So you’ve heard a lot about mysterious world of cryptocurrency, where ordinary people become millionaires, millionaires become billionaires, and so on. But you don’t know how to start your investment in crypto — and navigation in the ocean of information may be quite a tough experience for a cryptobeginner. To ease your way into the world of crypto, we’ve created this guide where you can find answers to all questions you have.

Types of cryptocurrency

Cryptocurrency is the most common name for blockchain-based money, but it can also be called digital money, digital coins or virtual money. There is a king of all cryptocurrencies — Bitcoin, that was the first and remains the main digital coin. Bitcoin was invented in 2009 by a person or group of people calling themselves Satoshi Nakamoto, whose identity was never revealed.

Bitcoin can be produced by computers, that contribute their computing power by solving difficult mathematical tasks and get coins in reward — this process is called mining. Coins exist only as a record on blockchain — breakthrough technology, which is basically a digital ledger, where information is stored collectively by all users’ computers. It can’t get hacked, as system won’t verify transaction that is not in a consensus with other participants. The system is decentralized and doesn’t require users to trust each other — it will reject any attempt of fraud.

Since the Bitcoin’s success many alternative coins (altcoins) were launched — they also use blockchain, but differ in speed of transaction verification, block size or transaction fee. Bitcoin strengthened its positions with around 1,800% price increase in 2017, but is followed up by many promising altcoins, most popular of which are Ethereum, Ripple, Litecoin and Cardano.

Where you can spend cryptocurrencies

Most people think that you can’t really spend Bitcoin outside of some specialized venues. That’s not a problem anymore — thousands of businesses all over the world accept Bitcoin. The most prominent are Microsoft, PayPal, Subway, Shopify and Virgin Galactic. You can read the full list here.

And if you want to spend your coins somewhere that does not accept them, you can get a special card for cryptocurrencies. It’s like any other debit card but instead of USD you load it with cryptocurrency of your choice. When used, the card will automatically convert your crypto into a fiat currency.

Choosing a wallet

Cryptocurrency wallet is an app, software or device that allows you to send, receive and store your cryptofunds. There are few types of them:

offline wallets (Bitcoin Core, Exodus) — secure wallets, but they require a lot of computer power and memory, as download of blockchain is required (Bitcoin Core, for example, requires bandwidth and memory not less than 150 GB);

online wallets (Blockchain, Bonpay) — fast and convenient with user-friendly interface, but should be chosen carefully as they can be hacked if insufficient level of security is provided — learn how service stores clients’ funds before usage;

hardware wallets (Trezor or Ledger) — protected devices where coins are stored; the main task is not to forget a PIN to this wallet, as Mark Frauenfelder did, and spent few terrible months trying to remember necessary digits. Another problem is pretty cumbersome user experience, as you have to use inconvenient web interface where you operate your coins plus you can use it only with computer;

app wallets (MyCelium, Breadwallet) — mobile apps, where you can manage your funds; convenient, time-saving, easy to handle, but they have low security level. Also if phone is stolen, cryptofunds can be transferred from the wallet before owner manage to block it.

Most people prefer online wallets — not only the service takes all responsibility for keeping the history of transactions and the user doesn’t have to download blockchain records on their computer, but it’s also user-friendly and easy to manage. You can have your cryptowallet set up in just a couple of minutes. But such wallets must be chosen with scrutiny, as there were incidents of hacking and losing clients’ funds.

Online wallets don’t really store your coins, but they give you simple and convenient access to them by keeping public and private keys of your cryptofunds. Public key is the address that other people use to send you funds, while private key is sequence of letters and digits, that gives you access to your coins. Public key can be compared to your physical e-mail address, that other people use to send you letters, while private one is the key you use to open mailbox. You shouldn’t worry that wallet service knows your private key — it’s the same when e-mail service you use knows both your e-mail address and password and give you access only if those two factors match. Online wallets use your private key only to make sure that you are the owner of the wallet.

You must pay attention to the security level that is provided by wallet. Service must keep clients’ funds in cold wallet — repository, not connected to the Internet. Make a little research about company that stays behind the wallet, its team, history, read the reviews.

User experience is one more important factor when choosing a wallet — simplicity and convenience of service interface affect your work with the wallet a lot.

How to store your cryptocurrency safely

There are few practical rules you have to follow if you want to keep your cryptofunds safe:

Always create backup of your private key. You can keep copy of private key on a USB flash drive — but be careful, as there are enough stories, when bitcoins were lost because of children, who had thrown such USB, and dogs who had eaten it. One more way is to print out the key (in form of digits or QR code) and keep it in a safe place (be aware of little humans and animals as well). Winklevoss twins, famous crypto billionaires, use this method — but they chose more complex way, cutting up key printouts in a few parts and keeping it in separate bank vaults.

Usually private keys can be recovered using 12 or 24-word phrase. Make backup of that phrase as well.

Create an e-mail that will be used only for this wallet. Only for THIS WALLET.

Use two-factor authentication everywhere it is possible. You just need to get an app, that will generate passwords for your accounts and create one more layer of protection.

Pay attention to what exchanges you are using — choose reputable and secure ones to avoid bad experience.

Update your software regularly, always get the latest version of wallet you use.

Difference between coins and tokens

Cryptocurrency is an overall name for both coins and tokens, that has caused misuse of those two terms by many people.

Cryptocurrency, as we explained before, is Bitcoin and altcoins, which distinguishing feature is that they are based on Blockchain and their only function is to be used as digital version of money — buy things, sell things, and nothing more. Tokens are also digital units, but, first, they are based not on the original protocol of Blockchain, but are created using special platforms like Ethereum or Waves, secondly, while they can be used as payment method in the ecosystem of the project where they were issued, they also have use case — they can give access to project’s functional, represent company’s share etc.

You can’t use tokens as money — they are not accepted anywhere but in the project’s functional. So if you intend to make an investment, that you plan to actually use in the future buying things — you should buy cryptocurrency, if you are a user of some project and want to become its token holder, or you want to gain profit on trading tokens — then welcome, buy tokens. Difference between coins and tokens is huge, and you must know what is best for you to buy.

How to convert your cryptocurrency into fiat money

Fiat money is a currency issued by the government. While crypto enthusiasts believe that digital coins will replace traditional money in the future, most people still trust fiat and prefer to use it. There are few ways to cash out your crypto:

Use cryptocurrency exchanges (Coinbase, GDAX). Choose exchange by the same parameters as wallet — check it for security, read reviews. History of cryptocurrency knows few enormous crashes of such exchanges (Mt.Gox — $460 mln of clients’ funds lost) and a bunch of average crashes. Services that create P2P marketplace, where people who want to buy or sell crypto can connect. Buyer and seller, who have found each other, decide themselves how to perform the transaction of crypto — personal meeting, where they exchange digital money and cash, Western Union or any other methods. We advise you to be careful, if you use such services. There were incidents when thieves bought bitcoins, sending money using credit card, and then just canceled the transaction, getting both the money and bitcoins. What is even worse, some sellers were robbed, when they came to the personal meeting with the buyer: they were forced to send Bitcoins. Use cards for cryptocurrency that were mentioned before. You can use them for payment directly, or cash out at ATM. Cards are currently unavailable in the EU region due to the card provider suspension, but Bonpay, for example, is on the final stage of negotiations with new card provider and will issue cards during next few months.

What to be prepared for when entering cryptomarket

Cryptocurrency is something world has never witnessed before, so you must be psychologically prepared to the most unexpected turnouts of events. One of the key features of yet unstable market is high volatility (amount of price change) — you can wake up in the morning, check the prices of coins and see numbers that differ completely from those you saw yesterday. It works both ways — as well as crypto can rapidly fall, it can rise just in few days. In February 2014 as a result of crash of the biggest (at that time) bitcoin exchange Mt.Gox bitcoin price fell from $837 to $439 — by half in the same month. That same bitcoin went from $10,000 to $19,000 just in two weeks in December 2017 due to increase of interest in cryptocurrency. Such rapid changes are, of course, stressful, but at the same time they give opportunity to make quick and big profit.

Before entering the cryptomarket it’s great to read some books just to understand why initially crypto was created, what are the main figures of cryptoworld and how this system works. One of the best books to start with is “Digital Gold” by Nathaniel Popper — easy to read, exciting story about how and why this all began almost ten years ago and who are people who were at the forefront of Bitcoin. Best to make you interested in virtual money and get basic knowledge of the sphere.

Cryptocurrency prices are influenced greatly by media speculations — news about regulation, exchange crash, some bank CEO quote about Bitcoin affect cryptomarket. So you can witness the price dump after, for example, rumours about South Korea banning crypto, and then price go up when government denies such accusations. In fast-changing world of crypto you always have to stay tuned. Analyzing and having your own opinion is the key — don’t trust even experts who predict rise or fall of cryptomarket. All people make mistakes, and so do they. You will dive into exciting world — often ideas are born first in cryptomarket, and only then they spread to the rest of the world.

There are few tools that will help you to keep up with the cryptosphere — news outlets (Cointelegraph, CoinDesk), apps for you cryptofunds management (Blockfolio) or checking rates (CoinCap).

Cryptocurrency is not only about money — it’s about technology, sociology, business, innovations. Blockchain is a breakthrough technology perspectives of which are yet to be discovered. It opens possibilities for building completely new world, where freedom, privacy and protection of human rights are basic principles of life. Investing in crypto is a wise step toward future.

Bonpay is the best and safest service to start your cryptoinvestment. The highest level of security and simple interface make management of your funds incredibly convenient, while spending crypto becomes as easy as spending fiat money with Bonpay card. Don’t lose time and pre-order card right now!