It can be pretty complex for newcomers to invest into cryptocurrencies. There are a lot of possibilities to do so and a large selection of different providers. The simplest way is most likely the most expensive and least profitable. So how to invest without getting ripped off?
First of all let me make something clear: the past has shown that investment in mining shares are not even nearly as profitable as an investment in a cryptocurrency itself and will most likely never be - special caution when dealing with MLM (multi level marketing) mining pools, which often turn out to be a ponzi scheme. So I won’t cover the topic of mining in this post.
Here are some facts that every potential investor in cryptocurrencies has to know:
The buyer really owns the coins or tokens only, if he is the sole person that has the private key to his crypto portemonnaie (wallet).
The private key is a secret key that only the owner (and his wallet software) know. This key is needed to transfer cryptocurrencies from one address to another. The account on trading platforms (exchanges) seems to hold a certain amount of coins, but the underlying wallets are handled by the owners of the exchange - they own the private key. The user only gets login information, that grants access to the wallets functions (send/deposit). If there is a sudden problem with an exchange, the stored assets might be forever lost, if the private key is unknown. So it is recommended to never keep coins on an exchange for a long period of time.
There are types of exchanges that handle investments differently
Most providers run a trading platform with the rights to deposit, withdraw, buy and sell cryptocurrencies. You can move your coins (up to certain limits) as much as you want, also off the exchange to an own wallet. And there are platforms that let you invest in the value development of cryptocurrencies, but you never really have any control over real coins, but are buying so called CFDs (contracts for difference). This means, that instead of buying an actual asset, you are giving a broker money to invest in the value of an asset. A well-known example for a platform of this kind is the online market etoro, which practices a lot of social media marketing - be careful!
Profits from cryptocurrencies are taxable
It is no legal limbo as some might think, many countries, including Austria, have clear regulations. More information on correct taxing can be found here.
Some more general tips and information about risks when trading cryptocurrencies here.
“Alright, thanks for the input - but how do I invest now?"
The following part is personal opinion, based on long term experience, which can of course differ with the approach of other people. It is no perfect guideline but should provide a general information for beginners.
The first step to trade Euro for cryptocurrencies is the trade from Euro to Bitcoins (BTC), as Bitcoin is the base currency for many exchanges. Ethereum (ETH) markets are also a popular alternative, but might offer less trading pairs.
Ways to buy Bitcoin with Euro:
You put cash into an ATM (www.coinatmradar.com) and get a certain amount of bitcoin (depending on market price) sent to your wallet. Alternatively you can buy Bitcoin-Bons (www.bitcoinbon.at) that serve the same purpose at Austrian post offices, tobacconists or gas stations.
Pros: Fast & anonymous (no registration needed)
Cons: Very high fees (~5-10 %), currently little selling points/ATMs
You register on a website, send money via bank transfer or credit card to your Euro-Wallet on the site and change it there for Bitcoin.
Pros: Accessible everywhere, minor fees (0.1-3%)
Cons: Requires (depending on amount) personal data and identification documents, transfer can take up to three days
Because of the very high fees when buying at an ATM or buying a bon, an exchange is most likely the better choice to get started, as long as anonymity is not a necessity for you.
The payout from Bitcoin back to Euro also works on these exchanges, if you are using ATMs you have to pay attention that there are some machines that only work in one direction.
Popular exchanges for trading Euro to cryptocurrencies:
Coinbase aka GDAX
GDAX (0.1%-0.25%) and Coinbase (1.49%) are very well established in the european region and are using the same platform, but Coinbase offers a more user-friendly interface - in exchange for higher fees. The same account can be used on both platforms. A stable exchange with high market volume.
Available cryptocurrencies: BTC, ETH, LTC
Austrian provider for Bitcoin and Ethereum. When paying via SEPA-Transfer a fee of 1% will be charged. Coinfinity also offers Bitcoin securities and consulting services for investments.
Available cryptocurrencies: BTC, ETH
Also an Austrian provider with a fee of 2% when buying. Higher market price than most other exchanges.
Available cryptocurrencies: BTC, ETH, DASH, LTC
So far so good, Bitcoins are bought. But there are other coins or tokens that are interesting and not offered on these exchanges? A lot of big exchanges offer no option to trade with Euro (yet), so it is necessary to create an additional account on another platform and send the just bought Bitcoins (or Ether) there to use as base currency. To do this you have to withdraw the assets from e.g. GDAX to the new address (Withdraw funds to BTC Address).
The destination address has to be the same currency wallet on the new exchange. So let’s take a look at two of the most popular exchanges in europe with a big selection of currencies:
Stable platform with sufficient trading volume, offers ~200 currencies.
Very similar to Bittrex with higher volume but some technical problems in the past. Offers ~65 currencies.
Of course there are a lot of other exchanges that can be used. Which exchanges offer a certain coin can be seen on Coinmarketcap.
To get/generate your wallet address for the respective cryptocurrency on e.g. Bittrex, you click on the plus symbol (deposit) of the currency in the wallet overview. You can send the bought Bitcoins to this address.
CAUTION: A transaction on a blockchain is irreversible, so better work with copy&paste and check the address twice. Also be sure to only send the correct currency to the address. If you for example send Ethereum (ETH) to a Bitcoin wallet address, the funds might be forever lost.
As soon as the Bitcoins arrive on the new platform, you can trade them for other currencies as you wish. If you are planning a long-term investment, it is recommended to move the coins away from the exchange and to a hardware wallet or a paper wallet to gain control over the private key.
Alright, you should now be ready to invest or even actively trade.
Finally one last important input:
It is essential and regularly pointed out by legal experts that a exact documentation of all trading activities is a must-have. (Accidental) financial fraud is retroactive for up to 10 years and punished with high penalties. When suspected you can be forced to provide a complete documentation.
Luckily there are tools, that automate this documentation and offer additional features like guidelines for cryptocurrency tax. What comes first to my mind is www.blockpit.io ;)
Good luck on the cryptocurrency market!