Investing In Crypto Currencies – A Primer & Resource List
24 hours. $500 + in gains. (As I start writing this post.)
But let’s be honest; we should never expect things like that to be sustained over the long term.
This is, however, getting way ahead of things. Let’s start a bit closer to my beginning.
I came to dabbling in crypto currencies honestly. A friend introduced me. She said I’d enjoy them. She is to blame! Bitcoin – the gateway coin…
For several years, she’d be speaking about blockchain. At first I needed to do some research to understand what that even was. And that helped me understand how to separate blockchain from Bitcoin. Yeah, many have heard of Bitcoin, but so few know about blockchain. What I’m not planning to do here is a deep dive on technical details. I’ll share some resources that explain that side of things, but much better you hear these things from educated people v. my own mental meanderings.
An item I noted I was struggling with early on: switching my brain for thinking in terms of dollars and cents, to thinking of them in terms of “right of the decimal”. Unless you throw about $4k down, you won’t buy a whole Bitcoin. Which means your value is expressed in a number to the right of the decimal. Luckily the breakdown extends quite far (8 places, IIRC) so it’s still real value, just not expressed the way we are typically educated to expect. If you have an account with Coinbase, they automatically express your value in terms of both notations. Dollars and a fraction of the coin. I’m sure other accounts do this as well, I’m recall seeing it in Coinbase recently.
I’m also not giving advice here. I’m going to share my experiences, but you control your own actions. Be the driver, not a passenger, etc., etc. This is going to be a very high level overview of several germaine topics. I may even miss some germaine topics. But this will at least get you immersed into things a bit. To be crystal clear – high level. I can take you to the water trough, but you’ll have to drown yourself.
First, watch this video – there are a ton like it, but this covers the basics:
That gives you some small exposure to the concept of “blockchain”. You can now see the breadth of the concept, the process and the impact. To say this is disruptive is an understatement, which means a few things:
- some will seek to protect their current position (banks, governments, investors, etc.)
- some will seek to take advantage of others (schemers, profit takers, charlatans)
- new ways of doing old things will emerge and fight to be the new standard (banking will change)
- an entire generation will help power this forward (if they adopt it – thinking Gen Z and afterwards)
- due to the decentralized nature of this technology, we will see shifts in how we handle money (already seeing the beginnings of this unfold)
- we may see new definitions of what we classify as “money”
But those are just my own thoughts based on what I’ve learned over the last couple of years of learning. I cannot stress enough how important it is that you dig in for yourself and learn. Each person has a different tolerance for risk, so how you interpret things will differ from me or anyone else.
Next up, let’s move a step forward to Bitcoin itself. Again, a handy video to explain things in more detail than I could ever hope to manage. This is longer and goes into detail about blockchain and “bitcoin mining” as well; it’s a good overview:
I’m not going to get into mining. I’ve investigated it and feel it’s not for me. May be for you, and on the surface, sounds really attractive: spin a computer to do the work and get paid for it. But it’s a matter of scale. See, there’s you with one or two machines (and these ARE specialized machines) churning away in your dining room. Then there are the professionals in China (and elsewhere with hundreds, or thousands of those machines) churning away. Not saying you can’t make money with it (or, more accurately, coins…), but it’s not for me – that’s all I’m saying. If you’ve ever chased technology you’ll understand the treadmill you’re stepping onto.
Exchanges, Wallets, Connecting Accounts
One thing you’ll need to come to terms with is that you’re going to need to connect either a credit card or a bank account somewhere to start the process. Security is high and everywhere, so expect multiple points of challenge when setting up things. Google Authenticator and the Authy apps will become your best friends. In some instances you cannot even log into an account without using 2FA (2 factor authentication – your username/password, plus a random code the app generates). Small price to pay for the added security, IMO.
When I first started, I’d decided to buy some coins. After researching a bunch of coins (and there are likely hundreds as of this writing), I settled on Litecoin (LTC), PotCoin (POT), Ethereum (ETH) and NEO (NEO). I recently sold all my Potcoin and moved more into LTC and ETH.
In order to buy any coin, you need to connect a credit card or bank account. The flywheel starts moving with good old USD for the vast majority of us. You can wrestle your own demons about linking accounts. I waffled for about 2 weeks before telling myself I’m either in, or out. Out means no linking. In means linking. So I linked a credit card and bank account. The credit card is easily canceled if needed, and the bank account is a fresh one, a stand alone set up expressly for this effort. Essentially, the only balance ever in that account is what’s about to move to an account at an exchange to buy coins. Should it ever be compromised, it’s isolated.
Depending on the exchange, you’ll have different limits on fresh accounts. In Coinbase, for example, you can add less money during a transaction on a credit card, than if you’re drawing on a verified bank account. Up-front limits tend to grow over time, allowing you to move more money into the system as you prove you’re a real person. Getting any bank account linked is a multi-step process, so carefully read all emails and instructions and hit every step. If something isn’t working, it’s probably down to user error, not system error.
Let’s use Coinbase as an example. When you make a deposit here (whether from a credit card or bank account), the money appears in a USD Wallet. It’ll be the only active wallet in your account at that point. The next step is to buy some coins. Assuming you’ve done your research into coins, understand what they are aligned with, what their community is like and their stated goals, you place a buy order. The platform itself is simple enough to figure out by using it, but tutorials exist as well. Now, in Coinbase, you’re essentially buying one of three coins: Bitcoin (BTC), Ethereum (ETH) or Litecoin (LTC). The process is straight forward: select BUY, select the coin, enter how much you want, click the go button. You’ll need to confirm the transaction, then if the coins are up for sale across the network, your buy is processed immediately and you own some coins.
(You should note that in some cases, you’ll need to buy Bitcoins to get started, transfer them to an account you have at an exchange, then sell them there to buy another coin you desire. That was my experience, though it was largely driven by my desire to link a credit card and bank account to as few locations as possible.)
So that account you purchased through would be considered an online wallet. A hardware wallet would be something not directly connected to the internet all the time. Think of paper or a USB drive. Both exist to house your coin’s codes offline. By doing this, you add another layer of security and make it harder for hackers to reach your coins. But let me be clear – if you use paper, write your codes wrong, or lose it, you’re fucked. If you lose your USB stick, you’re fucked. So treat them as if they were ingots of gold. Put them in a safe. Not a “safe place”, an actual, lockable, fire-proofed safe. Rent a safety deposit box at your bank and keep it there. Because while you can’t create a stack of coins on your desk physically, those codes represent your stake and they have real value. The piece of paper or USB drive may hold the codes that have a market value of tens of thousands of dollars over time. Maybe more, maybe less. The popular saying these days is that had you invested $1,000 USD in Bitcoin a few years ago (5 or so), today you’d have over $30 million USD. The version varies with the telling, but the math backs it up. Sometimes you’ll see the use of these hardware wallets referred to as “cold storage”.
Offline wallet, then secure that shizzle.
You can have accounts across a variety of exchanges, and some exchanges trade in not just the main coins, but what are known as alt-coins. Alternate coins. These tend to be very highly specialized. Potcoin is one such alt-coin, with focus on being a dedicated payment method for the cannabis industry. Coins are almost as endless as ideas, which is why you NEED to research this stuff and because of the early days we’re in, so folks are trying pump-and-dump techniques. Market the heck out of a coin, drive the value up and cash out asap, locking in their own profits. After that, the coins sometimes fall into obscurity, leaving holders with no upside as no one drives the project forward.
New Coin = Startup
I’ve started thinking of coins as startups. A good idea becomes something when executed on. When invested in, it grows. As the investment of time, manpower, focus, planning and execution continue, the value continues to grow. So you want to dig into who is behind a coin, what the skills of the team are, what is the stated goal for the coin and it’s projected time line for each step of investment/growth. Like you wouldn’t put money into a startup just based on the idea spoken about over coffee, so too with coins there needs to be more behind the effort than a flashy idea.
This is why research is so important. Coins are long-term business plays. True, they can often have short-term upsides – sometimes HUGE upsides that move impossibly quick. But really, you’re essentially investing in a business so you need to think like you’re investing in a business.
A new concept that’s hit with a flash, is the ICO – Initial Coin Offering. It’s similar to an IPO for a company, but for a new coin. I have no stake in any coin from an ICO. I think eventually I’ll participate in one, but have no immediate plans to chase any. I’m repeating myself here, but it’s worth it – research things to death. I have no numbers to back this up, but it seems *SEEMS* like pump-and-dump schemes are attracted to the ICO concept. Technically any coin could have an ICO, I suppose, but to be honest, I haven’t dug in here enough to know what the rules for an ICO look like.
I’ll only speak for myself here. I’m sure others can tell you other stories. But from all my initial investments in coins, my portfolios total almost 3x that today (2.8x, if I’m being accurate). That growth occurred over a 2 month time frame. It could all be wiped out tomorrow. But as of this writing, that’s the reality I’m seeing. I’ve stuck to established coins, coins that are well known and openly documented. My one excursion to alt-coins (PotCoin) brought me a net loss of about $80.
With every transaction, there are fees as well. They are usually deducted inline with the transaction, so you get your value after fees have been deducted. And I haven’t seen any transaction fees that were excessive. Literally pennies on the dollar. I have never bought, held and profited on Bitcoin. I could have, but was/am focused on other coins. In my head I still like the idea of a whole something (a whole coin) versus a fraction of a coin, so I tend to buy lower-prices coins and hold them looking for growth. I do think Bitcoin will continue to grow, however, and several other coins will as well, is my bet.
There are many more, but those should get you started and get you access to a wide variety of coins.
- The Rise and Rise of Bitcoin – https://www.youtube.com/watch?v=PBv3GgiG_ro – this is older now, but gives you some understanding of the early days of crypto currencies. (gotta pay to watch it)
- Bitcoin Documentary – https://www.youtube.com/watch?v=eyFvvyyst88 – I haven’t watched this one yet, and it’s older, too.
- Discovery Channel doc on BTC – https://www.youtube.com/watch?v=0HfR7r_YKP8 – from late 2016
- Banking on Bitcoin – https://www.youtube.com/watch?v=ElxTv17Ilqc – from 2017, pay-to-play
Hard Wallets (Cold Storage):
- Ledger Nano S – https://www.ledgerwallet.com/products/12-ledger-nano-s – I have this
- Ledger Blue – https://www.ledgerwallet.com/products/ledger-blue – I do not have this (expensive and does more than I need)
- Trezor – https://trezor.io/ – I have this
- Keepkey – https://www.keepkey.com/ – have yet to see one in person
- Paper Wallet – https://blockgeeks.com/guides/paper-wallet-guide/ – don’t have any of these, but this page is one heck of a resource for understanding wallets much deeper than I’ve gone
A Great Facebook Group:
Medium Post on Top 10 Mistakes Newbies Make (It’s excellent.)
Article on how to invest in crypto-currencies
There is a TON to learn on this topic. If this were a thousand mile journey, I’d consider myself right at the point of leaving my own driveway. Given we’re talking about money here, this is also a highly personal journey. What you learn or don’t learn, could impact you, loved ones and others. In some ways, it carries similar risks to traditional investing. In many ways, it’s the Wild West as well, and if Back To The Future 3 taught us nothing, it’s that you always have to be prepared because the rules are different in the Wild West! I’m comfortable taking my own risks, but I’m not taking those risks for others, which is why I’m repeating the mantra: go learn for yourself.
I see so much crap out there on this topic, I decided to dig in. Now I’m left thinking that I missed the first big wave, and I’m hoping more waves come rolling in. But let’s not skip the reality here, either – there is a lot more to unfold on this topic. How do we claim profits from cryptocoin trading as income? Will banks recognize it? Will more big businesses start using it as a form of payment? Will the government support/recognize it? And those questions aren’t just US-facing questions. This is a global movement.
To end this on a resounding note of reality, as I wrap up writing this, my portfolios are down about $400 today. But this is a long game for me, so I’m not worried. Plenty of time to panic yet. 😉 Besides, I’m still up a hundy today!
Opening image credit: Bitconnect.co