former are large companies and include popular sites like Binance, Coinbase, and Kraken. These are very user-friendly and feature great security, but require you to reveal your identity through a Know Your Customer (KYC) process. This also means that you have to trust a third-party platform with your funds, which is typically no issue. However, in rare cases, (yes, you’ve probably seen this), it doesn’t go well. The Bankman-Fried scandal was an outlier, not the norm, and he’s in prison, so crypto-verse accountability is firmly in hand.
Conversely, DEX Platforms like Uniswap or PancakeSwap operate without intermediaries and provide greater control, but they demand more technical understanding. You also need to have your own non-custodial wallet and are more at risk of hacks and scams due to having to directly connect said wallets to platforms. One wrong click and your money can vanish faster than a South Park Bank deposit.
3. Know Your Risk Tolerance: Big vs. Low Cap Coins
As mentioned, there are a lot of crypto coins and tokens out in the wild. (FYI, coins are assets that operate on their own blockchain, whereas tokens operate on an existing network.) Indeed, it’s rumored that about 1200 new tokens launch every day, with over 90% of them being outright scams. We’re not here to scare anyone, but truth be told and whatnot.
Buying popular high-market cap coins and tokens, which is typically done through a centralized exchange, is considered a safer investment, especially for newbies, as they have large liquidity pools, making them less volatile with price action. However, due to investor saturation, it’s much harder to make a good profit unless a major event happens, such as XRP (Ripple) winning its drawn-out legal battle. And, even then, the risk of loss with major coins is a possibility. It’s stocks. It’s a chart.
Conversely, low-market tokens aren’t yet on centralized exchanges, so they need to be purchased through a DEX. Their communities usually exist on Telegram or Discord, and they typically have massive price action due to their smaller liquidity pools and market caps — making people large amounts of money very quickly. Of course, the counter to that is that many of them are scams, such as “pump and dumps” or “rug-pulls.”
These types of events happen all day, every day, most never being mentioned again (“That’s crypto, bro”). Sometimes, these events do make headlines, like with the Hawk Tuah fiasco. Who would have thought that a meme project built around a girl made famous for discussing sex acts would crash? Shocker. Oh yeah, dear newbie reader, a meme coin is a coin based only on sentiment, or a meme, versus a utility.
Ultimately, which cryptocurrencies you choose comes down to risk tolerance. However, if new, a good rule of thumb is to start with well-known coins like Bitcoin or Ethereum on a trusted CEX to get a feel for the market, then explore smaller-cap coins and DEX platforms as you get more comfortable.
4. Choose Your Wallet
Okay, so you’ve selected an exchange and decided what to invest in, but now you need somewhere to store all those precious tokens that — depending on how wisely you invested — could soon be a digital gold mine. The next step is to find a wallet to store your crypto securely.
Wallets have two keys. One key is public and acts as the address to send and receive funds, and one is private, allowing owner access. (The first address key can go wherever it likes, but the second key must never be shared). There are two main categories of wallets: hot wallets and cold wallets, which further break down into custodial and non-custodial options. Here’s how they work:
Hot Wallets
Hot wallets are connected to the big ol’ wide web, making them perfect for those who want to perform frequent transactions and prefer ease of access. Typically, these types of wallets are mobile applications or browser extensions that can hook up directly to DEXs (and other decentralized platforms). However, while being ever-connected to the internet makes them super convenient, hot wallets are far more vulnerable to hacking and fishing attacks.
For example, scammers often pretend to airdrop (“send”) valuable-looking tokens to a wallet to tempt users. If the wallet-holder is tempted by the promise of these airdropped tokens, the scammer can then “dust” wallet-holders clean of their assets via backdoor access. A rule of thumb with hot wallets: never connect to an app you don’t trust and never interact with a token you didn’t buy.
Cold Wallets
Cold wallets are essentially the opposite of hot wallets. They are offline storage solutions and typically include hardware devices or even paper wallets (yes, a literal printed piece of paper containing keys and QR codes used for crypto transactions). These types of wallets are typically favored by those who want to hold long-term, as they’re too impractical for the lightning-fast movement of day trading.
However, since they keep private keys completely disconnected from the internet, coin wallets are fairly immune to hacking threats. That said, they do require more effort to set up and need to be kept physically safe. If not, you could lose funds in an entirely different way. No one wants to be the guy who loses millions by misplacing their cold wallet.
Custodial Wallets
Custodial wallets are wallets that you don’t hold yourself but rather are held (along with private keys) for you by a third party. This is by far the most beginner-friendly option. It streamlines the process of storage and gives you recovery options if things go wrong. Again, though, this does mean placing your complete trust and funds in the hands of a platform. This is not usually a problem unless your exchange is owned by Sam Bankman-Fried. (Double-burn, we know, we just don’t like him).
Non-Custodial Wallets
Non-custodial wallets are completely yours to own and control. You have the keys (and a unique seed phrase for recovery) and, by extension, access to all your funds. On the one hand, this is great. It gives you full ownership of your assets, but on the other hand, you own all the potential pitfalls that can go with it. For example, if you lose your private key/seed phrase, you could be forever locked out of your wallet. Or, you could make a mistake and get hacked. (Crypto hacks do happen.) In short, with custodial wallets you’re protected, with non-custodial wallets, you’re on your own.
Choosing the right wallet for you largely comes down to personal preferences and how you want to use crypto. For those just getting into crypto and want to buy and hold some potentially high-value coins and tokens, a non-custodial wallet through a trusted exchange or a non-custodial cold wallet are both pretty good options. For those wanting to quickly buy and sell new tokens, a non-custodial wallet on a mobile device may be ideal.
5. Understand Fees, Taxes, and Slippage
Almost everything you do in crypto requires a fee. Some fees are completely reasonable, and some can be a reason to never get out of bed again. These fees are paid in the network’s native cryptocurrency and are used to compensate the validators who process and verify transactions. Depending on the network (and time of day) fees can be quite high, like on the popular Ethereum blockchain, which is slower than many others but always in high demand, resulting in bottlenecks, high costs, and slow traffic — like using an Uber on the I-5 during rush hour.
In addition to network fees, CEX platforms also charge fees, which is how they generate income. These can be pretty spicy, too, so it’s always worth comparing fees on different platforms.
Slippage and Token Tax
Slippage is less spoken about but still a critical factor that can significantly impact your trades if you use a non-custodial wallet. A lot of people get confused as to what it is, but in essence, slippage is the difference between the expected price of a token and the actual price paid when the transaction is executed. This is very important in whip-fast crypto markets, where prices can change in literal seconds, such as meme tokens in the DeFi subspace.
Essentially, the higher you set your slippage, the more likely you are to have your transaction processed first, meaning you get in at a better price. However, high slippage tolerance can also result in a “front run,” in which a bot sneaks in front of you, raises the price substantially, and leaves you with a bad deal.
Slippage is also a way that many deflationary tokens add in their own taxation. These fees may be collected for project marketing, team payments, and to cover other administrative costs. For example, a token with a 10% tax requires a slippage tolerance above 10% for the transaction to succeed. (If this isn’t accounted for, trades can actually fail but still charge fees, which can be very costly. Ethereum, we are looking at you, so always check the tax before setting slippage).
The First of Many Steps
The crypto world is a fascinating space, full of quirky characters and interesting opportunities, and there’s lots of money to be made for those who know what they are doing. However, those who go in blindly may be eaten alive, chewed up, and spat back out penniless. Overall, it’s crucial to learn how to navigate the crypto-verse properly and safely.
While you continue your due diligence to learn how it all works, we’ll continue to roll out more educational articles, giving you a ton of new steps, info, tips, and tricks to help you on your way to becoming a crypto expert.
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