From reader Tamir:

I’m very new to this, some of my friends are very successful with it; I’d like to learn more and get more involved. I’m confused on the personal wallet setups and the exchanges. I’ve currently setup a Coinbase account and have seen some growth there but want to segway to different currencies and avenues. How do I do this?

This is a question we’ve been hearing a lot recently, ever since bitcoin exploded into the global limelight last year. While we are going to stop short of saying it’s a bit late to be joining the party, you should be aware that there are now literally over 1000 different cryptocurrencies to choose from for your investment consideration. Altcoin exchanges, or exchanges that allow for the trading of bitcoin for other cryptocurrencies, have been around since 2013, and over the last four years we’ve seen dozens of prominent exchanges come and go.

Personally speaking, one of the first questions that popped into my head when I first got ahold of some bitcoin (also through Coinbase) was, “OK, what now?” It turns out there were hundreds of lucrative opportunities in other cryptocurrencies besides bitcoin that were investable only using bitcoin. Some of the first altcoins to see meteoric success included Litecoin (LTC, the very first altcoin), Dogecoin (DOGE, the first memecoin) and Darkcoin (DRK, now known as DASH). These coins all saw thousand percent-fold returns within a matter of months to a year, riding on the coattails of the granddaddy coin of them all, bitcoin.

But this was between 2012-2014, and since then the amount of investment opportunities using your bitcoin has increased beyond anybody’s wildest expectations. While some new coins (usually launched through the Initial Coin Offering, or ICO process) have been tremendously successful (NEM, Ripple and Ethereum immediately come to mind), its important to remember the fact that, statistically speaking, 90% of all new coins will fail, and become worthless within a year. The “Great Crypto Explosion of 2017” has made navigating blockchain-based investments extraordinarily difficult as compared to only three years ago.

So how does one enter the uncharted territories of cryptocurrency investments these days with any sort of sound footing to guide them? There are a few simple rules of thumb to bear in mind before attempting to exchange your bitcoin for an altcoin (if you didn’t know already, an “altcoin” is defined as any coin that is not bitcoin – this also includes prominent bitcoin forks like “Bitcoin Cash” and more recently, “Bitcoin Gold”). Here they are:

Be certain of where you are sending your coins

If you want to buy an altcoin from an exchange, make sure you are sending your bitcoin from Coinbase (or any other bitcoin exchange or wallet) to the right bitcoin address, assigned to you by the exchange. Perhaps the most famous, well-respected, and longest-lasting altcoin exchange is Poloniex.

Once you register an account with Poloniex, they will assign you a static bitcoin address to which you will send your bitcoin. This means that your deposit address will never change, which makes it easier to remember but also decreases the level of anonymity you have. So, if the IRS, FBI, or another government agency ever asks Poloniex to turn over your information because you are laundering hundreds of thousands or millions of dollars worth of ill-gotten bitcoin through there, they can trace the source(s) of bitcoin deposited to Poloniex through a new art of study known as blockchain forensics.

Other altcoin exchanges may change your bitcoin deposit address on the regular, and some may even de-activate previously-used addresses associated with your account on their exchange, so be certain to read their deposit rules and methods before moving your bitcoin. In short, don’t send your bitcoin to the wrong address! Remember that bitcoin addresses always start with the number 1 (or sometimes “3” if it is a multi-signature wallet), so don’t send it to an address that starts with “Q” or “2” or anything else besides “1” or “3.”

Know how to make a bitcoin transaction in the first place

If you don’t know what a “transaction fee,” “QR code” or “confirmation time” is, stop right here and educate yourself on these terms. It is essential to have confidence in what you are doing, or you could lose your bitcoin for good, through nobody’s fault but your own. Lucky for Coinbase users, they tend to cover your transaction fee for free to simplify the withdrawal process, but users of any other exchange or wallet will probably not be so lucky.

A transaction fee is what incentivizes the bitcoin network to add your transaction to the blockchain and insure a decently-fast confirmation time. Bear in mind that bitcoin transactions are almost never instantaneous and even if they are recognized by the network, they are not truly part of the blockchain until they are confirmed by at least 1 bitcoin miner (meaning they have been added to a block that is now forever part of the blockchain).

Expect to wait 10-30 minutes when adding a big transaction fee and much longer if the transaction fee is small. Don’t ever send bitcoin (or any coin) with a zero-transaction fee (no transaction fee) because there’s a good possibility it will never be picked up into a block by any miner, as they have no financial incentive to add your transaction to the blockchain. Cryptocurrency miners aren’t in the business of mining for free, after all.

Do research on your prospective investment before spending bitcoin on it

Don’t just blindly invest in coins creating the biggest gains of the day or month; they might be “pump and dump” schemes or simply over-valued. Though it might seem a bit obvious to say, its good to have an idea of what you are getting yourself into, and why you are getting yourself into it, before getting into it. You wouldn’t just dive into a swimming pool without knowing the temperature or depth of the water, would you?

Read up on your altcoin via their official website (a coin’s whitepaper is always a good place to start if you’d like concrete information), and find out what the rest of the internet thinks about your coin as well. Do Google searches for it and read what users are saying about their experience with your coin in global forums like bitcointalk.org and reddit.com.

Also remember that in an altcoin exchange, with all the coins that you can purchase using bitcoin (and not fiat currency, i.e. dollars or euros), everything depends on the price movement of bitcoin. This means that unless your altcoin of choice has something really going for it, expect it to decrease in value when the price of bitcoin goes up, and increase in value when bitcoin goes down. This phenomenon happens because ultimately the value of your coin is tied to fiat currency and not the price of bitcoin (although its true that the success of bitcoin breeds confidence in the success of cryptocurrency in general, so sometimes bitcoin and your altcoin may rise in price, creating exponential gains in wealth, in which case, good job, bully for you!).

Know what your plans are for your investment

Are you looking for a short-term investment, hoping to make a flip and turn it around for a quick profit, or are you looking for a long-term investment, an idea that you believe is good enough to make it for the long haul? Just as with real estate and the stock market, there are opportunities for financial gain in both scenarios. But before buying your first altcoin from an exchange or investing in your first ICO, have a clear idea of what your goals are, and try not to change them midstream if your original goal isn’t working out. It’s always better to cut your losses and run from a bad idea than sink and go down with the ship.

If you fancy yourself a day trader, there may be little need for you to set up your own personal wallet on your computer or phone for the altcoin you are buying, because it would only be costly and time consuming to move coins off an exchange and then back again if you are planning to sell them later that day. In all other scenarios, you will want to know how to work the wallet for the altcoin that you have purchased, and be familiar with the differences between how it and bitcoin operates.

Next-gen coins like Ethereum (ETH), NEM and Zcash (ZEC) operate quite differently than bitcoin, and even though they too rely on the principles of blockchain technology to function securely, their wallet, address, send and withdrawal systems are vastly different than that of bitcoin. Don’t assume that just because something works a certain way for bitcoin it will work the same way for your particular altcoin.

Keep a sharp eye on your investments

This involves not only maintaining a portfolio that allows you to check on the amounts and price movements of coins purchased, but verifying that the coins are actually still there, usually via means of a block explorer. Just about every single cryptocurrency of any value whatsoever has its own block explorer, which allows you to check how many coins are actually at a given address.

Having a QT or Core wallet installed on your computer – complete with your coin’s blockchain – is the only other way to really be sure that you have control over your coins. Trusting a third-party service, such as Coinbase, Poloniex or any number of mobile/online wallets, means that you are relying on them to keep track of your coins for you. While many of these services have proven themselves as trustworthy through the test of time, it is not uncommon for an exchange or wallet service provider to suddenly vanish and go up in smoke, taking your coins along with them. Sometimes service providers are hacked, perform exit scams or lose coins through simple incompetence – in any case, its always better to know that you are the one in control of your coins.

Lastly, its important to keep your private information private. Don’t do something silly like upload your password or the private key to your wallet to a public space, or keep this information unsecured on a cloud-based storage service. If somebody hacks your Google or One Drive password and gets access to your list of passwords, login information or private keys, you may wake up to find your wallets drained of their contents — this has happened several times before and will happen again in the future. Keystroke logging malware is frequently the culprit behind stolen coins, so it is highly recommended that you run anti-virus scans regularly on your computer and use the copy-and-paste method when opening wallets or logging in to websites. Enabling 2-Factor Authentication (2-FA) is also another effective way to prevent theft of your coins, and it is highly recommended that you take advantage of this feature when it is available.

Having said all that, you are now pretty much ready to go, granted you are comfortable with your technical knowledge of cryptocurrencies and how to move them around in the first place. The potential for profit in the blockchain space is immense and extremely alluring, to the point where Wall Street is now pouring in billions of its own dollars into the industry. Even though bitcoin has been around since 2009, cryptocurrencies remain highly unregulated – partly through their own nature and design – meaning we are still in a Wild West era of the blockchain. This is not a territory for those faint of heart. It is especially important to remember the golden rule of investing when it comes to cryptocurrencies:

Never invest more than you can afford to lose

We don’t recommend betting the boat, the farm, the house or your children’s college fund on altcoins (or bitcoin, for that matter). We do recommend saddling up with a clear vision of what you want to achieve, packing as much information about an investment or technology in your brain as it can handle before sallying forth, and keeping a sharp eye out for potential traps and pitfalls along the way. Confidence is king! Insecurity and unsureness can leave you with loss after loss. As with anything in life, try to understand what you are doing before you attempt to do it. So be careful and good luck out there. We don’t blame you for wanting to get in on the action. After all, there’s (virtual) gold in them there hills!