Interested in virtual currency but don’t know where to start? This guide provides beginners with step-by-step instructions on how to get started with coins. It covers all the basics of virtual currency investing, from how to choose an exchange to security measures. Start investing in virtual currency safely and effectively through this guide.
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What is virtual currency?
Definition of Virtual Currency
Virtual currency (English: virtual currency, virtual money) is a type of digital currency, issued by developers, usually also controlled, that is accepted and used within a specific virtual community.
The European Banking Authority defines virtual currency as “anything of electronic value that is not issued by a central bank or public authority, nor necessarily backed by legal tender, but is accepted by natural persons (individuals) or legal entities as a method of payment and is moved, stored and traded electronically.
Typical characteristics of virtual currency include the following
- It is a digital currency
- There is no central bank
- Decentralized on the Internet
- Managed by blockchain technology
History of Virtual Currency
Although the history of virtual currencies is relatively new, their development has been rapid. The first virtual currency, Bitcoin, was founded in 2009 by an anonymous person (or group) named Satoshi Nakamoto.
Bitcoin (BTC) envisioned a decentralized “peer-to-peer (P2P) network” that would allow users to transact directly with each other without the need for a central authority, and claimed that the network would be more reliable by utilizing a chain-like data structure known as a blockchain.
Since then, many virtual currencies have followed Bitcoin’s lead. For example, in 2015, Ethereum (ETH) was introduced, expanding the range of applications of virtual currencies by enabling the execution of smart contracts. Today, there are more than thousands of virtual currencies, with a wide range of applications and technologies.
Pros and Cons of Virtual Currencies
Virtual currencies have many advantages and disadvantages. The main points are listed below. Convenient transactions, such as the recent widespread use of online casinos as a means of payment.
Pros
- Decentralized system allows for greater independence from centralized control
- Enables fast and low-cost money transfers across borders
- Blockchain technology ensures high transparency and security
- Smart contracts allow automated transactions
Cons
- High investment risk due to volatile prices
- Unclear legal regulations and risk of fraud and hacking
- High energy consumption from mining causes environmental problems
- Some virtual currencies are illiquid and difficult to trade
How to choose a virtual currency exchange
Types of Virtual Currency Exchanges
When choosing a virtual currency exchange, it is important to first understand its types. There are three main types of exchanges
- Centralized Exchanges (CEX): Centralized exchanges are exchanges operated by companies or organizations that take custody of users’ assets and broker transactions. Examples include Binance, Coinbase, and Kraken. These exchanges are easy to use, can be exchanged for legal tender, and have security measures in place, but the risk of hacking exists.
- Decentralized Exchanges (DEX): Decentralized exchanges are platforms where users trade directly with each other using blockchain technology, such as Uniswap and PancakeSwap. These exchanges are anonymous and are considered more secure than centralized exchanges, but may be less user-friendly.
- Hybrid Exchanges: Hybrid exchanges combine features of both centralized and decentralized exchanges. This allows users to enjoy both high security and convenience.
Popular Virtual Currency Exchanges in South Korea
In South Korea, virtual currency trading is very active and there are many exchanges. The following are particularly popular exchanges in South Korea.
- Upbit: This is the largest exchange in South Korea and is characterized by a wide range of stocks and high transaction volume. Upbit is the largest exchange in Korea, with a wide range of stocks and high trading volume.
- Bithumb: The second largest exchange after Upbit, Bithumb also handles a large number of virtual currencies. It offers excellent user support and is easy to use for beginners.
- Korbit: Korea’s first virtual currency exchange with high reliability and security measures. Transaction fees are relatively low.
- Coinone: Offers a wide variety of virtual currencies, and is particularly active in altcoin trading. Competitive transaction fees.
Registration and Authentication Procedures
In order to use a virtual currency exchange, you must first create an account and complete the verification process. Below is the general registration and authentication process.
- Create an account: Go to the exchange’s official website and create an account by entering your email address and phone number.
- Verify your identity: Upload a government-issued ID (passport, driver’s license, etc.) to verify your identity. Some exchanges may require you to take a photo or submit address verification documents.
- Set up two-step verification: To enhance security, set up two-step verification (2FA). This reduces the risk of unauthorized access.
- Deposit: Once authenticated, you can deposit legal or virtual currency into the exchange. Deposit methods vary from exchange to exchange, but the most common are bank transfers, credit cards, and money transfers from other virtual currency wallets.
Once you have completed the above procedures, you can purchase or trade virtual currency on the exchange. It is important to check the procedures and required documents in advance, as each exchange has different procedures and requirements.
How to purchase virtual currency
Depositing Legal Currency
To purchase virtual currency, you must first deposit legal tender to an exchange. The method of depositing legal tender varies from exchange to exchange, but in general, the following methods are available
- Bank transfer: This is the most common method and is supported by many exchanges. Although bank transfer fees may apply, it is a relatively safe and secure method.
- Credit/debit card: This is a quick and easy way to make an immediate deposit, but often comes with higher fees.
- Convenience store deposits: Some exchanges offer convenience store deposits. While this is an easy way to deposit funds, there may be a limit on the amount that can be deposited.
- E-money: Some exchanges accept PayPal and other e-money deposits. This is more convenient, but may be limited.
Once the deposit is made, it will be reflected in your account at the exchange and you will be able to purchase virtual currency. It is recommended to check the official website of the exchange in advance for deposit methods and fees.
Understanding Ordering Methods
When purchasing virtual currency, it is important to understand several order methods. There are three main order methods
- Market orders: buy or sell immediately at the market price. This is suitable when you want to complete a transaction quickly, although it may be executed at an unexpected price if the price is volatile.
- Limit Order: This is a method of placing an order at a price you prefer. The order will be executed only when the specified price is reached, thereby avoiding the risk of an unexpected price, but there is a possibility that the order will not be executed.
- Stop Limit Order: This is a method of automatically placing a market order when a specific price is reached. Used primarily to limit losses, it can minimize losses by automatically selling when prices fall sharply.
By using these order types appropriately, you can trade efficiently while managing risk. Beginners should start with market and limit orders.
Trading Fees
There are a variety of commissions involved in virtual currency trading. The main commissions include the following
- Transaction fees: These fees are charged when buying or selling virtual currency. The fee varies from exchange to exchange, but generally ranges from 0.1% to 1% of the transaction amount.
- Deposit fee: This is the fee charged when depositing legal tender into an exchange. Bank transfers are sometimes free, but credit card and convenience store deposits often incur a fee.
- Withdrawal fees: These are fees charged when withdrawing legal or virtual currency from an exchange. Withdrawal fees, especially for virtual currencies, can vary depending on network congestion.
- Spread: When trading on an exchange, there is a spread between the bid and offer prices. This acts as a substantial commission and is often higher than in the exchange system.
Since commissions are directly related to transaction costs, it is important to carefully check the commission structure when choosing an exchange to reduce overall costs.
Security Measures for Virtual Currency
How to choose a virtual currency wallet
Security measures are very important in the trading and storage of virtual currency. In particular, the choice of wallet directly affects the security of virtual currency. The following are the main types of wallets, with MetaMask and Trust Wallet being the most well-known.
- Hardware wallets: These are devices used to store virtual currency offline; typical products are Ledger and Trezor, which are disconnected from the Internet and have an extremely low risk of hacking.
- Software wallets: These wallets are installed on a computer or smartphone and are convenient and suitable for daily transactions, but they are connected to the Internet and therefore present security risks.
- Paper wallets: These wallets store the public and private keys of virtual currencies by printing them on paper. Because it is stored offline, there is no risk of hacking, but there is a risk of loss or damage.
- Online wallet: A wallet that is accessed through a web browser. While convenient, they are not suitable for storing large amounts of virtual currency due to the high security risk.
When choosing a wallet, it is important to select the most suitable one based on the purpose of use and the amount of virtual currency to be stored. In particular, if you are storing large assets, you may want to consider using a hardware wallet.
Setting up two-step verification
Two-step authentication (2FA) is an important way to strengthen the security of your account; setting up 2FA requires an additional means of authentication in addition to the password, greatly reducing the risk of unauthorized access.
Instructions for setting up two-step verification are as follows
- Download an authentication app: Download an authentication app such as Google Authenticator or Authy to your smartphone.
- Go to the exchange ‘s settings page: Go to the exchange’s security settings page and start setting up two-step verification.
- Scan the QR code: Launch the authenticator app and scan the QR code provided by the exchange. This will link your account to the authentication app.
- Enter the verification code: Enter the 6-digit code generated by the authenticator app into the exchange’s settings page to enable two-step verification.
Setting up two-step verification prevents unauthorized access, since the authenticator app is required even if your password is compromised.
Phishing and Hacking Prevention
In virtual currency trading, there is always the risk of phishing scams and hacking. To prevent these risks, the following measures are effective
- Check official websites: When accessing official websites of exchanges and wallets, check the URL and be careful not to click on suspicious links.
- Check emails: Be wary of emails from exchanges. Avoid clicking on suspicious emails or links and log in directly from the official site.
- Install security software: Install security software on your computer and smartphone and scan them regularly for viruses.
- Password management: Set strong passwords and change them regularly. Do not use the same password for multiple sites.
These measures will greatly reduce the risk of phishing scams and hacking. It is always important to be security conscious when trading and storing virtual currency.
Virtual Currency Investment Strategies for Beginners
Long-term vs. short-term investment in virtual currency
There are two main types of virtual currency investment strategies: long-term investment and short-term investment. It is important to understand the characteristics, advantages and disadvantages of each and choose the strategy that best suits your needs.
Long-term investment
Long-term investment is a strategy to hold virtual currency for a long period of time and expect its value to increase. It has the following characteristics
- Advantages
- Less susceptible to short-term market fluctuations
- Potential for large profits over time
- Fewer commissions due to less frequent trading
- Disadvantages
- Funds are tied up for long periods of time
- Exposed to long-term market risks
- Difficult to respond to sudden price fluctuations
Short-term investment
Short-term investment is a strategy to profit from price fluctuations over a short period of time. It has the following characteristics
- Advantages
- Profit in a short period of time
- Quick response to market fluctuations
- High liquidity of funds
- Disadvantages
- Frequent transactions result in higher commissions
- High short-term market risk
- Requires continuous market monitoring
Diversification of Virtual Currencies
Diversification is a strategy of investing in multiple virtual currencies to spread risk. It is important to diversify your investments by considering the following points
- Diversify: Diversify your investments across virtual currencies with different characteristics, such as Bitcoin, Ethereum, Ripple, etc.
- Balance your investments: Balance your investments in each currency and do not invest in one currency at a time.
- Track market trends: Regularly monitor market trends and news for each currency and review your investment portfolio.
Diversification reduces risk by allowing you to compensate for losses in other currencies in the event of a significant decline in the price of one currency.
Market Analysis Methods
Market analysis is essential to success in the virtual currency market. Below are two primary methods of analysis
Technical Analysis
Technical analysis is a method of predicting future price trends based on historical price data and trading volume. The following tools are used
- Moving averages: a line representing the average of prices to identify trends.
- RSI (Relative Strength Index): indicates overbought or oversold conditions and predicts when a reversal will occur.
- MACD (Moving Average Convergence Diffusion): An indicator used to find turning points in a trend.
Fundamental Analysis
Fundamental analysis is a method of evaluating the value of a virtual currency based on its development status, market demand, and regulatory trends. The following points are considered
- Development status of the project: We check the track record of the development team and the technical progress of the project.
- Market demand: We assess how much demand there is for the virtual currency.
- Regulatory Trends: Analyze the impact of regulatory changes on the virtual currency market.
A combination of these analysis methods can be used to make more accurate investment decisions. For beginners, it is important to first learn basic analytical methods and then hone your skills by practicing them.
Legal Considerations Related to Virtual Currencies
Virtual Currency Regulation in Korea
Virtual currency regulations in South Korea have undergone significant changes in recent years. The government has introduced various regulations to promote the healthy development of the virtual currency market and to protect investors. Below is a description of the major virtual currency regulations in South Korea.
Virtual Asset User Protection Act
The Virtual Asset User Protection Act, which went into effect on July 18, 2024, imposes strict requirements on virtual currency exchanges. The law requires exchanges to strengthen security measures, segregate customer assets, and conduct regular audits. Exchanges must also provide transparent information to their customers.
Taxation of Virtual Currency Income
The Korean government plans to introduce a 20% tax on virtual currency income. The tax was originally scheduled to take effect in 2022, but is now being considered to be delayed until 2028, taking into account technical readiness and market conditions. This taxation will apply to gains from virtual currency transactions, an important consideration for investors.
NFT Regulation.
South Korea defines and regulates NFTs (non-substitutional tokens) as a type of virtual currency. The financial authorities have issued guidelines for trading and issuing NFTs and have taken steps to ensure transparency and trust. This is expected to lead to the healthy development of the NFT market.
Tax Declaration
Income from virtual currency transactions is subject to taxation in Korea. Below is the basic flow of tax declaration regarding virtual currency.
- Calculation of income: Calculate the profit from buying, selling, and mining virtual currency. The profit is the sale price minus the acquisition price.
- Filing a tax return: During the income tax filing period, an income tax return is filed with the tax office. Income from virtual currency transactions is combined with other income to be reported.
- Tax Payment: After submitting your tax return, the tax office will send you a tax notice. Based on the notice, tax payment is due by the designated date.
Income from virtual currency transactions must be reported to the tax office in the same manner as other income. It is important to follow the instructions from the tax office and file and pay taxes appropriately.
International Regulations
Because of the international scope of the virtual currency market, it is necessary to keep a close eye on the regulatory trends in each country. Below are some of the major international regulatory trends.
United States
In the United States, the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) oversee the virtual currency market. In particular, regulations for Initial Coin Offerings (ICOs) are being tightened, with strict standards in place to protect investors.
European Union (EU)
The EU has proposed a comprehensive regulatory framework for virtual currencies called MiCA (Markets in Crypto-Assets). This regulation aims to unify rules for the issuance and trading of virtual currencies and ensure market transparency and stability across the EU.
Japan
In Japan, the Financial Services Agency has introduced a registration system for virtual currency exchanges and strict supervision. Exchanges are required to segregate customer assets and strengthen their internal control systems, and are expected to operate with a high level of transparency.
By keeping abreast of international regulatory trends, it is possible to properly manage risks in the virtual currency market and develop investment strategies. Since regulations in different countries change from time to time, it is important to keep up to date with the latest information.
Virtual Currency Community and Resources
Online Communities Helpful with Virtual Currency
In the world of virtual currency, sharing information and exchanging ideas is extremely important. Online communities bring together a wide range of users, from beginners to advanced traders, and serve as a place to share the latest information and investment strategies. Below is a list of some representative online communities.
- Reddit: There are many subreddits about virtual currencies (e.g. r/Bitcoin, r/CryptoCurrency), where the latest news and technical discussions take place.
- Telegram: Many virtual currency projects run official Telegram groups, where you can get real-time information.
- Discord: There are a number of virtual currency-specific servers where you can communicate directly with community members.
- Twitter: Virtual currency influencers and official project accounts post the latest information. By following hashtags (e.g. #Bitcoin, #Crypto), you can get real-time information.
By joining these communities, you can deepen your knowledge of virtual currencies and keep up with the latest developments. It is especially beneficial to get advice and support from other users when questions or problems arise.
Virtual Currency Educational Resources
It is important to utilize reliable educational resources to gain a better understanding of virtual currency. Below is a list of educational resources useful for both beginners and advanced users.
- Books: “Mastering Bitcoin” by Andreas M. Antonopoulos is a classic book that details the technical aspects of Bitcoin. Also, “Crypto Assets” (by Chris Berniske and Jack Tatar) is a good introduction to the basics of virtual currency investing.
- Online courses: platforms such as Coursera and Udemy offer courses on virtual currency and blockchain. They range from beginner to specialized content.
- Blogs and websites: Media outlets dedicated to virtual currency, such as CoinDesk, CoinTelegraph, and CoinPost, offer the latest news and analysis. Official project blogs are also useful for technical updates and roadmaps.
- Video Tutorials: YouTube has many tutorial videos on virtual currency. In particular, channels such as Ivan on Tech and DataDash offer quality content.
These educational resources can help you learn about virtual currency in a systematic way. Especially for beginners, it is important to learn the basics and use them to help make investment decisions.
Virtual Currency News and Updates
The virtual currency market moves very quickly, and it is important to keep up with the latest news and updates. Below are some reliable news sources.
- CoinDesk: This is a leading media outlet for the latest news on virtual currency and blockchain. They provide fast coverage of market trends and technical updates.
- CoinTelegraph: A global virtual currency news outlet that also provides analysis and interviews.
- CoinPost: Japan’s largest virtual currency media outlet, providing the latest domestic and international news and investment information.
- CryptoSlate: A platform that provides data and news on the virtual currency market, as well as detailed information on projects.
By checking these news sources regularly, you can keep abreast of trends in the virtual currency market and make quick investment decisions. Especially in virtual currencies, where the market fluctuates rapidly, it is very important to stay up-to-date with the latest information.
