How to buy, hold, and sell crypto 

Keeping your crypto safe

crypto investing 101

"Holding" a cryptocurrency

Technically, all cryptocurrencies exist as a record on the blockchain, so nobody actually "holds" any.

Think of it like your bank account. Your money doesn't actually exist as stacks of cash sitting in a vault; It merely exists an electronic entry in the bank's computer systems. Similarly, all cryptocurrencies exist only in their blockchain records.

When you receive 1 bitcoin for example, what actually happens is that a record is made on the blockchain that 1 bitcoin is transferred from someone's account on the blockchain to your account on the blockchain. That's it. It's just an electronic record.

When your token transactions are recorded on the blockchain, you are participating in the decentralized finance (DeFi) ecosystem.

To get started with DeFi however, you'll first have to convert cash into cryptocurrency... and the easiest way to do this is via a centralized exchange.

Centralized exchange (CEX)

A CEX is a bridge between traditional finance (TradFi) and the decentralized finance (DeFi) ecosystem.

The thing to remember about using a CEX is that your personal transactions do not get recorded on the blockchain.

Here's how it works:

When you register at a centralized exchange, an exchange account (separate from a blockchain account) is created - in your name - on a CEX computer server. Let's call it a 'CEX account'.

When you buy 1 bitcoin on the CEX, your CEX account is credited with "1 bitcoin". This transaction record exists only within the CEX computer system and not on the Bitcoin blockchain.

So only the CEX recognizes your bitcoin purchase. As far as the blockchain is concerned, you've purchased nothing.

This means that:

  • The CEX computer system is a single point of failure. If something goes wrong there, you could lose the crypto held in your CEX account.
  • The human operators of the CEX can mishandle your assets or restrict access to your CEX account.

This isn't to say that CEXs are always a bad thing. There are some benefits to using them:

  • CEXs are the easiest way to convert fiat currency into crypto (and vice versa)
  • You can buy/sell crypto quickly with low fees and low slippage
  • The CEX computer system is likely more secure than your own
  • It's easier (less hassle) to store your cryptocurrency at a CEX than anywhere else

Thus, if you're transacting a small amount of crypto and are willing to trust the exchange, it may not be a bad idea to hold some crypto there.

But if you're holding a relatively large amount, I'd suggest keeping your crypto in a self-custody wallet (covered later) and transacting on a decentralized exchange.

Buying and selling cryptocurrency

If you're especially concerned about privacy, the best way to transact is peer-to-peer. Look for buyers/sellers on internet forums and message groups, then meet in person (with a laptop) to make the transaction. This way, no one else can link your transactions/account to your person.

For most people however, buying/selling through an exchange is good enough.

Centralized exchange (CEX)

For more convenience but less privacy, you can buy cryptocurrency off CEXs like Binance and Coinbase.

Centralized exchanges offer less privacy because you are required to verify your identify, which means they (and the government) will know the details of your crypto transactions.

Decentralized exchange (DEX)

If you don't wish to buy/sell on a centralized exchange, you may want to do so on a decentralized exchange.

When transacting on a DEX, you have custody of your crypto at all times (a DEX never holds your crypto).

Also, unlike a CEX, all transactions on a DEX are recorded on the blockchain.

The problem with DEXs is that they do not offer fiat currency transactions; They offer crypto transactions only.

To first get started in crypto, therefore, you'll have to covert some fiat currency into crypto via a CEX. After doing this, you can then withdraw the crypto into a self-custody wallet and continue transacting on a DEX.

Here's a list of the major DEXs on the most popular blockchains:

Quick tutorial on how to buy/sell crypto (i.e. swap tokens) on a DEX:

Crypto wallets

If you want to take your crypto off a CEX and participate in the DeFi ecosystem, you'll need a crypto wallet.

There are 3 main types - each with their pros and cons - which are explained in this video. I suggest re-watching this a few times to familiarize yourself with them.

Regardless of the type of wallet you use, never reveal your private key or security/ recovery/seed phrase to anyone. Doing so is tantamount to giving them your crypto assets.

And remember: Once your crypto is transferred off the exchange, you are fully responsible for them.

Though it costs a little and is slightly less convenient, I recommend using a hardware wallet; It's the best option for serious crypto investors and enthusiasts. The two most popular hardware wallets are Ledger and Trezor.

If you're going to use a hot wallet, make sure your computer system/mobile phone is not compromised by viruses, malware or keyloggers. A popular hot wallet is MetaMask.

Keeping your crypto secure

If you're storing crypto in a personal (hot/hardware) wallet, pay extra attention to security. If you aren't careful, you can have everything in your wallet stolen from you; This has happened to many people who got scammed/hacked.

Here are some security best practices that will help keep your crypto safe.

1. Use new passwords

Many people use the same password for all their online accounts. This is very bad practice because if one online account is compromised (which is common), all other accounts are immediately compromised as well. For best results, use a random minimum 11-character password with uppercase and lowercase characters, numerics and special characters.

2. Use a password manager

If you use multiple websites/applications, I recommend having 1Password or LastPass to manage and auto-fill your login credentials. These are also great for generating strong passwords. All you need to do is remember a single master password and the password manager will do the rest.

3. Use 2-factor authentication (2FA)

2FA is one of the strongest security measures, so use it for every website/service you can. I recommend using Google Authenticator.
2FA via SMS is less secure so I don't recommend it.

4. When carrying out crypto transactions, use a separate browser with no extensions 

Browser extensions are a big source of vulnerability; They can be illicitly programmed to copy your private/seed key - which must always be kept secret - and transmit it to unauthorized persons.

To prevent this from happening, use a separate browser with no extensions when carrying out crypto transactions.

Alternatively, use a separate profile on your existing browser. Here's how to set up a separate profile in Google Chrome.

5. Avoid clicking on ads

There are many scam advertisments that mimic legitmate applications and services. For example, see this fake Google ad for MyEtherWallet:

myetherwallet fake ad

Notice how the domain for the ad is different from the real one. Bottom line: Don't click on ads. Just go directly to the website/application you wish to access.

6. Practice good online habits

The usual applies here. Don't open applications from people you don't know, and don't click links sent by strangers. Anyone who gains access to your computer can easily gain access to your crypto wallet.

7. Use a hardware wallet

With a hardware wallet, you greatly reduce the possibility of unauthorized access to your crypto. As mentioned earlier, the two most popular hardware wallets are Ledger and Trezor.