How to Invest in Crypto

Just about Financial Independence and Retire Early

How to Invest in Crypto

Being a tech guy, it is also important for me to invest in crypto currencies. This might be the future, but this might also not be the case…

First of all you should know that crypto currencies are very volatile at the moment. For this reasons I only invest about 1% into crypto currencies.

Here is the chart of the past week.

Bitcoin – US-Dollar chart of the past week.

Blockchain/Crypto 101

If you are not interested in the technical background on block chains and crypto currencies, you can skip to the next section.

Let me first recap how today’s standard bank transfer works. The payer and the payee both have to have an active (valid) bank account. The balance of the bank account of the payer contains at least the amount that they want to transfer. (Of course there are some exceptions, but let’s keep it simple.) So the banks keep track of the money and the customers can give instructions to the bank. (For example, getting the balance, transfer money, et cetera.)

For crypto currencies, the so called ledger comes into play. But firstly, imagine we were living about 500 years ago. That means no internet and very slow ways of communication. If you would like to buy some land from your friend, then this should be recorded somewhere publicly, so that in case of an argument you would still be the rightful owner of this piece of land. For this you would go to the local land register which lists the current owners of each piece of land. The entries in the register are changes in ownership, so that you can always look up the current owner. If you would buy the land from your friend, you could go through the register’s history to verify that he/she is the rightful owner, so that you are not giving your money to an imposter. To complete the sale your friend must insert a new entry into the register containing the information of the new owner (you) and then sign it. Depending on the number of entries in the register, this is a weary progress.

This is basically also how cryptos work. So instead of land, the ledger now contains your account balance. Back 500 years ago you signed the documents with your name, which of course is vulnerable to signature forgery. Today, it is a bit easier because you are not signing with your true name. Instead you use a digital signature, that is widely used in today’s www. It consists of a private and a public key. The public key also serves as your bank account number. These signing methods are omnipresent, check for example the https in your browser (the padlock symbol.)

Crypto Exchange

I use Coinbase and Kraken The word is that Coinbase is much easier to use. While this is true imho, I must say that Kraken isn’t that much harder to use. The website has more options, so that it might not be intrinsic at first. All important functions can be found on the dashboard though. The sign-up progress is straightforward for both.

If you live in Europe or have the option to transfer money via SEPA, then the fees are very low. The good thing about Kraken is, that you can also deposit money in CHF. Generally, when buying crypto, the fees are higher at Coinbase compared to Kraken. On the other hand, transferring crypto to other accounts (see below) is more expensive at Kraken.

The cool thing about coinbase is also that you can earn money by learning. They offer some courses on crypto basics, and you are being awarded with crypto cash after completion. You also get $10 worth of Bitcoin if you sign up using this link, provided that you spend $100 or more in one transaction in the first three months.

Once you got all that money you can start dollar cost averaging by buying crypto currency monthly/biweekly/weekly for a certain amount.

Putting it into the safe

Wait, how does that work? Isn’t crypto currency something virtual. It is, but you can have wallets, in which you can keep them. Remember that after buying crypto at the exchange, it is still stored at the exchange. There are ways to store your digital assets more securely. So in case that you are not planning to sell the cryptos anytime soon, you have the following options.

I transfer part of my cryptos to block.fi, where I get up to 8.6% in interests. This sounds like a good savings account. The interest rates depend on the currency. You can check out the annual percentage yields via this link. If you transfer more than $100 worth of crypto you get another $10 worth of BTC.

Another way to store the cryptos are so called cold wallets, for example from Ledger. This is just a piece of hardware, which takes the role of a wallet. You can connect it to your phone for transactions, but as long as it is not connected, nobody can touch your cash on the device.

Now you are all set to buy your crypto. Which is it going to be? Bitcoin? Ethereum? Litecoin? USDC? Let me know in the comments below.

 

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  1. […] some of you may know, I buy crypto on Coinbase (at least some of it.) In case you have not noticed, Coinbase had its initial public offering about […]

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