If you’re new to the cryptocurrency sector, or thinking about getting into it, it can be difficult to decide where to begin. Getting into cryptocurrencies and blockchain technology is no easier than getting involved in traditional finance, but the reality is that with both, knowledge is always key. Doing your due diligence whether looking to get involved with stocks, crypto, or a new business partner is the same process and something you should always be doing.
That’s just the first step in getting involved with crypto however, and like with traditional finance there are levels to which you can take your involvement. In this guide, we’ll discuss the best ways to get into crypto, from a base knowledge standpoint, all the way to providing liquidity on decentralized finance (DeFi) platforms. Let’s jump in.
Grow Your Knowledge Base
Much like getting into anything new, one of the best things you can do when getting into cryptocurrencies and blockchain is to grow your knowledge base. This can be done in a few ways, the simplest being by reading articles like this one and across this site. You can also join forums or Discord servers to ask questions to developers or other users, though avoid accepting direct help through platforms such as those as that is often a scam.
Depending on the asset, one of the best things you can do for yourself is to read the project’s whitepaper. This is a document containing everything you need to know about a project including how the technology functions, how the crypto asset is used within those functions, token distribution, emissions, and much more. Though it can be a bit dense to read, a project’s whitepaper is one of the best ways to research and get involved with digital assets.
Sign Up For an Exchange
Once you’ve figured out the asset(s) you’re interested in, you can then look for a cryptocurrency exchange that offers it. Ideally, the exchange also accepts your local currency. Though you don’t have to sign up for a cryptocurrency exchange, and you can certainly buy crypto without using one, it will give you less involved ways to do other things that come later in this guide.
Depending on the platform, they may also have a way for you to practice making trades without using any actual funds, which is beneficial if you’ve never bought or sold digital assets using an exchange before. The exchange also provides you with a wallet for any of your assets, giving you a way to send or receive funds. Many also offer staking services on your behalf as well (more on staking later), allowing you to do it with less technical knowhow. Platforms like Coinbase, Kraken, Binance, and many more offer staking services.
It’s always important to remember though, that when your funds are on an exchange, they are certainly more at risk then when you custody them in your own wallet, which brings us to your next step.
Try Out Software and Apps (Wallets, DeFi)
Crypto Wallets
After you’ve familiarized yourself with the digital assets and blockchains that you’re interested in, you can start to dip your toes into their ecosystems. If you also signed up for a crypto exchange this step can be easier as well. Depending on the asset you’re interested in, there will be a specific cryptocurrency wallet you can use to store it, or you can likely find a wallet that can store crypto assets from a variety of blockchains.
For example, you can use a MetaMask wallet across Ethereum, Binance Smart Chain, Avalanche, Fantom, and even more blockchain networks. In contrast, Electrum Wallet is designed exclusively for Bitcoin.
You can set up one of these wallets without owning any of the assets they can hold, and this is a good step so that you can learn about how wallets are set up and how you recover yours in case you lose your device. Additionally, by learning about how wallets are set up you can help yourself avoid getting scammed, as you’ll know how important it is to keep your recovery phrase to yourself.
DeFi and Other Apps
After you have a wallet set up for the blockchain ecosystem, you can then connect to any relevant DeFi platforms or apps you’re interested in. You don’t need to own any of the relevant assets to connect your wallet to the platform either, so it’s doubly useful to set up a wallet and connect to a DeFi app like Uniswap just to see how the process works.
You can also check out lending platforms like AAVE or any other app you’re interested in. By looking at these platforms before you use them, you can decide which one might be best for yourself and the level of involvement you want to have with your crypto assets.
Start Staking or Send Small Transactions
Before you can do any of the things in this section, you’ll need to make a cryptocurrency purchase, which of course means you’re getting more involved than you would be by just setting up a wallet, researching, or signing up for an exchange. However, you certainly don’t need to buy a lot of any digital asset in order to do any of the things mentioned in this section, or the following section on providing liquidity.
Staking
As mentioned earlier, staking can often be done through a crypto exchange, which is why we’re going to talk about it before sending transactions. Staking is the process of taking your crypto assets and using them to help secure and validate transactions on a blockchain network. This can be done directly by you to the relevant blockchain network, or through a service provider such as a centralized exchange. When you do it through an exchange, there is often some sort of commission, but that is the case when doing it yourself as well. You can pick a provider with a lower commission when you do it yourself though.
The nice thing about staking is that you don’t really have to do anything once it’s set up, certainly when through an exchange. You simply let the rewards come in. Most assets have a low minimum barrier to entry for staking, especially through a crypto exchange.
Sending Small Transactions
Now in order to stake externally from a crypto exchange, you’ll need to send the crypto you bought there to your own wallet that you already (hopefully) set up when you were learning about the blockchain network you want to invest in. This means you’ll be sending your first crypto transaction.
It’s certainly recommended that you send a small test amount before sending a large one just to give yourself peace of mind that you’re doing the process correctly. However, if you only bought a small amount to play with it might just be better to send it all to avoid multiple fees.
Once you’ve sent crypto assets to an external wallet you can then do things like make trades on decentralized exchanges, or get even more involved by providing liquidity.
Provide Liquidity
Decentralized exchanges and other DeFi platforms are user-funded and allow you to swap supported cryptocurrencies. But the platform’s liquidity is actually provided by its users, rather than a centralized authority like with Coinbase or Binance. Within DeFi, the ones collecting trading fees and/or commissions are the users rather than the central authority. Depending on the platform and the position of the user (liquidity provided), it can be extremely worthwhile.
Providing liquidity could be providing either a pair of assets in equivalent dollar amounts to a decentralized exchange like Uniswap, or providing a single asset to a decentralized lending platform such as AAVE.
By providing liquidity in a pair to a DEX such as Uniswap, you earn a prorated share of the trading fees earned by the pool which you deposit into. For example, you can provide liquidity to the ETH-WBTC pair on Uniswap, and you’ll then earn both ETH and WBTC in trading fees as trades are made by other users. Of course, the more liquidity you provide, the higher the share of the fees you’ll receive.
Single asset liquidity has much lower rates of return than dual, as there needs to be significant borrowing of that one asset, however stablecoins often fall into this category.
Providing liquidity is about as involved as you can get in crypto, as your assets are then at risk. This can be due to the potential for protocol hacks (unlikely), but more likely the potential for impermanent loss, which is when the dollar values of your assets shift to a point that you have less of one than you started with and more of the other. This can be offset by your returns.
Closing Thoughts
Though it can be overwhelming to look at the cryptocurrency sector and see that there are millions of assets, it doesn’t have to be. By doing research and testing the waters, you can make yourself comfortable with an ecosystem before diving in deeper and doing things like staking and providing liquidity. In the end, it will be of great benefit to learn about how all this technology works as it becomes more mainstream.
