A Quick Crypto Trading Primer: A Guide for the Rest of Us
None of us were born a prodigy. But, we all need a little handholding when it comes to exploring new things, technologies, and domains. If you’ve been drooling over that new Tesla, your neighbor bought with the money he made trading cryptocurrencies, now is your chance to brush up on both the technologies and the mechanics involved in cryptocurrencies. Now, don’t expect to learn how to build a crypto exchange just yet, but we’ll sure take you a long way towards the basics of crypto trading.
It is critical to decide before you begin to trade cryptocurrencies how you will store them. However, you will need a virtual storage place. In crypto lingo, that place is called a wallet. Basically, a wallet is a piece of software that lets you store your crypto assets easily enough to conduct transactions with them. It is also easier to check your balance whenever you need to with a wallet.
To clarify the concept further, it is essential to state that Ethereum, BTC, or any other wallets have nothing in common with conventional physical wallets. The wallet we are mentioning here does not store cryptocurrencies or, let us say, crypto assets are not held anywhere else, for that matter. BTC or Ether, just like every other cryptocurrency, does not exist in any tangible form. What you are storing are records on the Blockchain. The function that your wallet serves is only to interact with the Blockchain to enable buy or sale transactions.
All wallets have public addresses, a randomly generated alphanumeric string of case-sensitive letters and numbers. In order to send you some Ether, they will send it to this address (your public key), basically transferring the coins.
Whether online or offline, wallets only store your ‘private key,’ a kind of password that authorizes you or someone else to sign off on transactions and unlock coins you own. Sufficient to say, if you hope to own that Tesla, instead of drooling over it, that you keep those private keys to avoid theft of your crypto assets.
In reality, the pair of public and private keys are set up so that, for you to perform any transaction, the two keys or string of alphanumeric digits should match. The public key is revealed to everyone and is used to get money from someone, and the private key is used to authenticate transactions.
How to choose a wallet
Now we are up to the fun bits, namely, how to use blockchain wallet? Third-party wallets are the most accessible place to store crypto assets. It could be in a wallet provided by the exchange you trade at. Sure, this way, you will have easy access to your crypto assets, and keeping your cryptocurrency on the exchange is bound to speed up the trading. But, this easy method could be risky as well because you are giving the exchange complete control over your crypto assets because that exchange will have complete control over your private keys. Many exchanges are ensured now, but instances of exchanges being hacked aren’t uncommon.
The process is pretty intuitive and as easy as 1, 2, 3.
- Download a third-party wallet like Metamask, Coinbase, or any other.
- Create an account. Make sure to write down your private key.
- Purchase and transfer crypto assets to your wallet using the public key.
The directions for how to set up ethereum wallet are essentially the same. A third-party, non-custodial wallet is your best choice since it allows you, and only you, control over the private key and your funds.
Hot or Cold Wallet
Do you remember that bit about exchanges being hacked and funds being stolen? Well, that can happen to your third-party wallet as well. The best way to secure against that is to use a cold wallet. A cold wallet is a hardware device that looks much like a USB thumb drive. But, it stores your private keys offline for you. Most cold wallets can interact with popular exchanges when you want to trade.
In conclusion, you should take into account the risks associated with exchanges and wallets privacy, so examine your options carefully.