Welcome to my free cryptocurrency educational series. Each part builds on the previous ones, so I suggest starting at the beginning and moving through part by part:
Cryptocurrency 101 series (core principles, social justice, blockchain tech, Bitcoin):
- Part 0 Overview of my series, who this is for, why you might consider listening to me, and how easy it is to think you understand crypto when you actually don’t.
- Part 1 Why should I care? What’s in it for me? Why is crypto important (it’s about a lot more than just making money!)?
- Part 2 How crypto actually works, why Bitcoin is valuable (even if it’s just “made up!”), and what you should know about blockchains (the tech behind them and how they could influence the future of our world)
- Part 3 How the blockchain keeps running, where new Bitcoins come from (i.e., how mining works), and concerns about Bitcoin’s environmental impact
- Part 4 How crypto offers autonomy, why it can’t be stopped, and the value of decentralization
- Part 5 How to store and use cryptocurrency, some basic cryptography, how wallets work, identity management, and the future of democracy
- Part 6 Overview of the different types of wallets, which one is best for you, what to be careful of, and why a hardware wallet might be worth the investment
Cryptocurrency 201 series (intermediate principles, Ethereum, NFT’s, DAO’s):
- Part 7 Ethereum (the #2 most popular cryptocurrency, and the one I’m most excited about), smart contracts, dapps, gas (and the high gas fee problem), Proof of Stake (PoS), and Ethereum 2.0
- Part 8 Coins vs. tokens, and some real Ethereum use cases—oracles and DEX’s
- Part 9 Intro to NFT’s (collectibles, research funding & historical significance, and music)
- Part 10 More categories of NFT’s (art, video games, virtual reality)
- Part 11 Wrapping up NFT’s (what you can actually do with them, upsides, downsides, risks)
- Part 12 DAO’s (organizations managed by algorithms, governance tokens, collective ownership, and the “network state”)
Cryptocurrency 301 series (advanced principles, DeFi, reinventing the finance world):
- Part 13 DeFi & CeFi, reinventing banking with peer-to-peer finance, stablecoins, and borrowing & lending
- Part 14 More DeFi (how Uniswap works, plus insurance, payments, derivatives, blockchains, exchanges, liquidity staking, and impermanent loss)
- Part 15 Wrapping up DeFi (why liquidity is important, LP tokens, yield farming, calculating return, yield aggregators, and major risks)
Cryptocurrency 401 series (investing, making money in crypto):
- Part 16 Intro to investing (what could go wrong, where you might fit in, and what kind of investing could be right for you)
- Part 17 Preparing to invest (how much money to put in, how to split it up to mitigate risk, setting up your wallets, buying the coins & tokens you want, and dealing with different blockchains)
- Part 18 More preparing to invest (security, understanding what price targets are realistic, and using “expected return” to choose between opportunities)
- Part 19 Specific investing options (buying and holding, index tokens, leveraged tokens, my list of coins and tokens, mining & staking, and lending)
- Part 20 Higher-risk, higher-reward opportunities (liquidity staking & yield farming, NFT’s, OlympusDAO, and Tomb Finance)
- Part 21 The single investment that’s made me the most money: StrongBlock
- Part 22 Wrapping up my seven categories of investment (including an update on StrongBlock)
- Part 23 How to invest depending on how much money you have (plus, the market dip, where my money is, and how to fit crypto into a larger investing strategy)
- Part 24 Holding coins & tokens vs. yield farming, where I’m putting my money now, big news on StrongBlock, and the future potential of crypto
- Part 25 Staying safe, preparing your taxes, avoiding scams, upgrading your security, and judging new projects
- Part 26 How to decide who to trust in the crypto world, technical analysis & market cycles, and an update on my longish-term portfolio
- Part 27 (in progress) Wrap-up
This is part 17 in my cryptocurrency educational series.
Part 17 Reading Time: 38 minutes
Want to listen to this post instead?
11/21 and 11/22 Updates: Improved a few small things throughout, greatly improved and expanded Step #6, added a new Step #7, and moved what were originally Steps #7 and #8 to the next post for a better learning flow.
11/16 Update: Added a section on lump-sum investing versus dollar-cost averaging. And, updated Step #4.
This is a continuation of Part 16 (“Intro to investing”), so I suggest you start there if you haven’t read it yet.
In this post, we’ll dive into how to set everything up so that you can safely begin investing in the crypto world.
Reminder: I’m not an investment advisor, and this is not investing advice. I’m not a technical expert on either finance or cryptocurrency. But, I’ve made a lot of mistakes and learned a lot along my own journey, so I want to teach you what I can. Each of us has a different amount of wealth, risk tolerance, etc., so you’ll have to decide what makes sense for you personally.
How to prepare to invest
In this post and the next one, I’ll go over nine major todos to make sure you have the understanding and preparation to confidently invest in crypto.
Todo #1: Decide how much money you have to work with.
The first thing you need to do is figure out how much money you’re able to safely invest in crypto overall.
Here’s what I suggest:
Start by calculating your total net worth.
That means adding up your total assets across all accounts: checking, savings, IRA, 401(k), HSA, etc. Include your debt too as negative numbers. You should end up with a single number in USD (or your local fiat/traditional currency).
For example, you might make a simple spreadsheet that looks like this:
|Account / Category||Value|
|Student Loan Debt||-$10,000|
|Stock Brokerage Account||$10,000|
|Credit Card Debt||-$1,000|
|Health Savings Account||$2,000|
|Total Net Worth||$35,500|
Next, decide what percentage of that total you feel comfortable investing in the crypto world.
This part is largely subjective, but I can at least tell you what I’ve heard over the past few months:
- I’ve seen conservative financial advisors recommend putting 1% of your net worth into crypto, which would be $355 in the above example.
- I’ve heard middle-of-the-road financial advisors suggest that up to 3-5% might make sense, which would be up to $1,775 in the above example.
- I’ve heard people who are passionate and savvy about crypto but also highly knowledgeable about the traditional finance world (and risk management) say that they have 25-35% of their net worth in crypto, which would be up to $12,425 in the above example.
- I’ve also seen interviews with successful people well-known in the crypto space who claim to have 80-100% of their net worth in crypto (though I get the sense that they have quite a bit of money, so it wouldn’t be devastating even if they lost a huge chunk).
- In my case, I invested in waves. When I first dipped a toe into crypto in 2018 I believe, I invested 0.1% and held that for a couple of years. Then, earlier in 2021, I moved up to 1% and held that for a few months. As I learned more and my confidence rose, I moved up to 5% for a couple of months. Then, after some very deep dives in learning, I ultimately arrived at 40% feeling right. And remember: I’m super passionate about crypto, yet even I haven’t gone “all in.” That just doesn’t feel comfortable to me since I’ve been so careful to save up my money for so many years and I’ve put so much effort into traditional asset allocation (across ETF’s). This is always evolving for me though, and I’ll discuss this more in the next few posts.
Ultimately, you’ll have to figure out a combination of the following:
- How much you can afford to lose. If, worst case, your entire crypto investment went to zero, how would that affect your life? I would strongly recommend only investing so much that, if you lost it all, you would only experience minor discomfort—in other words, you might not be able to buy that new computer you were saving up for, but you’re not going to lose that house down payment you’ve been working toward.
- Your risk tolerance, and how soon you might need the money. Imagine that your investment ultimately rises substantially over the next couple of years; but along the way, it drops at one point to 50% of its value or less before recovering. Knowing how your mind and emotions work, would you be ok with that, or would you freak out? Would you sell everything in a panic, or would you be willing to hang on? Also, could you afford to wait for it to recover, or might you need that money sooner and thus have to pull it out, even if it’s at an all-time low?
- How well you understand crypto (and the specific investment strategies you’re using). Like I said earlier, I decided to put in more as I began to better understand how crypto works. I highly recommend that you don’t invest in anything that you don’t understand at least pretty well. To be fair, a lot of these strategies get very complex, so it’s normal to not be able to 100% explain how everything works. But, I like to aim for at least, say, 80% understanding before investing in something.
- How much you believe in crypto in general (and the future world promised by it). If you truly believe in a future where crypto becomes more dominant, then it shouldn’t matter as much if there are dips along the way. The key thing is that, when the market is down, you can still confidently say that your original investment decision was sound. If you really believe that what you invested in will continue to provide more and more value, it makes sense to stay in that investment long-term.
Todo #2: Decide on your asset allocation (i.e., which investments you’re making and how much money you’re putting in each).
I’ll go into this a lot more in the next few posts focusing on specific investment strategies.
For now though, I recommend splitting up your total crypto investment into several categories:
- High-risk coins and tokens, or risky DeFi strategies
- (You should have the lowest percentage of your holdings in this category)
- Medium-risk coins and tokens, or DeFi strategies that involve a moderate level of risk
- Low-risk stablecoins invested in a low-risk DeFi or CeFi yield-earning strategy
You can of course have more categories than that, but three is a good starting point.
One way I’ve personally done this is by assigning a dollar value to each of 5 levels of risk. This is likely overkill for most people; but, as I said in the last post, my personal strategy involves heavy diversification and a lot of small plays.
So, for example, I might fill out my spreadsheet with investment opportunities and assign each a subjective risk value with 1 being the lowest and 5 the highest. Then, I might decide on a dollar value for each—say, I’ll put $1,000 into each opportunity with level-1 risk, $750 into each with level-2 risk, all the way to $100 in level-5 risk opportunities.
You can take this even deeper by assigning each investment opportunity both a risk level and a likely-reward level. Then, you’d of course want to prioritize higher-reward-lower-risk opportunities.
Finally, consider thinking too in terms of how easy it would be to get the money out if you needed it. For example, you might have some of your stablecoins invested in a strategy that locks them in and requires at least 7 days’ notice to pull them out. In that case, you might want to leave some percentage of your stablecoins in a more liquid place as well.
Crypto is awesome, but remember that it isn’t the only good investment out there.
The stock market (S&P 500) has returned an average of 10%/year over the past hundred years. In 2020, it returned over 18%, and in 2019 it returned over 31%. So yes, crypto is very exciting, but the stock market has 100 years of proven returns behind it compared to only around 10 years for crypto.
Those returns are directly tied to huge companies like Apple and Google who consistently make money via tangible goods. Yes, those of us in the crypto world might believe that NFT’s have value, but the general public is still much more likely to assign value to an iPhone than to an NFT.
All this to say: I’m obviously a huge believer in crypto, but I still have over 50% of my net worth in stocks. Even if crypto is awesome, I believe it’s important to diversify my investments and not put all my eggs in one basket.
To be fair though, part of this is also because the traditional legal/financial system makes it challenging and costly to pull my money out of my Roth IRA, 401(k), etc. I’ll explain in a future post how I’ve started getting around that, and it’s quite possible that I might ultimately arrive at somewhere closer to 60% of my net worth in crypto.
Todo #3: Decide whether to lump-sum invest or DCA (dollar-cost average).
So let’s say you decide you’re going to put 10% of your net worth into crypto, with 20% of that into high-risk opportunities, 40% into medium-risk ones, and 40% into lower-risk ones.
Now what? Do you just put all that money in at once or do you buy in a little at a time?
It’s a complex question because of two things: how volatile the crypto market is (i.e., how quickly the prices change day-to-day) and how fragile human psychology can be (e.g., even if I promised I could take your life savings and use my secret strategy to turn it into a lot more money, you’d probably still feel uncomfortable handing it over to me).
Here are the two major approaches to entering an investment:
- Lump-sum investing—Calculate how much you want to put into something, then do the full transaction all at once. This is great if you happen to buy in when the market is down, but it’s not great if you happen to enter in when it’s extra high and then it drops.
- DCA (dollar-cost averaging)—Calculate how much you want to put into something, then divide that into equal chunks, and buy one chunk at a time on a certain interval (e.g., once a week or once a month) until it’s all in. That way, things average out if the market is especially high the first time you buy in and especially low the second time.
Surprisingly to me, research shows that lump-sum investing has worked out more favorably when it comes to the historical stock market.
However, the crypto market is more volatile, so I’m not sure that you can make a one-to-one correlation here. Also, that stock market research was centered around the S&P 500 (i.e., big, highly trustworthy and proven companies). So, the equivalent here would be big coins and tokens like ETH and BTC. I would never go lump-sum into a riskier crypto investment since I believe it’s always important to test things out with smaller amounts first.
The big consideration here is psychology. I know that I personally don’t feel safe doing lump-sum investing with large amounts of money. For example, if you have a net worth of $100K and you decide to invest $10K of that into ETH, it would feel scary for me personally to go straight from nothing to $10K invested in anything. Everyone has different levels of risk tolerance, but I know that I’d be constantly monitoring the price to try to pick the perfect time to get in.
So, what I personally tend to do—and again, not an investment advisor—is something like this:
- When I find a new investment opportunity, I calculate the total amount that feels right to invest in that position. As I explained earlier, I’ll often create a spreadsheet of potential opportunities, and I’ll assign each one a 1-5 value for likely risk and potential reward. Then, I’ll decide on some scheme like: low-risk/medium-return opportunities each get allotted $1,000, high-risk/high-return opportunities each get $250, etc.
- Next, of the total amount I’ve allocated to that opportunity, I’ll immediately buy into 25% or even 50% if it feels time-sensitive (e.g., it seems really promising but it’s not well-known yet).
- Then, I’ll decide on some schedule like weekly or bi-weekly, and I’ll buy into an extra 10-20% on each interval. I might also keep an eye on the chart and buy dips—like adding 5% more each time that token drops in price by 10%.
- Or, to keep it even simpler, when you choose to invest in something, you could simply buy half immediately and half a month later.
By the way, you can use dollar-cost averaging to sell as well. When you’re ready to exit a position, instead of selling all at once, you can sell a bit every few days or every few weeks. That way, you won’t beat yourself up if the price rises right after you’ve sold the first bit.
Todo #4: Decide if CeFi, DeFi, or a combination of the two is right for you.
As you’re planning your asset allocation, you’ll need to figure out if you’re going to invest exclusively in CeFi (centralized finance), or if you’d like to venture into DeFi (decentralized finance) as well. If you’re only doing CeFi, you can stick to the wallets that the exchanges create for you. For example, you could simply transfer cash into Coinbase and do everything you’re going to do within the Coinbase ecosystem. Or, you could do the same with Binance, BlockFi, Nexo, Crypto.com, etc.
Those are all fine options. Of course, as I discussed in Part 13, CeFi is better than TradFi (traditional finance) in many ways, but it’s still not decentralized, so you’re losing out on some of the benefits of crypto. You’re also putting all your eggs in one basket—if Coinbase, Nexo, or any of those gets hacked or over-regulated by the SEC, you’re out of luck.
One more thing too: If you truly believe in the philosophical promises of crypto that I discussed at the beginning of this series, now is your chance to live those values (and to even become an activist if you feel excited enough).
Yes, investing in crypto is a great way to make money for yourself. But, for many of us, it’s about more than that, too—this is a paradigm shift opportunity to completely rebuild the global financial system to be more open, transparent, accessible, accountable, and equitable. By choosing to participate in DeFi—and encouraging others to do the same—you can be a part of that.
So, how can you set yourself up for DeFi (or at least a mix of DeFi and CeFi)? The rest of this post will prepare you for that.
First, you need a DeFi-compatible wallet, which generally means a browser extension. Why? Because DeFi runs on web-based dapps, so when you visit a dapp’s website, that website needs a way of communicating with your wallet.
I highly recommend MetaMask—it’s basically the standard that the vast majority of people use. I also recommend the browser Brave, which is built on the same foundation as Chrome, so all the same extensions work. But, Brave is built specifically with privacy in mind.
Todo #5: Set up your crypto wallets.
First, remember that if all you’re doing is buying common coins and tokens, you can just stick with the default wallet that’s automatically created for you in Coinbase (or crypto.com, or whichever onramp you’re using).
But, if you want to venture out into DeFi, you’ll need MetaMask.
There are basically two ways you can use MetaMask: as a complete wallet, or as an interface between websites and your hardware wallet, which I explain a bit in Part 6. (In terms of hardware wallets, I only have experience with the Ledger, so that’s what I’ll explain here.)
Option 1: MetaMask as a complete wallet
If you’re using MetaMask as a standalone wallet, when you first install it, it’ll give you a seed phrase to write down. This is the thing you have to keep really, really safe. You should only ever have to use it if you lose your wallet—e.g., if you uninstall MetaMask or your computer crashes. That seed phrase will allow you to recreate your private key at the heart of your wallet and thus recover all the crypto assets associated with it. So, as long as you have your seed phrase saved somewhere, you don’t have to worry even if your computer breaks down.
Using MetaMask this way means that the browser extension itself is your wallet. There are no additional safeguards. If you connect to a dapp and confirm a transaction in MetaMask, it’ll go through.
To back up your wallet or copy or move it to another computer, you don’t need to back up any files or export anything. Instead, you’ll just enter your same seed phrase on the new computer. Remember from Part 5 that your cryptocurrency isn’t actually stored in a wallet, so it’s not like your ETH lives in your browser extension. Rather, your wallet contains your private key and allows you to cryptographically sign transactions in a secure way.
The crypto itself is stored on the blockchain. So, that’s why you don’t have to “back up” your cryptocurrency if you switch computers. You just need to load your private key into the new instance of MetaMask, which is what the seed phrase is for.
Option 2: MetaMask as an interface to a Ledger
In this case, your private key is stored in the Ledger hardware wallet instead. Your computer never actually sees it.
If you’re working with more than a few thousand dollars (and not staying exclusively in CeFi), I highly recommend using a Ledger. It’s a little more work, but it adds an important extra layer of security.
In this case, you’ll set up your Ledger first. When you first install it, it’ll give you a seed phrase to write down. This refers to the private key that lives in your Ledger. In other words, the Ledger is your actual wallet.
So, why do you need MetaMask? Because most DeFi websites aren’t able to directly connect to a Ledger. This way, they can connect to your MetaMask as a proxy (since it’s a browser extension and you’re accessing the dapp website via your browser); but, the dapps are ultimately interfacing with the wallet in your Ledger.
The key point though is that even MetaMask never actually sees your private key. That’s why this is so secure. The private key never leaves the Ledger. Instead, it only shares your public key with MetaMask. The Ledger is able to sign transactions with your private key in a cryptographically-secure way that doesn’t reveal it.
When you install MetaMask, you’ll open up the extension, click the circle on the top-right, and then choose Connect Hardware Wallet. If all goes well, you should see “(Ledger)” after your wallet account name. (You’ll probably also still have the original non-Ledger account there too that was installed by default with the extension. You can just ignore that if you want.)
In fact, though, you can have multiple accounts in MetaMask. You can even have a mixture of several MetaMask-only accounts (each with their own private key stored in MetaMask) and several Ledger accounts (each with their private key stored in the Ledger). As far as the blockchain is concerned, each of those accounts is a totally separate wallet, meaning you’ll pay the usual gas fees to transfer crypto between them.
By the way, Ledgers also come with a piece of software called Ledger Live. I don’t personally use it too much, but it offers a bit of an alternative here. Basically, the company behind Ledger has been creating a kind of protected ecosystem within Ledger Live where they invite in successful DeFi dapps and allow them to run directly inside Ledger Live. That way, you don’t have to worry about whether or not a dapp is trustworthy or if you’ve properly copy-and-pasted your wallet’s public key. Instead, you can just open that dapp right within Ledger Live. It’s a nice option, but they only support a limited number of dapps.
Todo #6: Get your cash from your bank account to your crypto wallets, and buy the coin or token you want.
The first thing to remember is that there are many different blockchain networks out there. Ethereum is the big one; but, as I explained in Part 14, others have been gaining a lot of ground, especially with high Ethereum gas fees lately (it can be a huge difference: a $50 gas fee on Ethereum could be more like $1 on Solana, Tezos, etc.).
Each blockchain represents a totally different ecosystem of dapps, and each makes different trade-offs in terms of speed, fees, and security. So, there are pros and cons to each. Because of that, I don’t believe this needs to be winner-take-all—I think multiple blockchains can happily co-exist.
It’s important to know that most blockchains require different wallets (several of them use MetaMask, but you need to switch to the right network by opening MetaMask and clicking the dropdown at the top that says “Ethereum Mainnet”).
I personally use around ten blockchains (plus a few smaller ones for high-risk up-and-coming blockchains).
Here are the wallets I personally use in each:
- Ethereum with MetaMask / Ledger
- Bitcoin with Ledger Live
- Terra with Solflare and Sollet
- Polygon with MetaMask / Ledger (with the network switched to Polygon in MetaMask)
- Binance Smart Chain with Binance Wallet and MetaMask / Ledger (with the network switched to Smart Chain in MetaMask)
- Tezos with Temple
- Thorchain with Atomic
- Cardano with Yoroi
- Fantom with fWallet / Ledger
- Avalanche with Avalanche Wallet and MetaMask / Ledger (with the network switched to Avalanche in MetaMask)
Don’t worry: You definitely don’t have to do all that. You’d be just fine sticking only with Ethereum, or maybe Ethereum, Bitcoin, and one more (probably Solana or Fantom). As I’ve said before, my personal strategy is a lot of diversification, but there’s immense and varied opportunity on Ethereum alone, or on Solana alone, etc.
In any case, to go from fiat currency (e.g., US dollars) to crypto, you need an onramp, which is typically a centralized exchange like Coinbase, Crypto.com, or Binance.
Here are the centralized exchanges I recommend:
- Coinbase Pro (This is the same as Coinbase, but it has a more advanced interface and lower fees.)
- Crypto.com (I haven’t used this a lot myself, but it seems to be very beginner-friendly, with low fees and a large selection of cryptocurrencies.)
- Binance (Something useful to know is that there are two versions of Binance: Binance.com and Binance.us. The second one is the one you’re legally supposed to use if you’re in the United States. But, it has a much more limited selection of coins and tokens. Some people use VPN’s—virtual private networks—to go through Canada to use Binance.com; but, if they catch you, they’ll give you a scary warning—though I’ve heard that you can usually still transfer your assets out without real consequence.)
- KuCoin (They’re generally quite solid and have a large selection of coins and tokens, but their fees to withdraw can be a bit higher.)
- (I’ve also heard great things about FTX, Gemini, and Kraken, but I haven’t personally used any of those. Kraken in particular is known for low fees, but I’ve also heard that its interface can be less intuitive.)
So, the basic idea is to open an account with one of those (or more than one, as I have), and connect to your bank via ACH to transfer in cash. Then, you can buy whichever cryptocurrencies that exchange supports.
There are dozens or hundreds of exchanges out there; but, if you have accounts with Coinbase Pro (or Crypto.com), Binance, and KuCoin, you should be able to get the vast majority of coins and tokens that you’d want.
How do you know which exchange offers which cryptocurrency?
- Go to CoinGecko.com.
- Search for a cryptocurrency name or symbol, e.g., ETH.
- Scroll down to the Markets section and you’ll see a table. You might have to click See All Trading Pairs to see more.
This shows all the exchanges, both centralized and decentralized, where you can get that coin or token.
Two things to point out here:
- On the far right, you’ll see the Trust Score, represented by a colored dot. Never use an exchange that’s not green.
- In the Pair column, you’ll see pairs of coins or tokens, which might look familiar from Part 14 on liquidity staking. For example, you might see that Binance offers many pairs associated with ETH: ETH/USDT, ETH/USDC, ETH/BTC, etc. That means they allow you to exchange any of those coins or tokens for ETH. But if, for example, an exchange only offered a single pair, say, ETH/LINK, and you wanted LINK but only had USDC, you’d have to first swap your USDC for some ETH, then that ETH for LINK.
- Incidentally, seeing all those pairs presented this way should hopefully clarify the real usefulness of the liquidity pools that I discussed in Part 14 (remember that, whenever you provide liquidity to a pool on a DEX, you need to lend them equal portions of a pair of coins or tokens, e.g., 50% ETH and 50% LINK for the ETH/LINK pool; so, this Markets section on CoinGecko is where you can easily see all those pools displayed).
Taking a step back here, how do you actually get a cryptocurrency that you want?
There are two major ways: the DeFi route and the CeFi route.
This way is more straightforward; it cuts out the middleman; and, it supports the decentralized philosophy of crypto. The downside is that gas fees on the Ethereum network are very high.
I’ve written a lot about DEX’s before, but I’ll explain swapping now explicitly: Let’s say you have ETH, USDC, or some other coin or token in your MetaMask and you want to buy a different coin or token. The most straightforward way is to go to a DEX like Uniswap or Sushiswap and trade a coin or token that you have for the one that you want.
On either of those DEX’s, you simply enter the cryptocurrency you have in the top field and the one you want in the bottom field (and be sure to check to make sure gas fees aren’t especially outrageous before you execute the swap).
Here’s a trick for swapping, though: My favorite way to swap in DeFi is to use a DEX aggregator called Matcha.xyz. Go there, search for the coin or token you want, and it’ll find you the best price across Uniswap, Sushiswap, and 20+ other DEX’s. Sometimes there will be coins or tokens that aren’t available on Matcha and you’ll have to go to Uniswap or Sushiswap directly; but, Matcha has all the common ones, and it’ll save you money.
For the CeFi route, all you have to do is deposit USD (or whatever fiat currency) into your onramp exchange (Coinbase or wherever) and use that to buy the coin or token you want. Then, you can either leave it there on the exchange or transfer it to your wallet of choice like MetaMask.
However, let’s say you have your USD in Coinbase, but they don’t have the coin or token you want. You check CoinGecko and see that it’s available on Binance, KuCoin, or some other CeFi exchange.
Here are three ways to move your USD from Coinbase to another CeFi exchange so you can buy a coin or token there:
- Withdraw your USD back into your traditional bank account, then set up an ACH bank connection with Binance or whatever other exchange and deposit it there. This will take the longest.
- Convert your USD to ETH or an ETH-based stablecoin like USDC, then send that from Coinbase to the other exchange. Once the stablecoin arrives at the other exchange, you can convert to the coin or token you want. This is the most common approach.
- The more advanced way to save you time and money is to use a different blockchain since Ethereum has such high gas fees and slow transaction times lately. The most common alternative blockchain to use specifically for sending cryptocurrency from one place to another is XLM.
- So, on Coinbase, you’ll use your USD to buy XLM (which is a crypto coin, meaning it’s both a currency and its own separate blockchain).
- Once you have XLM, you’ll click withdraw and send it to the other exchange via the XLM blockchain network (it’ll automatically do this on Coinbase if you’re sending XLM; on other exchanges, you might have to choose the right network from a dropdown).
- One important thing for XLM specifically: Along with the target wallet address, they also require a “memo.” When you hit deposit at your receiving exchange, they’ll give you a memo to enter at your sending exchange. Since many exchanges use the same XLM address for multiple accounts, the memo field is like specifying your specific account number.
- Once it arrives at the other exchange, you’ll sell XLM for USDC, USDT, or whatever that other exchange offers; then, you’ll use that to buy the coin or token you want.
- All this is more work, but the transaction fee to send your crypto will be much lower, and it’ll take much less time to transfer.
Here are some other important things to keep in mind with exchanges:
Remember that, in your Coinbase Pro (or whichever) portfolio, it will look like everything is in one wallet. But, the behind-the-scenes reality is that each blockchain uses its own wallet. So, when you’re withdrawing, make sure you’re sending it to the right type of wallet.
Again, sometimes they’ll even give you a dropdown menu with several blockchain network options to choose from, so make sure you choose the right one.
And as with XLM, sometimes they’ll also offer a “memo” field, which can often just be left blank—but, check your wallet’s documentation or the instructions of the exchange to which you’re sending to see if a memo is required.
Todo #7: Make sure you know which blockchain you’re dealing with, and whether you actually have a coin or its token version.
Here’s another confusing thing to be careful of: Some cryptocurrencies, such as THORChain (with the symbol RUNE), have multiple versions: a coin version and a token version.
For example, try searching for RUNE on CoinGecko and you’ll see two results for THORChain: One has “(RUNE)” after it, meaning it’s the native coin version that lives on the actual THORChain blockchain, and the other has “(ERC20)” after it, meaning it’s the token version that lives on the Ethereum blockchain and is pegged to the price of the main THORChain one.
Why do this? Because Ethereum is the most popular blockchain, so offering an ERC-20 token version makes it easier for most people to trade. However, the real coin version that actually has dapps built on it is the RUNE version.
On the two CoinGecko pages though, if you scroll down to Markets, you’ll see that each version of RUNE is offered on different exchanges.
Sometimes, a coin will also be explicitly “wrapped” so it can be traded on another blockchain. For example, LUNA is native to the Terra ecosystem, but you can buy it on Ethereum (and in Coinbase) as WLUNA (Wrapped LUNA).
Similarly, there are versions of USDC on multiple blockchains, like Ethereum, Solana, and Polygon. But, you can’t just easily send, say, your Solana USDC to your Ethereum wallet because those are two totally separate blockchains.
However, there are sometimes ways to transfer an asset from one blockchain to another.
- Terra Bridge allows you to transfer between Ethereum and Terra.
- Wormhole Bridge allows you to transfer between Solana and other blockchains.
- Avalanche Bridge allows you to transfer between Avalanche and Ethereum.
Each of those transfers requires paying gas fees on the “sending” end; so, if you’re going from Ethereum to one of those other blockchains, the fees might be high. But once you’re on the other blockchain, you’ll be able to move your coins and tokens around with much lower fees. So, it can be a good idea to send a lot of crypto over at once to save on Ethereum gas fees.
Finally, instead of going through DeFi bridges, you can also go through CeFi exchanges as I described earlier. For example, If you want to get on the Avalanche blockchain, you can just buy AVAX from KuCoin and withdraw from there directly onto the Avalanche blockchain. Or, to get onto the Polygon blockchain, you can buy MATIC at KuCoin and withdraw onto Polygon. Or, to get on Binance Smart Chain, you can buy BNB on Binance and withdraw from there.
That’s usually how I get money onto other blockchains rather than going through bridges.
It’s generally a best practice to not hold the token version of a blockchain coin long-term.
For example, if you’re just getting started, it’s fine to buy WLUNA or the ERC-20 version of RUNE to keep things easy and not have to deal with too many exchanges. But, once you get more comfortable with crypto, I recommend using bridges or exchanges to convert those into the real native coin versions.
Basically, you’ll want to figure out what the native coin is of the blockchain you’re interested in (e.g., AVAX for Avalanche, LUNA for Terra, SOL for Solana, etc.), then check on CoinGecko where you can buy it. You might also want to search Reddit or elsewhere to make sure that whichever exchange is indeed offering the native coin version and not an ERC-20 token version (for example, Coinbase only has the token-version WLUNA whereas KuCoin has the coin-version LUNA).
One reason it’s important to get the coin version is that the real coins can be staked for rewards, and another is risk mitigation—if all you have are the Ethereum token versions of other blockchain coins, you still have all your eggs in the Ethereum basket, whereas if you own actual coins on other blockchains, you’re diversifying your risk in case Ethereum ends up failing for some reason.
Bottom line in all this: Make sure you understand which blockchain you’re on, which version of a coin or token you’re getting, and what your wallets support. I personally do a lot of Googling things like “easiest way to get USDC from Coinbase to Solana network.” (I’ll often add “reddit” at the end of my searches too to find threads on that topic.)
And again, if all this is too confusing, you can just stick with the Ethereum blockchain—you’ll just be paying higher gas fees, which many of us see as the unfortunate sunk cost right now.
Ok, that was a lot to think about. But, hopefully it shows you both the immense scope of opportunities in crypto as well as some snags to be careful of.
Now, you’re probably wondering: Where specifically should I invest? There are so many blockchains, coins, tokens, and projects out there. Where do I begin? Where can I get the best risk-adjusted return?
That’s where my next three posts come in. But first, in Part 18, we’ll finish up three more important todos: